IRS Claims Progress in Stopping Tax Refund Identity Theft

The crime of stealing tax refunds through identity theft is “no longer exploding,” U.S. Internal Revenue Service Commissioner John Koskinen said today.

Koskinen credited aggressive prosecutions, actions by Congress to remove some information from the public domain and coordination with prison officials to stop inmates’ schemes. The government’s work, he said, has stopped most “amateurs.”

“We’re left with, in effect, organized crime here and organized crime around the world,” Koskinen said in response to questions at a conference in Washington of the American Institute of Certified Public Accountants.

Identity theft using tax returns attracted little attention until 2010 and 2011, when it started costing the government billions of dollars.

The IRS issued $3.6 billion in potentially fraudulent tax returns for tax year 2011, down from $5.2 billion in 2010, according to the Treasury Inspector General for Tax Administration. The inspector general said last year that the IRS has “improved” its detection of fraud.

In a typical case, thieves use information stolen from doctor’s offices or employers and then file tax returns to get refunds. Then, when the real taxpayer files, the IRS rejects it as a duplicate return.

The IRS has changed its computerized filters in recent years to block some of the most common schemes. Koskinen said today that thieves file large batches of returns with slightly different characteristics, see which ones get through and then adjust.

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