States increasing watch for fraud on income tax returns

To fight a growing problem of tax fraud, Ohio tax authorities are flagging more tax returns as possibly fraudulent, part of a problem that tax authorities across the country are fighting.

The Ohio Department of Taxation said it expects to block $15 million in tax refunds this year, up from $12.5 million last year. About 30,000 returns have been identified as fraudulent this tax season.

"Clearly, it is increasing," said Joe Testa, the state's tax commissioner.

It is a similar story nationally. The Internal Revenue Service reported that it had identified $20 billion in fraudulent returns last year compared with $14 billion in 2011.

"We have been stepping up our efforts to stem the tide," said Jennifer Jenkins, an IRS spokeswoman in Ohio

Last week, the IRS announced the nationwide expansion of a program set up to help law enforcement obtain tax-return data to investigate and prosecute cases of theft. That comes after a nationwide identity-theft enforcement sweep led by the IRS in January.

Since October, the IRS said, more than 670 identity-theft investigations have been opened.

A federal report last year found 1.5 million undetected tax returns containing possible fraud with tax refunds totaling more than $5.2 billion. The report said the IRS could issue $21 billion in refunds resulting from identity theft in the next five years.

Testa said every Ohio tax return is being screened, but he declined to say exactly what the state is looking for in its efforts to detect fraud.

The state then follows up with the taxpayers whose returns have been flagged.

"It could be an honest error. It can be transposing data. It could be an innocent thing," Testa said.

Serious cases of fraud are referred to police for investigation.

Testa said fraud can come in several forms, including someone filing a return in the name of an unsuspecting person or someone who is dead, in jail or incapacitated. Criminals can create W-2s and other kinds of documents that would be needed to file a return, he said.

While a growing problem, fraudulent tax returns make up a tiny portion of the5.5 million individual tax returns that will be filed this year by Ohio taxpayers and a small part of the $880 million that has been refunded so far, Testa said.

"Most people are honest and filing them properly," he said.

Testa said taxpayers filing their returns electronically, with their refund going directly into their bank account, are getting their refunds in five to seven days. Paper returns are taking about two to three weeks to process.

That assumes that the state has not flagged the return for more information, he said.

About 80 percent of returns have been filed electronically, he said.

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Copyright 2013 - The Columbus Dispatch, Ohio

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