Federal authorities are increasing their efforts to battle what they say is a growing problem of fraudulent filings seeking tax refunds based on stolen identities. Even those not normally associated with white-collar crime are being attracted to the simplicity of the scam which involves repeatedly filing false tax returns electronically and receiving refunds within days.
Scammers steal lists of names and Social Security numbers and then use those lists to file large quantities of electronic returns claiming refunds. In most cases, the crooks have been paid long before investigators are able to spot the fraud.
The recent surge in the number of bogus returns in the last five years has led law enforcement agencies like the Justice Department and the IRS to dramatically increase their efforts in regards to tax thieves. On Monday, the DOJ is expected to release data showing it filed charges against more than 880 people suspected of stolen identity tax refund crimes in the last fiscal year.
Even simplier versions of the scam are difficult to stop. The IRS is having trouble matching up recent earnings records with individual returns until well after the false returns are filed.
"There's been a perception out there by criminals used to earning their money through crimes of violence that if they shift to this, it is cleaner and simplier," said Kathryn Keneally, head of the Justice Department's Tax Division. "But if you look at our prosecutions and the lengths of the sentences we're getting, we are moving toward our goal of making this a very unprofitable crime."
There are two victims in these cases - the U.S. Treasury and individual taxpayers, many of whom become aware of the crime after attempting to file their own legitimate tax returns. They are then forced to prove to the IRS that the previous document was false.
The IRS has implemented complex electronic filters in order to prevent fraudulent refunds and claims and has had great success, preventing refunds in nearly 96% of cases. However, some doubt remains as to how many false claims are still being paid.
"The question is, do the systems that are in place at the DOJ and the IRS actually work? Certainly not yet, given recent data we've seen," said Sen. Orrin Hatch (R., Utah), the top Republican on the Senate Finance Committee.
Source: Barrett, Devlin, "Identity Theft Triggers a Surge in Tax Fraud," The Wall Street Journal, Feb. 23rd, 2014