Tax Thieves: The Biggest Scam in U.S. History

By any measure, it will be the biggest heist in American history.  An estimated $21 billion will be hauled in this year by identity thieves using fake tax returns to hijack refunds.  Since 2011, these crooks have siphoned off more than $24 billion from the U.S. Treasury.

These are no ordinary mom-and-pop criminals.  Often the crimes are committed by large criminal enterprises that are well organized.  The masterminds behind the schemes employ sophisticated means to scoop up data from sources ranging from hospitals to nursing homes and banks.

The swindlers pilfer Social Security numbers, drivers license information, addresses and other data. The criminals then use the material to file forged tax refunds, often with state revenue agencies as well as the Internal Revenue Service (IRS).

The bandits file the fraudulent returns early in the tax season, betting they will receive the refunds before the unwary victims submit their tax forms.  With electronic filing, it is even easier for thugs to register a return and receive a refund via direct deposit. 

The hijackers use bogus wages and other phony information that will result in a refund. Unfortunately, the IRS does not match electronically submitted tax forms with a taxpayers past returns until months after the refund check has been dispatched.  

When the real taxpayer files his return, the IRS turns the tables on the victim. The agency will not issue an immediate refund as it did for the embezzler. The IRS notifies the victim that it has already distributed a refund and demands proof of identity from the authentic taxpayer.  

In a 2013 report, the Treasury Inspector General for Tax Administration found the IRS took an average of 312 days to resolve the matter of a counterfeit refund.  That year the inspector general projected the IRS issued 1.1 million refunds to thieves using stolen data. 

The problem is growing worse, despite IRS assurances it would crackdown on tax refund theft. In fact, tax cheats utilized the inept agency's own taxpayer system to steal the data of 724,000 citizens between January 2014 and May 2015.  A red-faced IRS eventually shuttered the loophole.

There are other signs that the IRS is incapable of policing the issue.  For example, Treasury's inspector general uncovered another whooper.  In 2011, the agency sent $3.3 million in tax refunds from 2,137 bogus returns to a single address in Lansing, Michigan.  

Shouldn't that have set off alarm bells?  Apparently, it didn't because that same year the bungling agency transmitted $1.1 million to one address in Belle Glade, Florida.  The refunds came from 741 returns submitted to the feds.  Another address in Tampa, Florida, was the recipient of $1.7 million.

Before the current tax season, the IRS published a list of the "dirty dozen" scams that snag victims, but dodged responsibility.  "Though the agency is making progress on this front, taxpayers still need to be extremely careful and do everything to avoid being victimized," the agency said.

Spoken like a true Washington bureaucrat.  "Don't blame the IRS because it's doing all it can.  It's stupid Americans who are the problem." You can almost hear the cascading water as Pontus Pilate washes his hands.

For its part, the IRS proudly points to a Security Summit Initiative, which it hosted in 2015 with states and representatives of the tax industry.  The goal was to enhance coordination between states, the IRS and tax preparers to create a more secure system for taxpayers.

It must not be working too well.  The IRS is responsible for that estimate of $21 billion in tax refund fraud in 2016.  Two years ago the figure was $6.2 billion.  Does that sound like progress?

Some guffaw when Republican presidential candidate Ted Cruz promises to abolish the IRS.  "What would happen with tax fraud?" the doubters shriek with disbelief.  Well, apparently it couldn't get much worse.

Tax fraud costs taxpayers double.  Their taxes pay for the inept IRS. Then taxpayers cover the loses of the U.S. Treasury when it sends out spurious refunds.   The insanity must stop.  A good first step would be to fire the IRS commissioner and every executive in the agency.