U.S. IRS missed billions in ID fraud claims: watchdog

WASHINGTON Tue May 8, 2012 5:36pm EDT

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WASHINGTON (Reuters) - The watchdog for the U.S. Internal Revenue Service said the agency failed to stop the issuance of billions of dollars in fraudulent tax refunds in 2010 to thieves who stole taxpayers' identities.

After checking employment records, the Treasury Inspector General for Tax Administration (TIGTA) said it found more returns may have been sent to tax filers using stolen identities than the IRS initially estimated.

If the IRS does not do more to catch improper refunds, up to $26 billion could be refunded to identity thieves in the next five years, J. Russell George, head of TIGTA, told a congressional hearing on Tuesday. He said IRS may have issued $5.2 billion more in refunds through ID tax fraud than the agency had earlier estimated.

The IRS did not dispute the watchdog's figures, but said estimates for ID theft tax fraud would be lower if updated to include new IRS practices, said Steven Miller, IRS deputy commissioner for services and enforcement.

Miller said the IRS blocked $1.4 billion in tax refunds claimed by identity thieves in 2011.

For the 2012 tax filing season, the IRS tightened electronic fraud filters that sift through tax filings. Through mid-April of this year, the agency stopped $1.75 billion in refund fraud, Miller said.

In April, the IRS launched a pilot program with Tampa, Florida, law enforcement to share taxpayer information for ID theft prosecutions.

But this program has raised privacy concerns. There is nothing to prevent local police from reusing taxpayer information beyond the scope of the initial investigation, said Nina Olson, head of the National Taxpayer Advocate, an IRS unit that works on behalf of taxpayers.

(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh and Tim Dobbyn)

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