What’s fueling the fraud? Florida has the highest rate of identity theft in the country, with 361 complaints per 100,000 residents last year, according to the Federal Trade Commission. But the state’s rate is dwarfed by that in the Miami area, with 645 complaints per 100,000 residents.
The double-barreled threats of identity theft and tax-refund fraud have become so pervasive in the Internet age that the Treasury Department’s inspector general for tax administration spotlighted the crisis in a report last year.
The IG’s report found that the IRS detected 938,664 tax returns involving ID theft and stopped the issuance of $6.5 billion in fraudulent refunds in 2011.
But the report also found that the IRS paid out more than $5.2 billion in tax refunds to fraudsters who filed about 1.5 million returns using stolen identities.
The report predicted that scammers are likely to swindle $21 billion more from the IRS over the next five years.
The report came with a disclaimer: “The amount of undetected tax refund fraud we identified is conservative.”
Michael Steinbach, head of the FBI’s Miami office, said the crime has “reached an epidemic level” in recent years. He cautioned the public to safeguard Social Security numbers, ignore email scams, and tear up personal financial information before putting it in the trash.
At the root of the problem: Scammers filing fabricated tax returns have exploited a hole in the IRS electronic filing system, according to the U.S. Government Accountability Office.
The federal watchdog agency found that the IRS does not match tax returns to the W-2 income forms that employers file until months after the filing season ends on April 15.
Employers file them in late February or early March; the IRS does not match them up with employees’ incomes reported on 1040 forms until June. That’s way too late to catch identity thieves who file false returns in other people’s names early in the year and have already received and cashed the refund check.