IRS Pays Out Billions in ID Fraud

Published: Aug 1, 2013

IRS ID Fraud Spikes 413% in Last 5 Years 

WASHINGTON – House Oversight and Government Reform Subcommittee on Government Operations Chairman John Mica, R-Fla., will hold a hearing Friday August 2nd at 9 a.m. in Rayburn 2247 to examine the rapid growth of IRS ID theft tax fraud—which costs taxpayers billions of dollars per year.

“Drug dealers are turning to IRS identity theft because it’s less risky and more lucrative. There are 78% more incidents this year than last year,” said Chairman Mica. “This is not a ‘phony scandal’- this is a real problem costing taxpayers billions and the Administration is failing to act.”

IRS remains easily scammed by identity thieves. If the victim has not filed a tax return yet, criminals will file a return and receive illegal tax refunds from IRS.  The hearing will review the IRS’s failure adequately detect or prevent identity theft tax fraud.


  • There are not enough deterrents to stop people from committing this type of fraud.
    • It is extremely easy to commit identity theft tax fraud.  A thief only needs a name and a Social Security number to file a fraudulent return.  The IRS rarely investigates identity theft related tax fraud, which makes it low risk for criminals. 
    • Many tax programs allow users to receive tax returns on a prepaid debit card.  This makes tax fraud even less risky, because debit cards do not have the same level of protection or identification requirements needed to create a bank account or cash a tax refund check.
    • The IRS often does not stop potentially fraudulent returns even if they are detected.  The average amount of a fraudulent return is small, but many thieves file hundreds of returns and collect millions of dollars.
    • In Florida, former drug dealers now commit identity theft tax fraud instead, because as one suspect told police, “Why would I take the risk to sell drugs and get busted when I can put $10,000 on a card and do it all day long from home while the cartoons are on?”
  • The IRS is not using its resources effectively to combat identity theft.
    • The IRS has said it does not have enough resources to fully address identity theft.  However, watchdogs including TIGTA and the Taxpayer Advocate Service have all made recommendations that could help prevent fraud without costing additional money.  The IRS has not implemented many of these recommendations.
    • One recommendation is to consolidate the units working on identity theft within the IRS, which would provide better customer assistance and reduce duplicative work.  There are currently 21 separate units that deal with identity theft at the IRS
    • The Government Accountability Office (GAO) has also recommended that the IRS use more information to stop fraud.  The IRS has access to information that it does not fully use.
    • GAO has found that the IRS could save significant resources if it reprioritized its enforcement costs and more effectively allocated its resources.
  • States revenue commissioners taking steps to address problem.
    • Some states, including Georgia, have taken steps to address identity theft related tax fraud within their own revenue departments.
    • The Georgia Department of Revenue compares third party information to potentially fraudulent returns before issuing payments.  This has allowed Georgia to detect problems before a payment is issued.
    • Georgia has also created an online “identity verification quiz,” allowing legitimate taxpayers to identify themselves quickly and easily.