“Based on the parameters that are in place now,” he added, “it’s very difficult to stop.”
What can taxpayers do? The most important step: Protect their Social Security numbers.
Thieves steal Social Security numbers in any number of ways, including from publicly available sources or workplaces. Victims include school children, prisoners, Medicaid beneficiaries and the deceased. Criminals use the information to file false returns and then pocket the refund checks, often before the legitimate taxpayers have had a chance to submit their own returns. It’s a crime made easier by electronic tax filing, which lets crooks mass-produce fraudulent returns.
“Part of what’s happening is people are reverse engineering,” IRS Commissioner John Koskinen told a House subcommittee this week. “You know, you file a thousand fraudulent returns and then you see which ones go through. ... They can adjust faster than we can adjust.”
In a statement Thursday, the IRS said that it has started more than 200 investigations this filing season into identity theft and refund fraud schemes and that enforcement efforts are taking place nationwide. The agency said investigators are especially focused on the misuse of specialized identification numbers assigned to firms that electronically file tax returns.
In the latest sweep in south Florida, a hub for refund fraud, federal prosecutors last week announced charges against 25 people for using thousands of stolen identities to claim $36 million in fraudulent tax refunds. In one case, a middle school food services worker is accused of stealing students’ personal information from an electronic database. In another, a jail guard is alleged to have stolen the identities of inmates and used the data to file false refunds. A mail carrier is accused of stealing tax documents out of people’s mailboxes.
In Washington, a barber shop owner pleaded guilty last year to running a $20 million fraud scheme that sought tax returns on behalf of nursing home residents, prisoners and the dead. Some people sold their own personal information, while others turned it over after being led to believe they were entitled to “Obama Stimulus Money” or an income tax refund. A Cincinnati woman pleaded guilty in January to submitting false tax returns on behalf of legitimate, unwitting businesses, using her laptop computer in a public library.