A Growing Problem in Tax Fraud: Identity Theft

There is a new target for identity thieves: the Federal Government. The thieves are using personal information to file a fraudulent tax return with the IRS on behalf of the identity theft victim. If the IRS doesn’t recognize the fraudulent return, it may refund money to the identity thieves and label the taxpayer’s return a duplicate that it shouldn’t accept. In order for the IRS to resolve the error, establish the victim’s identity and deliver them any refund owed, it might take up to 180 days.

It is a growing problem. Only 15 percent of complaints to the FTC concerning identity theft involved tax returns in 2010. Last year, the percentage of tax identity theft cases had reached 43 percent. Over the next five years, the Internal Revenue Service’s inspector general estimates that more than $20 billion in fraudulent refund claims will be made by identity thieves.

The problem is especially prevalent in Florida, the state with the largest identity theft problem. The U.S. Attorney covering South Florida, Wifredo Ferrer, told the Associated Press, “This is the fastest growing and most pervasive problem we are seeing.” His office formed a strike force to target the perpetrators in 2012 and have since prosecuted 270 defendants filing fraudulent tax returns claiming more than $450 million in refunds.

A Government Accountability Office report released near the end of 2013 found that the IRS prevented more than one million stolen identity tax refund claims a year in calendar years 2012 and 2013. The fraudulent claims asked for $12 billion during calendar year 2012 and $8 billion in the first nine months of the 2013 calendar year. The report acknowledges that the precise amount of fraudulent claims paid isn’t known.

The FTC hosted a series of events around the country in January to raise awareness about the problem as part of Tax Identity Theft Awareness Week. The IRS is also taking the problem seriously. They now have more than 3,000 employees dealing with issues involving identity theft and have trained 35,000 more to recognize the fraud and help those affected.

McEldrew Young represents IRS whistleblowers reporting tax fraud under the whistleblower program. For a free confidential consultation, please call Eric L. Young, Esquire at 1-800-590-4116 or complete our online contact form.

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