Tax Return Fraud

Tax return fraud is becoming a very costly problem with more than $5 billion in fraudulent returns thought to be filed and paid for the 2011 tax year. Tax return scams are very easy to understand, but apparently not easy to resolve. The scam occurs when someone commits identity theft, and then uses the information to file a tax return. It seems that there could be many precautions taken by the IRS to lower the number of people affected by this each year, but with lack of resources and budget in relation to the number of returns that they deal with, not much is being done. Criminals may see tax return fraud as a very easy crime to get away with, and if the systems that are in place at the moment remain the same, this type of fraud will only get worse in the future.

Many of the scammers choose to file electronically because no W-2 forms are needed right away, just the information. Since the employment information is made up, there are no forms to send, and electronically filing makes the physical papers a non-issue. Generally, the IRS does not even see the W-2 forms until weeks after the money has been sent, and by then it becomes almost impossible to track down any money that was fraudulently received. There is a database that could verify all of the employment information, but the IRS is not permitted to use it. If they could, they could match all social security numbers with employment records to ensure that the information is not false. Electronically filing also allows for more false deductions to be made by the criminals, which lets them steal even more money.

Although technology is great in some aspects, in cases of tax return fraud it works against us. The speed that the IRS refunds taxpayers also plays a major role in making return fraud possible. Both the government and taxpayers want their money as soon as they can get it, so the IRS tries to refund as many returns as they can each day. However, by doing this, it lessens the time spent on making sure that each tax return is legitimate. Speed also causes a problem for the individuals who have had their identity stolen, since the criminals use real social security numbers and personal information, there are times when the actual person files their return after the criminal has used their identity to file one already. The IRS does check to make sure that multiple returns are not filed under the same social security number. When the real person gets around to filing, the IRS believes that they have already issued their refund, and rejects the tax return. This is resolved in the long run, but delays the money being sent, and the original refund is, usually lost. Taxpayers can lessen the chances of this happening to them by filing as soon as possible, and the IRS can help by spending more time verifying information before the money is sent.

The criminals committing a tax return scam are not going out of their way to not get caught. Many of them use the same mailing address and/or bank account on all the fraudulent returns they file. It seems as though if the IRS had some type of software that could track the number of refunds filed for each household and each bank account, they could catch would-be fraudsters in the act. Dozens and sometimes hundreds of returns are filed using the same address. Having a way to monitor these red flags would help to eliminate the number of return scams that happen each year. Using only one or two bank accounts for multiple refunds means that the name that the bank account was opened under does not match the names on the returns. Monitoring the owners, and only allowing refunds to be sent to name matching accounts would greatly eliminate return scams. Whether this is done by the banks themselves, or the IRS, it could stop some of the criminals from trying the return scam.

Identity theft impacts many Americans each year, and the tax return scam numbers are only expected to rise. The IRS needs to do more to validate information. They have taken steps to eliminate the number of dead people who file each year, but almost nothing for the number of living people. It is almost impossible to file under the name of person that is deceased, but easy to file under someone else’s name. Why should criminals take the risk of robbing a bank, when they can scam the government out of money with just a pen or computer. Hopefully, great strides will be made in the fight against identity theft and tax return fraud, but until then, the dollar amount lost to tax return fraud will probably keep going up in the near future.

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