Combating Identity Theft Tax Fraud


In today’s age of technological advancements, well-intentioned citizens more easily become victims of identity theft tax fraud. In 2015, the IRS paid $5.8 billion in fraudulent returns, a significant rise in fraudsters impersonating citizens to redirect tax refunds.

Here’s just one example of identity theft tax fraud that comes to mind:

The victim in question was attempting to file his tax return when he discovered that a return had already been filed for the current year using his information. Knowing he could obtain a transcript of a prior tax return from the IRS website, the victim attempted to secure a copy of the fraudulent return. Unfortunately, the victim discovered that someone had already registered through the IRS website using his information.

The victim then used another mechanism, a paper-based form, to request the transcript of his return. This method was successful. Through the transcript, the victim discovered that the fraudsters used the IRS website to request his return from the previous year. Using his W-2 information, the fraudsters changed the income and withholdings slightly and submitted a tax return for the current year using the IRS’s free e-file website. The fraudulent return indicated a refund of $8,936, which the IRS paid directly to the fraudster’s bank account.

Even before authentication questions were presented, solutions exist that would have developed an overall risk score based on the identity information and the device. It is possible that the identity attributes would not match completely. For example, an email address would have been associated with this identity the first time. Given that this was obviously a stolen identity, it is highly likely there would have been identity alerts, as attempts may have been made to use the identity elsewhere. It is also likely that the device itself was not located in the same location as the stolen identity. Additionally, it might have been used in other fraud schemes.

The good news is that there are ways to take steps to combat this growing activity of fraudsters while recognizing the good tax filers and applications, ultimately fostering a positive citizen experience.

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