However, the IRS refutes George’s assessment and claims it is “far too high”. The IRS counter commented on the issue with this statement – “The estimate was based on 2010 figures, which took place before the IRS instituted major changes with the way it handles identity theft cases. Our expanded screening on issues such as W-2 matching, Schedule C information, interest income and Social Security income have had a major impact on our ability to reduce identity theft fraud.”
The IRS said that their recent efforts in combating tax scams have stopped more refund fraud than ever before.
George revealed the modus operandi of the tax refund scammers. “The primary characteristic of these cases is that the identity thief reports false income and withholding to generate a fraudulent tax return," George said. “Without the falsely reported income, many of the deductions and/or credits used to inflate the fraudulent tax refund could not be claimed on the tax return.”
George stated the IRS budget cuts, a moratorium on new hiring and staff reductions as contributing factors that bring about a significant increase in tax refund fraud. “Without the necessary resources, it is unlikely that the IRS will be able to work the entire inventory of potentially fraudulent returns it identifies. The IRS will only select those tax returns that it can verify based on its resources," George said.
In the tax year of 2010, the Tax Inspector General’s auditors found that 48,357 Social Security numbers were used multiple times as a primary taxpayer identification numbers. Last year, the TIGTA’s office reported that of the 2.2 million tax returns the IRS found to be fraudulent, about 940,000 returns totaling $6.5 billion were related to identity theft. But this may be only the tip of the iceberg. The TIGTA’S auditors found another 1.5 million undetected tax returns with more than $5.2 billion in fraud.
The IRS reported that as of last month, it had stopped about $1.3 billion in potentially fraudulent tax returns. While this is lauded, the TIGTA believes that more should be done. For example, tax refunds should not be deposited into bank or debit card accounts.
The other problem highlighted by the TIGTA is that the IRS does not do enough to help victims of identity theft.