IRS Tax Refund Fraud Expected to Hit Hard Again in 2016

By Robert Lemos  |  Posted 2016-03-17 Print this article Print
Tax Return Frauc

Yet, tax-refund fraud is, in many ways, the perfect scam. The perpetrator gets paid immediately, the crime is often not detected for weeks or months and the perpetrator is usually never caught, Melanie Lauridsen, senior technical manager for tax policy and advocacy at the American Institute of Certified Public Accountants (AICPAs), said in a press conference on the topic.

"There is no silver bullet for identity theft," she said. "They are ghost thieves, so it is very hard to catch and punish them."

While the IRS does not hold the consumer liable for the refund, it takes months to resolve the matter, and all the while, the consumer has to wait for their refund. In a review of 100 random cases between October 2012 and September 2013, the IRS found that the average time it took to resolve the issue was 278 days. In addition, there was a 17 percent error rate.

The IRS has taken a variety of measures to head off tax refund fraud. The agency uses a number of filters that look for, for example, tax returns that claim a dependent from someone else's return or returns that claim refunds for deceased Americans.

The IRS has steadily added filters. In 2014, for example, the agency used 114 different filter sets, compared to 80 in the year before. In addition, the IRS looks for clusters of returns that attempt to deposit money into a single account, limiting the number of transactions to three in any calendar year.

The measures detected more than $15 billion in refund fraud from more than 2 million fraudulent tax returns filed with the agency in 2014, according to the IRS. In 2013, the agency detected more than $24 billion in fraudulent requests for tax refunds.

"Unfortunately, right now, the IRS is not working with any of the third-party providers such as ourselves to be able to notify individuals that a return was filed in their name," Experian's Bruemmer said.

In May 2015, the IRS announced it would consolidate its identity theft activities into a single group, the Identity Theft Victim Assistance (ITVA) directorate.

At present, there is little that a consumer can do to prevent tax-refund fraud. Consumers filed more than 3 million complaints to the FTC in 2015, of which 16 percent were about identity theft and 40 percent consisted of other types of fraud. More than 220,000 of the complaints were related to tax or wage fraud.

"This is a difficult form of identity fraud to guard against," said NCL's Breyault.

The best way to foil the fraudsters is for consumers to file their taxes as early as possible, he said. In addition, people should be careful what information they put online. Facebook posts, for example, can easily be mined for information on a person's name, place of birth and birth date.


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