Government at work

Oh, great!

WASHINGTON — The Internal Revenue Service may have delivered more than $5 billion in refund checks to identity thieves who filed fraudulent tax returns for 2011, Treasury Department investigators said Thursday.

They estimate another $21 billion could make its way to ID thieves’ pockets over the next five years. The IRS is detecting far fewer fraudulent tax re­fund claims than actually occur, according to a gov­ernment audit that warned the widespread problem could undermine public trust in the U.S. tax system. Although the IRS detected about 940,000 fraudu­lent returns for last year claiming $6.5 billion in re­funds, there were potentially another 1.5 million un­detected cases of thieves seeking refunds after as­suming the identity of a dead person, child or some­one else who normally wouldn’t file a tax return.

In one example, investigators found a single ad­dress in Lansing, Mich., that was used to file 2,137 separate tax returns. The IRS issued more than $3.3 million in refunds to that address. Three ad­dresses in Florida, the epicenter of the identity theft crisis, filed more than 500 returns totaling more than $1 million in refunds for each address.

In another troubling scenario, hundreds of re­funds were deposited into the same bank account — a red flag for investigators searching for ID thieves who may be filing for refunds for multiple people. In one instance, the IRS deposited 590 refunds totaling more than $900,000 into one account.

“We found multiple reasons for the IRS’s inability to detect billions of dollars in fraud,” said J. Russell George,the Treasury Department’sinspector gener­al for tax administration. “At a time when every dol­lar counts, these results are extremely troubling.”

Topping the list of concerns is the IRS’s lack of timely access to third-party information it needs to verify returns and root out fraud.

Many Americans are struggling to pay their bills and the IRS takes pride in processing returns and is­suing refunds promptly. But taxpayers can start fil­ing their returns in mid-January, while employers and financial institutions don’t have to submit with­holding and income documents for taxpayers to the IRS until the end of March. That means the IRS often issues refunds long before it can confirm the verac­ity of what’s listed on taxpayer returns.

Thieves are also exploiting vulnerabilities in the way the IRS delivers refunds, investigators found. Of the 1.5 million undetected cases of potential fraud, 1.2 million used direct deposits, including pre­loaded debit cards. Thieves often prefer those meth­ods to a paper check, which require a physical ad­dress to receive the check and photo ID matching the taxpayer’s name to cash it.

Posted via email from Don Peer