(Bloomberg) The U.S. Justice Department and the Internal Revenue Service are working to head off identity theft aimed at stealing people’s tax refunds when the filing season begins in January, the government’s top tax prosecutor said.
The Justice Department will draw information from local prosecutions to identify patterns in the cases and help the IRS create computerized filters to block potentially fraudulent refunds. They peak each year in the first few weeks of the filing season as criminals try to get refunds under legitimate taxpayers’ names before those people file their own returns.
“The schemes can be extraordinarily simple, and they vary,” Kathryn Keneally, assistant attorney general for the Tax Division, told reporters Thursday in Washington.
In a typical case, criminals steal or illegally purchase taxpayers’ identifying information from hospitals, medical offices, prisons and other places that have the data. They then file false tax returns, claim a refund and have the money deposited on a prepaid debit card.
The crime, which Keneally described as “horrifying,” exploits the tension between the IRS’s twin goals of preventing fraud and issuing refunds as quickly as possible.
In some cases, Keneally said, criminals have used the Social Security numbers of Puerto Rico residents, many of whom don’t have a federal tax-filing requirement. In these cases, she said, it can be difficult for the IRS to distinguish between fraud and a Puerto Rico resident who has moved into a state and owes taxes.
IRS Blocked $15 Billion in Fraudulent Payments
In a Sept. 15 speech in Boston, IRS Commissioner Douglas Shulman said his agency this year stopped more than 3 million tax returns and determined that 90 percent of those were “bad.” He said the IRS blocked $15 billion in fraudulent payments from being sent, up from $11 billion the year before.
Shulman also questioned whether the agency should place a greater emphasis on fraud prevention and less on what he called a “sacred assumption” that refunds should be delivered as quickly as possible.
“We need to rethink the speed of refund paradigm,” he said, according to prepared remarks. “I’m the first to admit that this is a very delicate and difficult balancing act, but we should not and cannot shy away from the challenge.”
Shulman’s term ends in November, and he has said he doesn’t want to remain in the job.
Keneally also said Thursday that the assignment of Tax Division attorneys to federal prosecutors’ offices around the country is ending as scheduled Oct. 1. Bloomberg News reported March 27 that 25 of the 95 prosecutors in the division had been given six-month assignments around the country.
“We are looking forward to welcoming back” the lawyers, who mostly worked on tax cases while they were working in other offices, she said. She said some of them, fewer than 10, accepted offers to remain outside Washington.
7 Comments
Here's another possibility: There is no urgency whatsoever to rein this in as this is the way that "stimulus" money is delivered right where this administration wants it to go without any legislation necessary. And, from what I've seen, there has to be inside assistance at IRS.
Posted by: Dee in Tampa | November 7, 2012 10:43 AM
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Allow people to sign up for IRS IDENTITY THEFT PIN #S WHEN CREDIT CARDS ARE STOLEN. CURRENTLY IRS WON'T LET YOU DO IT UNTIL YOUR IRS REFUND IS STOLEN, AND THEREFORE THEY HAVE TO PAY IT OUT TWICE !! THAT SOUNDS STUPID TO ME.
Posted by: DLZALLESTAXES | October 3, 2012 12:24 AM
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Eliminate the income tax, and therefore the individual filing mandate. Collect a national sales tax - with a "pre-bate" as defined in the Fair Tax Bill. H.R. 25 (S.13) If people don't self assess tax on their income tax returns, there is less opportunity for fraud. Reduce the number of collection points to suppliers of "final" goods and services, and you have less people to audit. Isn't this a winning idea?
Posted by: Taxpreparer | October 2, 2012 4:50 PM
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To solve this problem at once is impossible. Theft refunds for overpayment of taxes is the ultimate goal of the criminals. Necessary to identify the whole scheme and install why this happened. It will help more and more efficiently utilize expert blocking system: 1) open line to the taxpayers so they can tell you where they provided their personal information. Systematization and classification of the information will already give a list of proposed locations where it could be leaking. Must take into account that at the current time, people are actively looking for a job on the websites are not always trustworthy. 2) Illegals use the illegal internet service without registration 3) Banks provide account data of their customers to the small loan service companies, owned by employees of the same banks: for example, Apple bank and Sovereign bank. 4) electronic method of filing a tax return be recognized as the most Effective and safe.
Posted by: nmindyuk | October 1, 2012 3:39 PM
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There are several ways the IRS could cut doen on the fraud, in my opinion.
The first is to allow only about 5 returns from each computer if that IOP address is not connected to a legitimate ERO.
The IRS could allow only one refund to go into one bank account and the name of that account must match the name on the tax return.
The IRS could eliminate refunds going to prepaid cards. Remember their big scheme to use the Green Dot cards? That was the card used in Florida by the identity theives to load the frauduletn refunds.
Wouldn't want to cut down on the Free File, though, would they? The IRS reaps what they sow.
Posted by: Beckyspen | October 1, 2012 1:07 PM
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What???
Posted by: timblackcpa | October 1, 2012 10:14 AM
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They need to focus in identity theft more, than went the refund is going to get to the tax payer because soon or later the tax payer will get his refunds but the refunds need to go to the right person.I have clients that are waiting for they refunds because somebody else got it first.
Posted by: amauris28 | October 1, 2012 8:24 AM
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