Billions in ID Theft Tax Fraud Go Undetected
By Christina Camara
The IRS may have issued more than $5 billion in tax refunds in 2011 to fraudsters who assumed the identity of a dead person, child, or someone else who normally wouldn't file a tax return, a new audit says.
Indicators That Tax Records Have Been Affected
Alert your clients of possible identity theft if they receive an IRS notice or letter that states that:
- More than one tax return was filed for them;
- They have a balance due, refund offset, or have had collection actions taken against them for a year they didn't file a tax return, or
- IRS records indicate they received wages from an unknown employer.
- Delayed access to third-party income and withholding information. Third parties are required to submit income and withholding documents to the IRS by March 31, but taxpayers can file returns as early as mid-January. The IRS therefore can issue refunds before it can confirm the accuracy of information on the returns.
- The IRS hasn't developed processes to obtain and use the third-party information that's available at the time tax returns are filed.
- The use of direct deposits, including debit cards, to claim fraudulent tax refunds adds to the risk that the IRS will not detect identity theft. The IRS continues to allow multiple direct deposits to the same bank account. In fact, the audit found that in one case, the IRS deposited 590 refunds amounting to more than $900,000 into one account.
The audit report made seven recommendations for improvement, including new legislation that would increase IRS access and to use the database of the National Directory of New Hires. The database was created to help states enforce child support orders, and the IRS has asked Congress for access to the information.
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