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IRS drops the ball -- identity thieves cash in

As we enter the fall election cycle, California and the rest of the nation is talking about the economy, employment and taxes. Recently the Treasury Department released information that affects all three of those contentious topics.

It appears that as much as $5 billion was paid out to individuals who submitted fraudulent tax returns for the 2011 tax year. The department further estimates that another $21 billion in fraudulent refunds will be paid out in the next five years. When every penny counts in our national budget, how did so many pennies go to the wrong people? Apparently the Internal Revenue Service is letting a significant number of fraudulent tax returns slip fall through the cracks.

Most of the fraudulent refunds are related to stolen identifications. We reported in an earlier post that identity theft is on the rise, but it appears that the situation is worse than previously thought. Consider these examples:

  • A single address in Lansing, Michigan was used to file 2,137 separate tax returns worth $3.3 million.
  • Three addresses in Florida were used to file more than 500 worth more than $1 million per address.

Investigators went through some of the returns to see why IRS fraud detection didn't pick them up prior to sending out the refunds. They discovered that in most cases the return didn't score high enough on the fraud filter.

Legislators and others are working to correct the issue, noting that Federal Trade Commission has listed identity theft as the number one consumer complaint.

Source: The Washington Post, "Treasury audit says IRS missed more than $5 billion in ID theft-related tax fraud last year," Aug. 2, 2012

At our San Francisco Bay law office, we represent clients with IRS audits, disputes and other matters such as stolen identity tax issues.

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