Battle Against Tax Fraud

by Darrin Mish, Tampa Tax Attorney
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According to a shocking statistic revealed by the National Taxpayer Advocate, tax fraud has increased by a stunning 72% this year. The IRS revealed that there were approximately 2 million tax returns that were potentially fraudulent submitted last year. This comprises of more than a million tax returns that were detected through the processing system while another almost one million returns were automatically made void even before the processing stage as part of a scheme dubbed "Operation Mass Mail”.

The spike in fraudulent returns can be attributed to a few main factors, namely more electronic filing, higher dollar amounts of refundable credits and a growing number of people using debit cards to receive refunds. These electronic facilities make it more difficult to detect tax fraud. In many cases, integral to these tax fraud cases is identity theft where the fraudster uses the Social Security number of a victim (who may even be deceased) to claim a tax refund. Thus far this year, the IRS has reported more than 450,000 identity theft cases.

One major source of identity information is the Social Security’s publicly available Master Death File, a database of deceased individuals that includes personally identifying information like full names, Social Security numbers and addresses. The office of the National Taxpayer Advocate has recommended that the Social Security department restrict access to this information.

One consequence of the increased incidences of tax fraud is an ever-increasing backlog of tax cases. The IRS is unable to effectively cope with the workload of tax cases while battling tax fraud. The National Taxpayer Advocate report to Congress revealed that, “The IRS is experiencing unprecedented backlogs in return processing because of identity theft and other refund fraud, is instituting 'hard freezes' on questionable returns because it cannot timely address them and is unable to answer anywhere from an average of about 30 percent [of calls] overall in fiscal year 2012 to a low of 65 percent of calls [for one customer service department].”

What is worse is that along with the fraudulent cases being put on hold, the IRS also delayed legitimate tax refund cases. The ones who suffer are often the victims of identity theft as the IRS puts both the legitimate and suspected fraudulent case in abeyance while it investigates the issue. As a result, legitimate taxpayers seeking their refunds had to spend "many months" going back and forth with the IRS before getting their money.

The situation was so bad that during this year’s tax season, the IRS was only able to answer an average of one out of nine phone calls made to it offices. And when you do get through, the average wait to talk to an IRS representative was one hour.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Darrin Mish, Tampa Tax Attorney, The Law Offices of Darrin Mish, P.A. | Attorney Advertising

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