The IRS paid $5.8 billion in fraudulent refunds due to identity theft in 2013, up from $3.6 billion in 2013, according to a report by the U.S. Government Accountability Office. The increase in data breaches and identity theft activity could result in higher cases of tax return fraud. With consumer personal information like dates of birth and Social Security numbers, identity thieves could file tax returns in their victims' names.
"IDT refund fraud burdens honest taxpayers who have had fraudulent tax returns filed in their name because they must deal with delayed refunds as they authenticate their identities with the Internal Revenue Service (IRS)," the GAO report stated. "Additionally, IDT refund fraud is an attractive target for criminals with a potentially high payoff."
The agency also prevented $24.2 billion in fake tax returns in 2013. As identity thieves view tax fraud as a way to score millions of dollars, the IRS needs to improve its current procedures and tools to detect fraud. Currently, the IRS implements fraud filters and information return matching in addition to other efforts to combat identity theft.
As tax refund fraud continues to be a major challenge for the IRS, GAO recommended the agency make its fraud estimates more efficient by justifying cost-influencing assumptions and estimating and documenting the costs of potential choices for taxpayer authentication.
There are also steps taxpayers can take to avoid falling prey to identity thieves. Recently, the IRS issued an alert to consumers warning them about a new phishing scam that claims the agency needs up to date information, according to an IRS release. However, the IRS will not contact consumers via email, but rather send written letters. The agency said consumers should not click on links in these emails claiming to be from the IRS and report the scam messages to email@example.com.