U.S. taxpayers stand to lose $21 billion in income tax refunds to identity thieves over the next five years, according to a new Treasury report U.S. Sen. Bill Nelson sought. Nelson has filed legislation he wants Congress to pass aimed at fighting the increase of online tax fraud and ID theft.
The report, detailing an investigation performed by the Treasury Inspector General for Tax Administration, is being released today. The report found that the Internal Revenue Service (IRS) likely issued $5.2 billion in refunds for fraudulent 2010 returns. And that's on top of $6.5 billion in refunds the IRS detected and prevented before the money landed in the hands of identity thieves.
The report comes on the heels of legislation filed by Nelson and U.S. Sen. Tom Coburn (R-OK) aimed at reducing these types of crimes. The bill would restrict access to Social Security numbers of the deceased, remove Social Security numbers from Medicare cards, increase coordination between the IRS and law enforcement, and expand and IRS pilot program that allows identity theft victims to file tax returns using a personal identification number, among other things. Nelson's Finance subcommittee on Fiscal Responsibility and Economic Growth has also held two investigative hearings on the issue.
"Online tax cheats are swindling billions from law-abidingAmericans," Nelson said today. "It's an ongoing problem;and,we've got to find a fix."
Florida has emerged as a particular hot-spot for identity theft-tax fraud, and part of the inspector general's investigation analyzed ongoing efforts by Tampa officials to prevent this crime. Last year, a crackdown by a Tampa task force uncovered as much as $130 million in fraudulent refunds and led to 49 arrests.
The inspector general notes that the IRS has increased efforts to detect and stop identity theft, but suggested that the agency could do more. Recommendations include limiting the number of refunds that can be directly deposited into the same account, analyzing refunds -- like those in Tampa -- that have been tagged as fraudulent to try and determine common characteristics, and working with the Treasury Department to make sure banks and debit card companies verify people who get cards and set up accounts.
Following are JPEGs of Treasury's letter to Nelson noting it initiated the investigation at the senator's request; along with a summary page of the investigation. The full report can be found at: