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Tax refund ID theft is growing 'epidemic' -U.S. IRS watchdog

Thursday, 7 Nov 2013 | 6:30 PM ET

WASHINGTON, Nov 7 (Reuters) - More Americans' identities were stolen in tax refund crimes in the first six months of 2013 than in all of 2012, said a U.S. Internal Revenue Service watchdog on Thursday who described the problem as "a growing epidemic."

Tax refund fraud has exploded in recent years. Scammers typically use stolen names and Social Security numbers to file phony electronic tax forms for IRS refunds.

About 1.6 million Americans were victims of ID theft/tax refund crimes this year through June, up from 1.2 million taxpayers in all of 2012, the Treasury Inspector General for Tax Administration (TIGTA) said in a report.

"Identity theft is a growing epidemic," said J. Russell George, TIGTA's chief.

Democratic Senator Bill Nelson of Florida, a hot spot for these crimes, said in a statement that TIGTA's analysis shows the IRS is making progress, but much remains to be done.

TIGTA said that while the number of frauds has risen, the amount of federal revenue lost to these crimes has decreased. In 2011, the government lost $3.6 billion in potentially fraudulent tax refunds, down from $5.2 billion in 2010.

The thieves are increasingly working from abroad, TIGTA found. In 2011, someone using a single mailing address in Lithuania made more tax filings with fraudulent Social Security numbers than any single U.S. address, TIGTA said.

The Lithuanian address received $220,489 in fraudulent IRS refunds; an address in Shanghai received $156,533.

"The constantly evolving tactics used by scammers to commit identity theft continues to be one of the biggest challenges facing the IRS," the IRS said in a statement on Thursday.

TIGTA said the IRS must do more to spot red flags signaling potential fraud in tax filings, such as multiple filings from the same address, and to help victims more quickly.

The IRS said it agreed with TIGTA's recommendations.

(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh, Bernard Orr)