IRS Ramps Up ID Theft and Refund Fraud Enforcement Efforts

The IRS has launched 295 new identity theft and refund fraud investigations during this tax-filing season, bringing the number of active cases to nearly 1,900, the agency announced last week.

The coast-to-coast enforcement effort, which is being spearheaded by the IRS’s Criminal Investigation division, follows on the heels of a significant increase of identity theft-related criminal investigations last year. In fiscal year 2013, the IRS initiated 1,492 investigations, a 66 percent increase over the 898 investigations reported in fiscal year 2012.

“Identity theft is one of the fastest-growing crimes nationwide, and refund fraud caused by identity theft is one of the biggest challenges facing the IRS,” Commissioner John Koskinen said in a written statement on April 10. “The investigative work done by Criminal Investigation is a part of an aggressive effort by the IRS to combat this issue on all fronts. We are making substantial progress in refund fraud protection, and the work by Criminal Investigation highlights the important steps we are taking.”

Tax fraud through the use of identity theft topped the IRS’s “Dirty Dozen” list of scams for 2014, as it did in 2013 and 2012. In many cases, a scammer uses a taxpayer’s personal information, such as his or her name, Social Security number, or other identifying information, to fraudulently file a tax return and claim a refund, the IRS noted.

The IRS reported that identity theft affected 1.2 million taxpayers in calendar year 2012, and, as of last June, an additional 1.6 million people were affected in calendar year 2013, according to a report from the Treasury Inspector General for Tax Administration (TIGTA).

After analyzing tax year 2011 returns, TIGTA identified approximately 1.1 million undetected tax returns filed using Social Security numbers that had the same characteristics of IRS-confirmed identity theft tax returns. Potentially fraudulent tax refunds issued amounted to approximately $3.6 billion, which was less than the $5.2 billion TIGTA reported for tax year 2010.

In the past two years, the time the IRS has spent on identity theft investigations has increased by 216 percent, the agency noted. The number of prosecution recommendations, indictments, and those convicted and sentenced for identity theft violations have also risen sharply since fiscal year 2011. For example:

  • There were 1,257 recommendations for prosecution in FY 2013, up from 544 in FY 2012 and 218 in FY 2011.
  • There were 1,050 indictments in FY 2013, up from 494 in FY 2012 and 165 in FY 2011.
  • There were 438 people sentenced for identity theft-related crimes in FY 2013, up from 223 in FY 2012 and 80 in FY 2011.

Sentences handed down for identity theft convictions have ranged from two months to 317 months, according to the IRS.

Since the start of 2014, the IRS has made 272 recommended prosecutions. There have been 221 indictments, 189 sentencing hearings, and the average time served for conviction was 48 months.

“Virtually every Criminal Investigation field office is working identity theft and refund fraud cases,” said Richard Weber, chief of the IRS Criminal Investigation division.

A new and key component for Criminal Investigation’s efforts this year is the misuse of Electronic Filing Identification Numbers (EFINs). An EFIN is assigned to tax preparers that have completed the IRS e-file application to become an authorized IRS e-file provider. After the provider completes the application and passes a suitability check, the IRS sends an acceptance letter, including the EFIN, to the provider.

Criminal Investigation recognized an increase in the filing of tax returns using stolen or fraudulently acquired EFINs. Since the start of FY 2014 through March 31, the IRS has revoked or suspended 395 EFINs based on recommendations from Criminal Investigation. Investigators have also initiated 60 EFIN source investigations involving EFINs used by individuals involved in refund fraud and identity theft schemes.

In a case last month, a Miami man was convicted by a jury on one count of access device fraud and five counts of aggravated identity theft after he obtained an EFIN and used it to file 52 fraudulent tax returns, many of which were filed with stolen identities.

“We remain committed to allocating investigative time and resources to bringing to justice those who steal honest taxpayers’ identities for their own gain,” Weber said.

Related articles:

Identity Theft Tops IRS ‘Dirty Dozen’ List of Scams for 2014
TIGTA Reports Examine IRS Identity Theft Processes, Services

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