Identity Theft May Cost IRS $21 Billion Over Next 5 Years

alphadogg writes "A new audit of the Internal Revenue Service has found the agency paid refunds to criminals who filed false tax returns, in some cases on behalf of people who had died, according to the Treasury Inspector General for Tax Administration (TIGTA), which is part of the U.S. Treasury. The IRS stands to lose as much as $21 billion in revenue over the next five years due to identity theft, according to TIGTA's audit (PDF), dated July 19 but publicized on Thursday. 'While the IRS does not have access to all third-party information documents at the time tax returns are filed, some third-party information is available. However, the IRS has not developed processes to obtain and use this third-party information."

Comments

The IRS also gains money from identity theft

[Solandri]

Several years ago, we found out some of our employees were illegal immigrants who had applied using fake SSNs and IDs. When I thought of the consequences, I realized the IRS collected FICA taxes from these people (social security, medicare) which would never be paid back to them. And if they were due a refund on their income tax withholdings, they were unlikely to ever claim them.

Re:The IRS also gains money from identity theft

[Anonymous Coward]

The head of the SSA recently estimated that about 80% of employed illegal aliens in the US are using a fake social security number.

Assuming $10K/yr in average wages for this group, that's between $10 billion and $15 billion in tax revenue.

Re:The IRS also gains money from identity theft

[girlintraining]

True, but many would, and have, argued that illegal immigrants should receive no government services of any kind, that they're taking jobs away from 'real' americans, etc. So maybe they won't get their taxes back, but they still got a paycheck for a whole lot more. And, not legally, I might add.

That said, the problem of legal immigration by false reporting by corporations is a larger problem than illegal immigration; Corporations that can afford to pay to have exemptions carved out for their industry (H1-B anyone?) can undercut labor in this market; They manufacture a labor shortage by intentionally paying far less than market rate for domestic labor, then use that to justify importing people from other countries who will work at that rate, thus undercutting the market value for that labor. But that only works for highly-trained labor that isn't tied to geography (You can't outsource doctors, for example, because someone has to do those procedures on the patients... though robotic medicine may eliminate that in the future). Farm labor, which we have a massive shortage of, doesn't get the same treatment -- which results in a lot of illegal immigrants working on farms. Of course, if you get rid of them, then you don't get to eat, since all the food rots in the field, unharvested.

Immigration is a much more complex issue than most people care to admit, and the same politicians that claim they're getting tough on it are often carving out exemptions and bypassing the process... for anyone who can pay enough in *cough* campaign contributions *cough*, of course.

Re:The IRS also gains money from identity theft

[Anonymous Coward]

This is part of the reason we need to stop calling this identity theft and start calling it what it really is: Tax fraud. Same with banks. Someone pretends to be me and tricks the bank into given them money, it's bank fraud. My identity wasn't stolen. I'm just fine. The bank made a mistake and they need to clean up the mess not me. Calling it identity fraud puts the blame on me instead of the bank who made the mistake.

Re:The IRS also gains money from identity theft

[ClickOnThis]

This is part of the reason we need to stop calling this identity theft and start calling it what it really is: Tax fraud. Same with banks. Someone pretends to be me and tricks the bank into given them money, it's bank fraud. My identity wasn't stolen. I'm just fine. The bank made a mistake and they need to clean up the mess not me. Calling it identity fraud puts the blame on me instead of the bank who made the mistake.

I completely agree with your "don't blame the victim" message, and the need to avoid terms that falsely direct that blame. However, I'm not sure we can stop calling it "identity theft." For one thing, it has become a catch-all term for any kind of fraud that involves someone impersonating you for financial or other gain. It's far pithier and handier to refer to this class of crimes as identity theft than to force some awkward construction of tax/bank/credit/bitcoin/online-gaming/slashdot-karma fraud. And I wouldn't be so quick to discard "identity fraud" as an alternative. I think I like it better, because in a way it decouples you from implied blame that "identity theft" does not.

Also, it may not be your fault, but that doesn't mean you can just sit back and let someone else fix it. The banks must replace your money, the tax-collectors and credit agencies must correct your records, those who made mistakes must restore your losses ... in short, you must be made whole again. But that doesn't mean you don't have to do anything to make that happen. Like it or not, you're involved, and more likely than not, you're the first one to discover the crime. Any victim has to at least participate in the process of restoring what s/he lost.

Disclosure: a few years ago I was the victim of tax fraud in exactly the way TFA describes: someone filed a tax return using my name and SSN. Fixing this did require some work: phone calls, police reports, letters, affidavits, untangling some SNAFUS with other gov't-related stuff in process. The effort was unwelcome and untimely (I found out about it only when I tried to refi my house.) It sucks being a victim, and it should not be an onerous task to recover from being one. But I don't question the need for a victim to be at least somewhat proactive with her/his recovery.

The IRS doesn't agree.

[paxprobellum]

Right from the first page of the report: "However, in view of its ongoing efforts to improve the detection of identity theft, the IRS did not agree with TIGTA’s estimate of $21 billion in potentially fraudulent refunds as a result of identity theft over the next five years." So what DOES the IRS think?

Re:The IRS doesn't agree.

[tomhath]

To their credit, it was an IRS audit the reported those refunds. After the fact, unfortunately.

I had someone file under my SSN this year.

[Anonymous Coward]

I filed my taxes on February 3rd electronically and found out someone had already filed under my SSN. I filled out the correct paperwork and sent it in, along with opening a case with the FTC and heard nothing from the IRS until I went into my local office 2 weeks ago. I found there is an open case but that I will be lucky to see my return (approx $1500) within 2 years. I have filed my return from the same address for several years, and it was my second year filing jointly with my wife. I believe there is little to no fraud detection at the IRS, as a tiny amount of research on their part would have stopped this entire mess.

Re:I had someone file under my SSN this year.

[CodeBuster]

While I'm a CPA but not a tax accountant

Indeed.

I'd suggest asking a tax accountant about the option of "underwithholding" to the tune of $1500 for this next year

Doing what you suggest is probably illegal and may, depending upon how much is "under-withheld" or under reported (if self-employed), result in penalties if the difference between what should have been withheld or paid and what was actually withheld or paid exceeds a certain threshold (penalties begin after about $1,000 difference or so and climb from there). Also, it says specifically on the W-4 instructions that claiming allowances to which you're not entitled, regardless of whether or not they result in the "correct" amount of witholding, is unlawful. Trying to "hack" your tax filings to the IRS is a really bad idea. They can follow you to the ends of the earth, seize your assets and your bank accounts, and generally make your life extremely difficult.

Good thing we cut the IRS budget

[GodfatherofSoul]

Can't have the revenue man collecting taxes or anything like that.

Re:Why 5 Years?

[PPH]

And some people move around a lot. So the con artists pose as transient laborers or some other group without a solid trail of identity.

The problem with all of the proposed solutions is that: In order to weed out the fraud, the new measures will impose onerous reporting/tracking requirements on the entire taxpaying population. And the additional burden will be placed upon us with no compensation or credit for our wasted time.

Perhaps its time to dump income tax entirely and collect revenue from businesses. They already have detailed reporting requirements and operate in an environment with no rights save those for which they have been granted permission. It's more difficult to chase individuals who are presumed to have the rights to any activity aside from those constitutionally or statutorily denied.