Stolen ID Tax Fraud Is A Growing Problem In Need Of A Solution

We have just come through another record-breaking tax season — and not in a good way. Once a rare, unusual crime, stolen identity tax refund fraud has skyrocketed in recent years, with experts predicting it to soon be a $20 billion problem. While it is certainly important for taxpayers to be proactive and protect themselves, the Internal Revenue Service, and the entire federal government, must figure out how to effectively combat this problem in advance — not just try to sort out the damage after the fact.

The IRS helpfully lists tips for avoiding “phishing” scams and will gladly give you step-by-step instructions for what to do if you are a victim of tax fraud, but so far, the agency has come up with far too few safeguards on the front end.

Yes, you should protect your identity by not over-sharing online, protecting your computers against viruses and spyware, protecting important documents, shredding unnecessary documents, filing taxes promptly and not providing information to unsolicited callers claiming to be from the IRS. And if you are a victim of fraud, you should certainly follow the IRS procedures to report the incident to the agency and other authorities.

However, in reality, experts do not believe that most of the current wave of fraud comes from individuals being careless with their information. Instead, criminals engaged in stolen identity refund fraud submit large numbers of fake returns via computers in the hopes that a percentage of them get through the IRS security screening process. Where do they get these large numbers of returns? Data theft on a grand scale, highlighted recently by security breaches at major retailers, healthcare providers and service businesses.

Part of the problem here are the outdated systems of the IRS and the laws in place to stop the IRS from being too intrusive. If you want to open a credit card or a bank account, be prepared to fill out your life story on a form and submit to a credit check. What do you need to file a fake tax return? A name, a date of birth and a Social Security number.

While it is likely true that the IRS electronic filing system can be fooled too easily, many experts agree that even when a return throws up a red flag, it could get through due to the “pay now, audit later” system mandated by federal laws. After all, the law requires payment within 30 days — which is not nearly long enough for the current system to cross reference against the data submitted by employers (which often comes in months later).

IRS officials note that millions of fake returns are rejected by the system and that screening procedures are always being improved. However, a cursory look at the crime reports show that not enough is being done. The solution to this problem will probably include many facets, from changing laws to give the IRS more leeway, better screening systems, a more aware public and better systems for safeguarding personal data. Unfortunately, we might have made it far too easy to get that tax refund check. Answering a few questions online and one click of the button certainly makes it easier for taxpayers — but also for criminals.