An Internet connection and a bunch of stolen identities are all it takes for crooks to collect billions of dollars in bogus federal tax refunds. And the scam is proving too pervasive to stop.
A government report in November said the IRS issued $4 billion in fraudulent tax refunds over the previous year to criminals who were using other people’s personal information. Attorney General Eric Holder said this week that the “scale, scope and execution of these fraud schemes” has grown substantially, and the Justice Department in the past year has charged 880 people.
Who’s involved? In a video message released ahead of the April 15 tax filing deadline, Holder said the scams “are carried out by a variety of actors, from greedy tax return preparers to identity brokers who profit from the sale of personal information to gangs and drug rings looking for easy access to cash.”
Even Holder isn’t immune. Two men pleaded guilty in Georgia last year to trying to get a tax refund by using his name, Social Security number and date of birth on tax forms.
The IRS says it opened nearly 1,500 criminal investigations related to identity theft in fiscal year 2013, a 66 percent increase over the previous year, and it has strengthened filters that help detect where the scams are coming from. The IRS says its investigators catch far more fraudulent refunds than it pays out.
Still, the schemes have grown more sophisticated, attracting criminals with violent backgrounds who see an easy and safe vehicle for theft, according to law enforcement officials who fear that not enough controls are in place.
What can taxpayers do? The most important step: Protect their Social Security numbers.
Thieves steal Social Security numbers in any number of ways, including from publicly available sources or workplaces. Victims include schoolchildren, prisoners, Medicaid beneficiaries and the deceased. Criminals use the information to file false returns and then pocket the refund checks, often before the legitimate taxpayers have had a chance to submit their returns. It’s a crime made easier by electronic tax filing, which lets crooks mass-produce fraudulent returns.
In a statement Thursday, the IRS said that it has started more than 200 investigations this filing season into identity theft and refund fraud schemes and that enforcement efforts are taking place nationwide. The agency said investigators are especially focused on the misuse of specialized identification numbers assigned to firms that electronically file tax returns.