Identity Theft Could Cost IRS $21 Billion Over Next Five Years

Criminals and cyberthieves continue to profit from vulnerabilities in the U. S. tax system. A new audit of the Internal Revenue Service has found the agency paid refunds to criminals who filed false tax returns, some in the names of deceased taxpayers. The IRS could lose as much as $21 billion in revenue over the next five years as a result of this identity theft, a figure that takes into account projected savings of $5 billion from new fraud control filters.

Contributing to the problem, the IRS is not gathering enough data about fraud trends according to the audit, such as how a return was filed, income information from W-2 forms, the amount of refunds, and where those refunds were sent. For example, $8.1 million in potentially fraudulent tax refunds involved returns filed from one of five addresses. 

As part of the audit, identity-theft characteristics were studied, and 1.5 million fraudulent tax returns were found that had not been detected by the IRS, costing the U.S. government more than $5.2 billion.

The IRS is contacting some taxpayers to verify their identity — a simple measure that stopped $1.3 billion in potentially fraudulent tax refunds as of April 19, 2012 — and is also placing a “unique identity theft indicator” on accounts of those who are deceased. This measure resulted in more than 164,000 tax accounts being locked as of March, thereby preventing another $1.8 million in fraud.

The audit was conducted by the Treasury Inspector General for Tax Administration (TIGTA), part of the U.S. Treasury. 

Complete original article at Network World.

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