IRS says fake tax filings on the rise

The IRS says that identity thieves are not only stealing people’s identities, they are filing fake tax returns using those identities.

The IRS says identity thieves came up with the scam around 2008 and they have been having a hard time stopping it. In fact the practice has tripled in the last 5 years.

The IRS estimates that it sent out nearly three million fraudulent refunds to the tune of $1.68 billion last year.

But the agency has been trying ways to cut down on the fraud. They now require employers submit W-2s earlier and had they hold refunds for those claiming certain tax credits. Those changes gave the IRS more time to work on identifying discrepancies before issuing refunds

The Treasury Department believes the numbers are much higher than that $1.68 billion number. In January of this year, the General Accounting Office (GAO) issue a 50-page report with suggestions as to how the IRS can combat this problem. Here are three of their recommendations

• The Acting Commissioner of Internal Revenue should collect data to track late W-2 filing penalty notices and the extent to which they are associated with fraud and non-compliant returns. (Recommendation 1)
• Recommendation: The Acting Commissioner of Internal Revenue should assess options for improving enforcement of late W-2 filing penalties, for example, by mailing notices before the next filing deadline. (Recommendation 2)
• Recommendation: The Acting Commissioner of Internal Revenue should develop an evaluation plan to fully assess the benefits and costs, including taxpayer burden, of modifying the February 15 refund hold, and determine how this effort informs IRS’s overall compliance strategy for refundable tax credits and fraud risk management. (Recommendation 3)