WASHINGTON – The Internal Revenue Service may have delivered more than $5 billion in refund checks to identity thieves who filed fraudulent tax returns for 2011, Treasury Department investigators said Thursday.
They estimate another $21 billion could make its way to ID thieves over the next five years.
The IRS is detecting far fewer fraudulent tax refund claims than actually occur, according to a government audit that warned the widespread problem could undermine public trust in the U.S. tax system.
Although the IRS detected about 940,000 fraudulent returns for last year claiming $6.5 billion in refunds, there were potentially another 1.5 million undetected cases of thieves seeking refunds after assuming the identity of a dead person, a child or someone who normally wouldn't file a tax return.
In one example, investigators found a single address in Lansing, Mich., that was used to file 2,137 tax returns. The IRS issued more than $3.3 million in refunds to that address. Three addresses in Florida, the center of the identity theft crisis, filed more than 500 returns totaling more than $1 million in refunds for each address.
In another troubling scenario, hundreds of refunds were deposited into the same bank account — a red flag for investigators searching for ID thieves who may be filing for refunds for multiple people. In one instance, the IRS deposited 590 refunds totaling more than $900,000 into one account.
"We found multiple reasons for the IRS's inability to detect billions of dollars in fraud," said J. Russell George, the Treasury Department's inspector general for tax administration. "At a time when every dollar counts, these results are extremely troubling."