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IRS Doesn’t Know Real Size of Tax Identity Theft

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In just the past few years, more experts both within government agencies and outside them have noticed how troublesome instances of identity theft tax return fraud have become, but a new report suggest the Internal Revenue Service doesn’t know how widespread the issue is.

The IRS recently said that it has no way of knowing the total number of fraudulent tax returns filed every year, or how much these documents cost taxpayers, according to the U.S. Government Accountability Office. Officials at the agency say all it can do is keep track of the number of cases it successfully identifies as being fraudulent, either on its own end or through reports from consumers, but cannot guess how many it doesn’t catch.

Further, the tax agency also has no idea whether a fraudulent return it does catch was filed individually by a single criminal or is part of a larger scheme to defraud consumers, the report said. Crime rings exist that have been known to file tens or even hundreds of these documents over the course of a few years or more, and are only caught if IRS analysts can detect patterns across several such returns that are reported as being fraudulent. And along similar lines, the IRS doesn’t know who is behind a bogus filing unless it takes criminal action against those responsible in some way.

To that end, the agency also doesn’t know the characteristics of a fraudulent filing, the report said. This includes what is generally the best way of having the document prepared – either through a professional or special software – and filed – either online or by mail. Another topic that was examined is whether the IRS knows how fraudsters prefer to receive their bogus tax payouts — whether it’s by check, direct deposit or a debit card.

Fortunately, the IRS recently began creating what is known as the Refund Fraud and Identity Theft Global Report, designed to help it better understand and track incidents of this type of crime, the report said. However, the GAO also recommended that the agency take more information into account in the future to ensure better reporting.

Identity theft can have significant negative impacts on consumers and as such it’s usually wise for Americans to check their Credit Report Card regularly to ensure no one has opened an account in their name.

Image: bfishadow, via Flickr

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