TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, August 2, 2012

TIGTA: IRS to Issue $21 Billion in Fraudulent Tax Refunds From Identity Theft Over Next Five Years

TIGTA The Treasury Inspector General for Tax Administration today released There Are Billions of Dollars in Undetected Tax Refund Fraud Resulting From Identity Theft (2012-42-080):

Undetected tax refund fraud results in significant unintended Federal outlays and erodes taxpayer confidence in our Nation’s tax system. Our analysis of tax returns using characteristics of identity theft confirmed by the IRS identified approximately 1.5 million undetected tax returns with potentially fraudulent tax refunds totaling in excess of $5.2 billion. TIGTA estimates the IRS could issue $21 billion in potentially fraudulent tax refunds resulting from identity theft over the next five years.

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From my experience with clients who have suffered this, the IRS could have avoided disbursing funds for a fradulent return if they had just did a cross check to the prior years return and put a hold on the return until it could be confirmed that the taxpayer had actually moved.

The most frustrating thing with identity fraud is that the correct taxpayer is treated as a criminal by the IRS and they have to prove who they are, eventho the IRS now has the tax documents filed that have the taxpayer's name and address as appears on their returns. The taxpayer is being punished and has to wait sometimes 18 to 24 months to received their rightful refund just because the IRS failed to catch a fradulent return. If the IRS has the documentation that matches the taxpayers return, but does not have any documentation to support the fradulent return, they should not penalize the taxpayer who filed a valid return by holding their refunds.

Posted by: Roy | Aug 6, 2012 5:45:23 AM