Identity theft related tax fraud remains a significant problem, despite the IRS preventing an alarming $20 billion of fraudulent refunds in 2012. This is a large increase in protection of refunds, $6 billion more than in 2011. The IRS highlighted this information and more in a fact sheet released in late January detailing its continuing efforts to prevent cases of identity theft related fraud in 2013. The IRS has described its comprehensive identity theft strategy as being comprised of a duel effort, focusing on fraud prevention and victim assistance.
Fraud Detection and Prevention
The IRS has been taking steps to increase the number and quality of identity theft screening filters that spot fraudulent tax returns before refunds are issued. The ability to recognize distinct patterns prevalent among fraudulent tax returns and creating automatic screening filters to analyze incoming returns is often the only way the IRS will be able to identity a return as fraudulent. The larger the number of character traits detected among fraudulent returns makes the IRS screening process more efficient.
The IRS now has dozens of identity theft specific filters in place. In addition, the IRS has been working with more than 130 financial institutions to help identify identity theft fraud schemes so they can be targeted and investigated.
The Criminal Investigation Division (CID) at the IRS focused its attention on identity theft related fraud, tripling the number of identity theft investigations in fiscal year 2012. The CID initiated 900 investigations and nearly 500 people have been indicted for identity theft related fraud across the country. Several hundred more investigations are already underway.
In April of 2012, the IRS launched a pilot program that allows local law enforcement agencies in Florida to obtain tax return data that helps the IRS and local agencies investigate, pursue and prosecute identity thieves. In 2013, this pilot program will be expanded to include Alabama, California, Georgia, New Jersey, New York, Oklahoma, Pennsylvania and Texas.
The IRS is taking steps to help victims of identity theft fully understand the crime and expedite the resolution process. The IRS has created a dedicated space for identity theft on their website providing information regarding identity theft and what the victim should do if they believe they have fallen victim to this crime.
Victims of identity theft tax fraud now have the option of calling the IRS Identity Protection Specialized Unit, 800-908-4490, to receive individualized help in resolving their tax fraud issues. The IRS is allocating more employees to resolution of victim cases to help reduce the average length of time it takes to resolve each one, currently at approximately 180 days.
As previously discussed on this website, victims also receive extra protection in the form of Identity Protection Personal Identification numbers. The PIN is an additional identification number provided to victims of identity theft
who report to the IRS that they have become victims of identity theft.
The IRS is taking considerable effort to protect taxpayers’ identities and prevent the issuance of fraudulent refunds; however, the taxpayer can help as well.
First, taxpayers should always protect any sensitive documentation to avoid the theft of their personal information. Taxpayers can take our quiz to determine how effectively they are protecting their identity.
Second, the simplest and possibly the most powerful way a taxpayer can avoid identity theft tax fraud is to simply file their tax return as early as possible. The IRS typically accepts the first return filed under a taxpayer’s name and assumes any subsequent returns submitted under the same name to be fraudulent. Therefore, filing your return before an identity thief has a chance to file a return for you effectively blocks out any criminals looking to defraud you.