Sunday, February 19, 2012

The Internet and e-filing lead to increased ID-theft based tax fraud: IRS

With increasing technology also comes increasing convenience, but also increasing chances for hackers to take advantage. The IRS is reporting an increase in ID theft-based tax fraud, thanks in part to the Internet.

Criminals use living or deceased people’s names and Social Security numbers to attempt to get fraudulent tax refunds. The Web is at partially to blame. E-filing is being pushed by the IRS, and criminals have been taking advantage of the relative ease with which they can file fake tax returns electronically.

A massive rise in fraudulent tax returns took place between 2010 and 2011. In 2011, the IRS prevented about 262,000 ID theft-related faux income tax returns, seeking $1.5 billion in refunds, from being processed. In 2010, that number was only 49,000, seeking $247 million in fraudulent refunds.

The number of fake refunds, therefore, spiked by more than fivefold between the two years, while the amount of refunds sought in those fake refunds rose by six times. That said, the IRS said it is unsure how many fraudulent refunds made it through the system without being caught.

However, the IRS does estimates that about 404,000 people were victims of ID theft-related tax fraud in the period from mid-2009 to the end of 2011. Terry Lemons, IRS director of communications said, “We are seeing growth in this area. There’s no way around it. But I also think that we’ve gotten better at detecting it.”

The IRS faces a conundrum, however. It's under pressure to pay out tax refunds as quickly as possible, yet it has to try to curb fake returns.

Things aren't going to get better anytime soon. Recently, it was reported that criminals have begun giving "classes" in filing fake tax returns using stolen Social Security numbers. Lessons included using Internet databases of Social Security numbers of deceased people, as well as personal information stolen in various ways.

There was no tuition, per se, at least not pre-paid tuition. In exchange for the classes, the teachers would take a percentage of the "profits."

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