IRS May Issue Nearly $26 Billion to Identity Thieves

The Internal Revenue Service doesn’t know precisely how many identity thieves are filing fake tax returns. Nevertheless, the agency risks issuing roughly $26 billion dollars in fraudulent tax refunds.

The IRS received 2.2 million fake taxation assessments in 2011 and found that 940,000 of the returns, with $6.5 billion dollars in associated fraudulent deductions, were connected to identity fraud, according to J. Russell George, head of the Treasury Inspector General for Tax Administration (TIGTA). George told judiciary that the IRS cannot conclusively say how many identity thieves are filing fraudulent returns on a yearly basis.

An analysis by TIGTA revealed that the IRS is failing to detect other instances of fraud-related ID theft. The watchdog found about 1.5 million additional undetected tax returns that are potentially fake, with refunds surpassing $5.2 billion dollars. This means that the IRS could be doling out $26 billion dollars of taxpayer money to thieves.

George expressed his concerns today before subcommittees of the House Ways and Means Committee that maintains oversight of the IRS and Social Security.

The IRS announced plans this year to crack down on suspected identity theft as part of broader attempts to prevent tax fraud. The agency also claims to be stepping up internal reviews to identify fake tax statements before issuing refunds, according to George. New screening procedures flag possibly fraudulent returns for closer perusal, and once a taxpayer’s identity has been confirmed, the tax return is processed and a refund is given. If a taxpayer’s identity can’t be confirmed, the IRS is claiming to suspend issuing any repayments.

On account of its new program, the IRS asserted it had stopped $1.3 billion in potentially fake returns as of mid-April, George asserted.

The findings to be shared with Congress on today are part of a new TIGTA report on customer service at the IRS. In its report, the watchdog faults the IRS for failing to quickly help ID theft victims who regularly wait more than a year for their cases to be solved.

According to TIGTA, an individual who tries to electronically file a tax return in February might discover that an ID thief has filed a return in their name and already received their refund. Over the course of several months, TIGTA said it is common for the taxpayer to try and contact the IRS many times. Once an agency official acknowledges the crime and starts an inquiry, it may take up to a year for the taxpayers case to be settled.

“This is just plain wrong,” Representative Sam Johnson said at Tuesday’s hearing.

A lot of the delay is due to budget cuts, according to Representative Xavier Becerra, who said at Tuesday’s hearing the IRS budget this year is $305 million less than what it had in 2011. The cuts mean there are five thousand fewer workers processing returns and helping taxpayers.

“I think we want to figure out a way to do better in times to come but there is no easy answer now on the horizon,” Becerra said.