Treasury Inspector General for Tax Administration (TIGTA) released its Semiannual Report to Congress for the reporting period from April 1, 2012 through September 30, 2012. TIGTA noted that among the important challenges currently confronting the IRS in its efforts to administer the Nation’s tax system are those of increasing voluntary tax compliance and addressing the growing threat of identity theft and tax fraud.
Over the past several years, the IRS has taken numerous steps to combat identity theft and protect taxpayers. IRS Criminal Investigation (CI) detects and investigates tax fraud and other financial fraud, including fraud related to identity theft, which mostly occur, in Questionable Refund Program (QRP) area where individual identities are stolen with the intent to file false returns claiming tax refunds. More information about Statistical Data, Examples of identity theft schemes and Enforcement Action can be found on the IRS website.
TIGTA evaluated the IRS’s efforts to identify and prevent fraudulent tax returns resulting from identity theft, and found that, although the IRS detects and prevents a large number of fraudulent refunds based on false income documents, there is much fraud that it does not detect.
For Tax Year 2010, TIGTA identified approximately 1.5 million tax returns with potentially fraudulent tax refunds totaling in excess of $5.2 billion that had gone undetected by the IRS. Direct deposit, which now includes debit cards, is often used by identity thieves to obtain fraudulent tax refunds. Approximately $4.5 billion of the $5.2 billion in potentially fraudulent tax refunds that TIGTA identified were issued by direct deposit.
Unless the issue is addressed, TIGTA estimates that the IRS could potentially issue $21 billion in fraudulent tax refunds over the next five years as a result of identity theft. TIGTA noted that the impact of identity theft on tax administration is significantly greater than the amount the IRS detects and prevents.
In May 2012, TIGTA completed an audit that evaluated the assistance that the IRS provides to victims of identity theft, and found that the IRS is not effectively providing assistance to these victims. Of continuing concern is the length of time taxpayers must work with the IRS to resolve identity theft cases.
As a result of an assessment of its Identity Theft Program completed in October 2011, the IRS is currently planning improvements to the program. TIGTA noted that these improvements may not be sufficient to significantly reduce the burden that identity theft has placed on tax administration and on taxpayers whose identities have been stolen.
During this six-month period, TIGTA issued a report containing several recommendations for the IRS to develop or improve processes that will increase its ability to detect and prevent the issuance of fraudulent tax refunds resulting from identity theft.TIGTA also issued recommendations regarding how the IRS could more effectively provide assistance to victims of identity theft and better communicate identity theft procedures to taxpayers.
TIGTA report observed that the IRS has faced budget cuts, a hiring freeze, staffing reductions and during the same time it has encountered a significant surge in identity-theft refund fraud. TIGTA expressed concern that without the necessary resources, even with improved identification of potentially fraudulent returns, it is unlikely that the IRS will be able to work the entire inventory of potentially fraudulent tax refunds it identifies.
How can you minimize the chance of becoming a victim?
- Don’t carry your Social Security card or any document(s) with your SSN on it.
- Don’t give a business your SSN just because they ask. Give it only when required.
- Protect your financial information.
- Check your credit report every 12 months.
- Secure personal information in your home.
- Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, and change passwords for Internet accounts.
- Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.
For more details refer to Taxpayer Guide to identity theft on IRS website.