Identity thieves filing fraudulent tax returns to claim refund checks have caused headaches for hundreds of thousands of tax payers and the IRS. But proposed legislation may enable the IRS to share taxpayer information with local law enforcement agencies in efforts to combat tax return identity fraud while the IRS also considers a pilot program allowing the IRS and police to work together on cases of suspected fraud.
In 2011 the IRS issued $1.4 billion in fraudulent tax refunds, a six-fold increase from 2010. This scheme has continued to prevail in 2012, although the IRS has taken more measures to prevent against it, especially with e-filing. As of March the IRS claimed to have stopped 215,000 suspicious tax returns preventing $1.15 billion in refunds from being paid out to potential fraudsters. But there has been further increase in identity theft tax return attempts, so the losses from refunds paid out to identity thieves may surpass last year’s totals despite the large number of fraudulent returns caught early on.
One issue that hinders investigations and prevention of tax refund identity fraud is that the IRS is restricted in what information they can give local law enforcement. Under the current Tax Code disclosing taxpayer information is limited under special circumstances, and even then can only be shared with federal agencies for criminal investigations. The FBI may handle cases with large-scale criminal gangs filing fraudulent returns en masse, but more typically tax fraud crimes and investigations happen at the local level.
Florida Senator Bill Nelson proposed legislation that will allow the IRS to share more information with local law enforcement. The Identity Theft and Tax Fraud Prevention Act seeks to increase the penalties and sentencing guidelines for tax fraud through identity theft, allocate more funds for the IRS to prevent tax return fraud, and update existing laws to allow the IRS to share tax payer data with local law enforcement to combat crime. The IRS is now considering a pilot program in Tampa, Florida that will allow the IRS to share information and work with local police departments in cases of suspected fraud. Tampa was likely selected because it has been a hotspot for identity tax fraud and identity theft with plenty of cases still left to investigate.
For more information: IRS, Police Consider Sharing Info as Tax Fraud Increases