Perhaps you’re already planning on what to do with the income tax refund you expect to get back this year. But increasing numbers of tax filers, to their dismay, are having their refund requests rejected, and being told it’s already been paid out. And it has been — just not to them. Stealing income tax refunds is the latest, and a fast-growing, wrinkle on the mounting problem of identity theft. By moving faster than the actual taxpayers, identity thieves are making off with billions.
Credit cards and bank accounts were earlier targets for identity thieves, (the Federal Trade Commission says that last year, for the 15th time, identity theft in its various forms was the nation’s top consumer complaint.) But since 2010, professional identity thieves have added IRS and taxpayers’ refunds to their targets.
All an identity thief needs to file for someone else’s tax refund is their name, birthdate and Social Security number, which can be found — or bought or stolen — from many sources. The rest they can, and do, forge or invent. The IRS doesn’t start verifying employer-filed W-2 statements until April 15, while federal law requires the agency to act within 45 days after receiving a refund request.
At the federal level, the IRS says during the 2013 filing season it received about five million returns from filers using false identities, which sought about $30 million in bogus refunds. The agency estimates it paid out a total of about $5.8 billion in about a million misdirected refunds. But Congressional watchdog, the Government Accountability Office, cautions the true size of fraudulent refunds due to ID theft is still unknown.
To make things easier for taxpayers, the IRS and some states not only send out paper checks, but also allow refunds to be deposited directly or loaded onto prepaid debit cards. But that also makes it easier for identity thieves to collect other real or invented people’s refunds without leaving a physical delivery address.
That’s what happened a few years ago to soon-to-depart U.S. Attorney General Eric Holder; in 2013, identify thieves filed a bogus tax return for him (recasting him as a Wal-Mart worker), got a refund downloaded onto a debit card, then turned it into cash at an ATM. One of Holder’s predecessors, the Clinton administration’s Janet Reno, similarly saw her tax refund hijacked by an identity thief.
Criminal Investigation (CI), which was created in 2012 as a part of the IRS’ identity theft task force, issued a list of 10 leading identity theft prosecutions during fiscal year 2014. The agency was forced in 2014 to transfer 3,000 employees to working on identify fraud cases. During fiscal year 2014, the IRS launched over 1,000 identity theft-related investigations, which produced about 750 jail sentences, ranging as high as 27 years and averaging 43 months.
The top-10 list of cases sketched various schemes by which identity thieves acquire names and Social Security numbers – such as advertising “free government money” or creating phony charities. Defendants in the cases included a New York tax preparer who filed a thousand bogus tax returns, a Dallas ID theft ring ordered to repay more than $50 million, and a North Carolina couple ordered to repay nearly $4 million.
Earlier this year, fraudulent tax returns using stolen identities became such a problem that leading tax software program TurboTax had to block use of its program for filing state tax returns electronically due to a reported wave of suspicious filings. Additionally, Ball State University just found out that at least 80 of its employees had their identities stolen for the purpose of tax identity fraud, highlighting what a huge issue this has become.