IRS Getting Better at Detecting Tax ID Theft, Still Losing Billions

WASHINGTON – Expanded identity theft detection efforts at the Internal Revenue Service (IRS) are helping to identify fraudulent tax returns, however, billions of dollars of potentially fraudulent refunds continue to be paid, according to a report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).

“Identity theft continues to be a serious problem with devastating consequences for taxpayers and an enormous impact on tax administration,” said J. Russell George, Treasury Inspector General for Tax Administration.  “Undetected tax refund fraud results in significant unintended Federal outlays and erodes taxpayer confidence in the Federal tax system,” he added.

TIGTA’s report is a follow-up to a July 2012 report that found billions of dollars were being lost to identity theft in 2010.  This report’s objective was to determine whether the IRS has improved its procedures to identify and prevent fraudulent tax refunds resulting from identity theft.

TIGTA’s analysis of Tax Year 2011 returns found that approximately 1.1 million undetected tax returns that were filed using a Social Security Number have the same characteristics of IRS- confirmed identity theft tax returns.  Potentially fraudulent tax refunds issued total approximately $3.6 billion in 2011, which is down by $1.6 billion compared to the $5.2 billion TIGTA reported for Tax Year 2010.

Problems identified by TIGTA in previous reports—notably, delayed access to third-party income and withholding information and multiple tax refunds deposited to the same bank account—continued to provide identity thieves with an opportunity to obtain fraudulent tax refunds in 2011.

TIGTA made two recommendations.  IRS management agreed with TIGTA’s recommendations and stated plans to take action.

Loading