Tax Return Identity Theft
The criminals, some of them former drug dealers, outwit the Internal Revenue Service by filing a return before the legitimate taxpayer files. Then the criminals receive the refund, sometimes by check but more often though a convenient but hard-to-trace prepaid debit card.
The government-approved cards, intended to help people who have no bank accounts, are widely available in many places, including tax preparation companies. Some of them are mailed, and the swindlers often provide addresses for vacant houses, even buying mailboxes for them, and then collect the refunds there.
The fraud, which has spread around the country, is costing taxpayers hundreds of millions of dollars annually, federal and state officials say. The I.R.S. sometimes, in effect, pays two refunds instead of one: first to the criminal who gets a claim approved, and then a second to the legitimate taxpayer, who might have to wait as long as a year while the agency verifies the second claim.
J. Russell George, the Treasury inspector general for tax administration, testified before Congress this month that the I.R.S. detected 940,000 fake returns for 2010 in which identity thieves would have received $6.5 billion in refunds. But Mr. George said the agency missed an additional 1.5 million returns with possibly fraudulent refunds worth more than $5.2 billion.
The problem is that it doesn't take much identity information to file a tax return with the IRS, and the agency automatically corrects your mistakes if you make them -- and does the calculations for you if you don't want to do them yourself. So it's pretty easy to file a fake return for someone. And the IRS has no way to check if the taxpayer's address is real, so it sends refunds out to whatever address or account you give them.
Posted on May 31, 2012 at 1:19 PM • 42 Comments