Tax refund fraud to register growth, may hit USD 21 bln

One of the main reasons for the rapid growth is that it takes little time to file a false return (just your name, date of birth and Social Security number. The IRS is aware of the magnitude of the problem. But budgetary constraints and legal mandates have created a system where it is often unable to follow up on the red flags that its system throws up until after a refund check has been cut and sent. The agency does, of course, look for certain signals in filed returns, and will not discuss specifically what they are.

There is a flaw in the system as currently set up: to file a tax return electronically, all someone needs is a name, date of birth and an SSN. The IRS accepts tax filings as soon as the 1st of January 2015, but employers are not required to submit correct employment information to the agency until March, by which time roughly half of all refunds have been paid out.

In other words, a thief in possession of the three basic items of a persons identity could make up fake W-2 information and submit it, and get the money within 30 days (the amount of time the law says that the agency must refund tax filers). Some red flags, like multiple checks being sent to one address, or multiple deposits being sent to one account or one debit card, are detected, but often refund checks are mailed to those accounts before they are followed up on within the agency.

One step the agency has taken to protect taxpayers has been a rollout of an identity protection (IP) PIN. If you have been a victim of tax fraud, the IRS will issue a PIN number to use when filing electronically.

The PINs are currently only available to filers with past resolved fraud cases as well as to taxpayers in Georgia, Florida and the District of Columbia (areas with high incidences of fraud). They are also available to an additional 1.7 million taxpayers with suspicious activity on their accounts.