About IRS Fraud

According to the IRS website, "the IRS has taken numerous steps to combat identity theft and protect taxpayers. We are continually looking at ways to increase data security and protect taxpayers' identities with assistance from our Identity Protection Specialized Unit. Identity theft cases are among the most complex ones we handle. We know identity theft is a frustrating process for victims. We take this issue very seriously and continue to expand on our robust screening process in order to stop fraudulent returns and protect innocent taxpayers." As you can see the IRS itself claims that identity theft cases are the most complex and frustrating cases they deal with, and although they are continuing to evolve their processes, they are a long ways away (if at all) from a perfect system.

Here are some recent articles of how this problem is getting worse and not better.

  • The identify thief steals a taxpayer’s Personally Identifiable Information. Personally Identifiable Information includes an individual’s:
    • Name and Address
    • Telephone Number
    • Social Security Number
    • Bank Account Number
    • Date of Birth
    • Biometrics (eye color, height, etc.)
  • The identify thief uses the information to file a fraudulent tax return, reporting fictitious wages and withholdings, and obtains a tax refund.
  • The taxpayer attempts to file his or her return, but the IRS rejects it because it is a duplicate filing with the same Social Security Number.
  • The taxpayer’s refund is held while the IRS determines the true owner of the Social Security Number.
  • The identify thief uses the information to obtain employment. The income is reported to the IRS.
  • The IRS completes it income matching for the tax year.
  • If the income is not reported by the person who earned it using the stolen Social Security Number, the IRS sends the taxpayer an underreporter notice stating that the income and payment information does not match what the taxpayer reported on his or her tax return.
Identify Theft Refund Fraud Employment- Related Fraud
Source: Treasury Inspector General for Tax Administration (TIGTA) analysis of the identity theft process as it affects the IRS and taxpayers

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