A Times Editorial

IRS falls down in fight on tax return fraud

How is it that the federal agency identified by the most feared three letters in the alphabet — IRS — regularly hands out fraudulent tax refunds to thieves with no questions asked? It seems easier and less risky to use TurboTax and stolen Social Security numbers to rake in millions of dollars in ill-gotten tax returns than to stage auto accidents or sell drugs on the corner. The IRS claims it understands the immensity of the problem, but it isn't doing nearly enough to protect taxpayers and safeguard the public's money.

Tampa is at the center of tax refund fraud, estimated at hundreds of millions of dollars over two years in the city alone. It's incredibly easy to do from any computer with tax-filing software, and it seems the IRS won't go after smaller operators — and the thieves know it. On electronically filed tax returns, thieves combine valid names and Social Security numbers taken from death records or stolen with the help of accomplices, then add fabricated income information. Tampa police say detailed instructions are passed around among street criminals. It's called "cocaine on a card," as the refunds come on a debit card. The scam succeeds because the IRS sends refunds without confirming income through third-party verification, such as employment or financial records. By the time the agency starts looking for irregularities, the money and thieves are gone.

The Tampa Police Department has tried to crack down, arresting 49 for tax fraud last year and identifying $130 million in fraudulent refunds. But the department is often stuck trying to prove identity theft. The IRS blames its limited enforcement resources. Yet this is far from a victimless crime. Aside from the huge sums stolen from taxpayers — authorities have put losses in the billions of dollars — at least half a million people have been the victims of tax fraud since 2008. Tampa police Officer David Curtis, who was killed on the job in 2009, had his identity stolen after his death. After contacting the IRS, it took years for Curtis' widow to finally receive the refund she was owed.

Local law enforcement cannot be left to handle this epidemic. It is up to the IRS to shut it down on the front end. The agency has to adjust how refunds are handled to allow for income verification. This may slow the process for filers, but it would stymie identity thieves who don't have access to W-2 forms and other income information.

The IRS is aware of the problem and has taken some steps. It is coding the accounts of dead people so they are not paid illegal refunds. Personal identification numbers have provided 250,000 victims of identity theft with a way to verify that their returns are valid. This PIN initiative could be expanded for all electronic tax filers. It is a pretty good system for keeping ATMs safe from thieves, so why not tax returns?

A recent Senate subcommittee hearing on the issue chaired by Florida Sen. Bill Nelson, who sponsored the Identity Theft and Tax Fraud Prevention Act, suggests that more official attention is being paid. Nelson also announced that the IRS will test a new program in Florida to make it easier for local law enforcement to prosecute income tax fraud. But the IRS cannot let another tax season go by without putting better locks on the federal Treasury and aggressively going after those who try to pick them.

IRS falls down in fight on tax return fraud 05/06/12 [Last modified: Sunday, May 6, 2012 4:30am]

    

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