With the increase in electronic filing, stolen identity refund fraud is becoming a major and growing problem. Identity thieves obtain information about other individuals, such as their Social Security numbers and names, and then file to claim their tax refunds. One estimate puts the fraudulent refund figure as high as $26 billion over the next five years. Treasury officials understand that greater efforts will be needed by the IRS, Department of Justice and U.S. Attorney’s Office to confront the problem. 

Identity theft requires primarily two pieces of information: a name and a Social Security number. There are numerous ways that thieves obtain this information and collect refunds, among them: (1) the thief persuades a postal employee to intercept multiple refunds to an address; (2) the thief uses a doorman to direct refund checks to the identity thief; and (3) the thief bribes bank tellers to collect the personal information necessary for the identity thief to file and obtain a fraudulent refund. E-filing has exacerbated the problem because identity thieves are able to obtain a taxpayer’s refund before the taxpayer’s legitimate return is processed.

Two areas of the country have been particularly hard-hit by this sort of identity theft: the Southern District of Florida and the Southern District of New York. Congress has several bills under consideration that would address the problem. In addition, the IRS is updating its computer software so that, if there are multiple refunds to one address or indications that the refund may not be appropriate, the software will “flag” the return for greater review. Finally, there are several regional tax task forces moving forward to find and prosecute identity thieves. The Department of Treasury, Department of Justice and the U.S. Attorney’s Offices are all cooperating in these initiatives.

– Heinz J. Brisske