WASHINGTON — An epidemic of tax-related identity theft continues to plague the Internal Revenue Service despite efforts by the agency and law enforcement officials to combat the fraud, witnesses told a Senate panel Wednesday.
"We are losing $5 billion each year to this crime, and now the problem is getting worse," said Florida Democratic Sen. Bill Nelson, chairman of the Senate Special Committee on Aging.
Criminals use stolen personal information to file fraudulent tax returns, usually in January, before the real taxpayers have a chance to file. By the time the victims send in their returns, it's too late: The IRS already has mailed refund checks to the identity thieves. It can take months — even years — for the IRS to untangle the mess and send the taxpayers the refunds they're owed.
Nine of the 10 U.S. cities hit hardest by the scam are in Florida. The Miami metropolitan area tops the list, with 35,914 cases of tax-related identity theft reported last year and the highest per capita rate of complaints, 645 per 100,000 residents.
Miami was followed by Atlanta, which had 12,992 complaints, Tampa with 9,805 and Orlando with 4,991.
Nationwide, cases of tax-related identity theft surged 650 percent from 2008 to 2012. In 2011, thieves filed 1.5 million undetected fraudulent tax returns and received $5.2 billion in refunds, according to an audit last year by the Treasury Department's inspector general.
Witness Marcy Hossli, 57, of Lake Worth has been a victim of identity theft through tax fraud three years in a row.
"I should never have to go through anything like this, nor should anyone else," Hossli said. "I feel violated. It's hard to concentrate on work. I am stressed constantly."
Senators expressed frustration that the IRS hasn't been able to do a better job at detecting fraud even though criminals often use the same addresses to file multiple returns.
Republican Sen. Susan Collins of Maine said thieves used the same address in Lansing, Mich., to file 2,137 tax returns, and they received $3.3 million in refunds. An address in Chicago was used to steal $900,000 in refunds through almost 800 fraudulent returns, Collins said.
"Criminal gangs have figured out that it's cheaper and easier for them to steal taxpayers' identities and hijack their refunds than it is to traffic in drugs, rob banks or fence stolen property," Collins said.
"The IRS has an obligation that obviously they're not meeting," said Sen. Claire McCaskill, D-Mo. "How in the world can there not be a system in place that the IRS could not catch that they're sending 2,000 refunds to the same address?"
The audit by the Treasury Department's inspector general estimated that 76,000 senior citizens likely were victims of tax fraud identity theft in 2010, resulting in $374 million in fraudulent tax refunds.
Legislation Nelson introduced this week would increase jail time and fines for people convicted of tax-related identity theft and direct the IRS to close identity theft cases within 90 days. Last year, it took an average of 196 days for the IRS to close such cases.
Nelson's bill, co-sponsored by fellow Democratic Sens. Dianne Feinstein of California and Charles Schumer of New York, also would ensure that victims don't have to explain their plight to different IRS employees every time they contact the agency.
Instead, the IRS would give each victim a single point of contact to help track the case.
Other provisions include restrictions that would make it harder for thieves to load stolen refunds onto prepaid cards, language that allows identity theft victims to opt out of electronic filing and prohibitions on printing Social Security numbers.