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What is the IRS doing about fraudulent tax refunds?

Last week, we wrote about an inspector general’s report that said the Internal Revenue Service gave away nearly $4 billion in fraudulent tax refunds to identity thieves, with hundreds of payouts apiece going to single addresses in countries such as Lithuania, Bulgaria and China.

A separate IG analysis  released in September cited long delays in closing identity-theft cases, saying the IRS spent an average of 312 days in resolving such matters.

Taxpayers have every reason to feel outraged when the government hands out nearly $4 billion to identity thieves and takes nearly a year to figure out whether individuals really are who they say they are. But the IRS insisted last week that it has taken action and made big progress in those areas. The latest numbers back up those claims.

Here are a few things readers should keep in mind about the IG reports and what the IRS has done:

* The issue of tax refunds for identity thieves has been a hot topic since at least 2010, when the problem was reaching new heights and the IRS had paid out $5.2 billion to scammers. Since then, Congress has held several hearings on the matter, and the IRS has made a concerted effort to address the problem.

The agency

said last week that it has dedicated more than 3,000 employees solely to identity-theft cases, more than doubling its number from late-2011.  The agency also made greater use of identity protection pins to help prevent scammers from reusing stolen identities, saying it issued 250,000 pins in 2012 and 770,000 for the 2013 tax season.

* The report covers the 2011 tax year, so it does not reflect what happened during the latest cycle or the full extent of the agency’s progress. The inspector general noted that the IRS had already shown improvement in 2011, with the total dollar amount for fraudulent refunds from tax fraud declining by 30 percent compared to the previous year.

The 2012 numbers were even better, according to the IRS. The agency said last week that it prevented  more than $20 billion in fraudulent refunds during the 2012 tax cycle, compared to $14 billion the year before. It also stopped 5 million suspicious returns for the 2012 tax year, compared to 3 million in 2011.

* The IRS has also reduced the number of days it takes to resolve identity theft cases from 312 days to about 120 days.

Josh Hicks covers Maryland politics and government. He previously anchored the Post’s Federal Eye blog, focusing on federal accountability and workforce issues.

Category: Taxes

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