Tax identity theft is a growing problem that affects millions of Americans, but “it’s gone from hundreds of people filing hundreds of fraudulent returns to thousands of people filing thousands of fraudulent returns and it’s become much more organized,” said IRS Commisioner John Koskinen, who appeared on the CBS News program “60 Minutes” on September 21. Koskinen blamed the growing incidence of tax fraud on the federal government’s inability to anticipate how easy it is to illegally obtain a Social Security number.
Koskinen stated that the use of prepaid debit cards is also fueling the rise in tax fraud. He said the IRS is unable to distinguish an untraceable, prepaid debit card from a legitimate bank account that can receive tax refunds. But, the IRS does not want to discontinue sending refunds to debit cards because many Americans use them instead of bank accounts.
“If you don’t allow them to use a prepaid card, they are going to have to get a check and they’ll have to pay someone a lot of money to cash that check. So you are disadvantaging a significant amount of the population,” he said. The IRS is also considering delaying the payment of tax refunds until the Service can match them with Forms W-2 filed by employers.
House lawmakers are also concerned by the rise of tax fraud. On September 8, lawmakers unanimously approved the Stopping Tax Offenders and Prosecuting (STOP) Identity Theft Bill of 2014 (HR 744). Offered by Rep. Debbie Wasserman Schultz, D-Fla., the legislation would direct the Justice Department to use special task forces to address tax return identity theft and coordinate its efforts with state and local authorities.
In addition, a September 22 report issued by the Government Accountability Office (GAO) found that the IRS could better stop identity theft if employers filed electronic tax forms earlier. Although Koskinen said the IRS is successful at stopping a great deal of tax fraud, the Service paid $5.2 billion in fraudulent tax refunds in the 2013 filing season. “Given the billions in dollars of successful (tax) refund fraud, IRS must strive to stay one or more steps ahead of identity thieves, or the risk of issuing fraudulent (tax) refunds could grow,” the GAO said in the report.