Identity thieves are stealing billions of dollars a year through fraudulent tax refunds—and the IRS isn’t the only target. The 43 states that collect an income tax are also being flooded with these bogus returns.
How serious is the problem?
A report from the Treasury inspector general for tax administration estimated that fraudulent tax refunds resulting from identity theft totaled about $3.6 billion for the 2011 tax filing season. That’s down by $1.6 billion from the previous year due to better detection, but the report says the ongoing problem creates “devastating consequences for taxpayers” that “erodes their confidence” in the federal tax system.
At the state level, the resources simply aren’t there to tackle this problem. Some revenue collection offices have put procedures in place to spot the most obvious warning signs of fraud, such as too many returns to the same address or bank account, but a lot still slips through.