TIGTA: More identity-theft returns stopped, filters still need refinement

Clusters of fraud persist, an audit finds.
By Paul Bonner

While the IRS continues to do a better job of identifying fraudulent tax returns before paying refunds on them, it could further improve its tools for detecting "clusters" of returns from a single address or multiple refunds to a single bank account, the Treasury Inspector General for Tax Administration (TIGTA) said in an audit report.

In the 2013 filing season, the IRS identified 4.1 million fraudulent returns involving identity theft, preventing payment of $24.3 billion in false refunds, more than the year before (3.7 million returns and $21.6 billion in refunds).

TIGTA still was able to identify 787,343 returns for tax year 2012, for which refunds worth $2.1 billion were paid, with characteristics similar to those the IRS had stopped. This represented a significant decrease over three years, however. In tax year 2010, TIGTA flagged nearly 1.5 million such returns for which it had paid more than $5.2 billion in refunds.

The IRS's improvement partly reflected its implementation of a "clustering filter tool" beginning in the 2013 filing season that, while helpful, could be improved, TIGTA said. TIGTA found evidence of undetected clustering in 2012 returns, such as scores or hundreds of returns filed from each of 10 addresses in the United States and overseas totaling more than $1.5 million in refunds. One, in Kilkenny, Ireland, was the source of 580 returns for which refunds totaling $218,974 were issued.

Another useful tool would require congressional action. TIGTA noted the IRS has requested legislation requiring wage and third-party payment information returns to be filed earlier in the year, which would enable the Service to match them to returns during processing. Currently, the deadline for filing these information returns with the IRS is March 31, well after the beginning of filing season.

TIGTA also recommended the IRS deactivate individual taxpayer identification numbers (ITINs) assigned before Jan. 1, 2013, finding that more than 140,000 returns with nearly $375 million in refunds for 2012 were filed by individuals using ITINs and had characteristics of fraudulent returns, a large percentage of which were filed using ITINs issued longer ago.

The audit report was released days after the IRS revealed that 100,000 taxpayers' data had been stolen earlier in 2015 from its Get Transcript online application by thieves using stolen personal information. TIGTA is investigating the data breach.

  • TIGTA Rep't No. 2015-40-026

—By Paul Bonner, a JofA senior editor.

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