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Identity Theft May Cost IRS $21 Billion Over Next 5 Years 112

Posted by Soulskill
from the aren't-you-glad-you-filed-on-time dept.
alphadogg writes "A new audit of the Internal Revenue Service has found the agency paid refunds to criminals who filed false tax returns, in some cases on behalf of people who had died, according to the Treasury Inspector General for Tax Administration (TIGTA), which is part of the U.S. Treasury. The IRS stands to lose as much as $21 billion in revenue over the next five years due to identity theft, according to TIGTA's audit (PDF), dated July 19 but publicized on Thursday. 'While the IRS does not have access to all third-party information documents at the time tax returns are filed, some third-party information is available. However, the IRS has not developed processes to obtain and use this third-party information."
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Identity Theft May Cost IRS $21 Billion Over Next 5 Years

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  • How much AC lame first posts cost us, preferably in LoCs
  • by Solandri (704621) on Friday August 03, 2012 @04:18PM (#40873023)
    Several years ago, we found out some of our employees were illegal immigrants who had applied using fake SSNs and IDs. When I thought of the consequences, I realized the IRS collected FICA taxes from these people (social security, medicare) which would never be paid back to them. And if they were due a refund on their income tax withholdings, they were unlikely to ever claim them.
    • Re: (Score:3, Interesting)

      by Anonymous Coward

      The head of the SSA recently estimated that about 80% of employed illegal aliens in the US are using a fake social security number.

      Assuming $10K/yr in average wages for this group, that's between $10 billion and $15 billion in tax revenue.

    • by Anonymous Coward

      Not so sure about that with a fully -fake- ssn (ie, it doesn't exist) since the taxpayer in question probably won't claim it. If however, it was done using a -stolen- (ie: belongs to someone else) ssn, it would be credited under that ssn for the year. When the legit taxpayer files a return, they'll crosscheck the numbers, and if there is a difference, they'll issue a 'correction' and give them a larger return.

      • by Qzukk (229616)

        Unless the illegal put 50 exemptions on his W-4 and had no withholding.

        Then the sucker whose SSN was stolen has to explain why the government has more W-2 forms than he does.

        • by Anonymous Coward

          Unless the illegal put 50 exemptions on his W-4 and had no withholding.

          Then the sucker whose SSN was stolen has to explain why the government has more W-2 forms than he does.

          That plan would be foiled after a single tax season the way you described it, it wouldn't be remotely sustainable. Try again.

      • by aaarrrgggh (9205)

        A non-issued ssn (if such a thing exists) would raise flags quickly, but a name mismatch is only generated after filing a tax return with the incorrect number.

        If you don't report the income, and the IRS catches the discrepancy, it just goes to government coffers.

        Does the government knowingly accepting taxes with bogus SSNs make them complicit in illegal immigration?

        • Anybody under 50 isn't going to get any meaningful social security payout anyway. Illegals aren't special in this way.

    • by Anonymous Coward

      A lot of those illegals working under fake SSNs also have officially issued ITINs--like SSNs, but used only for tax returns (because we give "refunds" to a lot of people who pay no taxes). So the illegal works and has taxes withheld with the phony social, then files a tax return with no income and a passel of kids (some with SSNs, some with ITINs) to claim the EITC and other refundable credits. Who really knows whether it's a net gain or loss to the government?

      • by sumdumass (711423)

        Every illegal working in the US is a job a US citizen cannot do. Whether or not they would do it, or do it for the pay is besides the point, if the position is filled by an illegal, it is not being filled by an unemployed citizen,

        The number of illegals in the country is about 4% of the population. If every one of them were working jobs (they are not) that would drop our unemployment rate almost in half.

    • Several years ago, we found out some of our employees were illegal immigrants who had applied using fake SSNs and IDs. When I thought of the consequences, I realized the IRS collected FICA taxes from these people (social security, medicare) which would never be paid back to them. And if they were due a refund on their income tax withholdings, they were unlikely to ever claim them.

      FICA taxes are collected also from many legal residents on temporary work-permits, although some are exempt for an initial period of time (e.g., J-1.) I'm not an expert on this, but I think people in these circumstances might never collect on medicare if they're not present in the USA, although I think they could still collect social security even from outside the USA if they're vested.

    • Last figure I saw put that at around $6 billion.

    • True, but many would, and have, argued that illegal immigrants should receive no government services of any kind, that they're taking jobs away from 'real' americans, etc. So maybe they won't get their taxes back, but they still got a paycheck for a whole lot more. And, not legally, I might add.

      That said, the problem of legal immigration by false reporting by corporations is a larger problem than illegal immigration; Corporations that can afford to pay to have exemptions carved out for their industry (H1-B

      • > That said, the problem of legal immigration by false reporting by corporations is a larger problem than illegal immigration

        For a certain cohort of workers that want to protect their salaries it is an issue. For the society as a whole not so much. These are highly trained workers that are definitely a positive for the overall economy.

        Illegal immigration is a real problem for the society. There is a significant economic cost for the services that are required to deal with issues created by this group - c

        • For a certain cohort of workers that want to protect their salaries it is an issue. For the society as a whole not so much. These are highly trained workers that are definitely a positive for the overall economy.

          You may be right, but that doesn't eliminate the fact that businesses benefit from a lower labor cost by exploiting that labor's desire to live here: If they are fired, they have to go back to the country they came from. Many would consider that unethical, and immoral... but you are right, it's good for the economy, and totally legal.

    • by Anonymous Coward on Friday August 03, 2012 @05:19PM (#40873573)
      This is part of the reason we need to stop calling this identity theft and start calling it what it really is: Tax fraud. Same with banks. Someone pretends to be me and tricks the bank into given them money, it's bank fraud. My identity wasn't stolen. I'm just fine. The bank made a mistake and they need to clean up the mess not me. Calling it identity fraud puts the blame on me instead of the bank who made the mistake.
      • This is part of the reason we need to stop calling this identity theft and start calling it what it really is: Tax fraud. Same with banks. Someone pretends to be me and tricks the bank into given them money, it's bank fraud. My identity wasn't stolen. I'm just fine. The bank made a mistake and they need to clean up the mess not me. Calling it identity fraud puts the blame on me instead of the bank who made the mistake.

        I completely agree with your "don't blame the victim" message, and the need to avoid terms that falsely direct that blame. However, I'm not sure we can stop calling it "identity theft." For one thing, it has become a catch-all term for any kind of fraud that involves someone impersonating you for financial or other gain. It's far pithier and handier to refer to this class of crimes as identity theft than to force some awkward construction of tax/bank/credit/bitcoin/online-gaming/slashdot-karma fraud. An

      • I was a victim of Identity theft and can say from experience that there are two components to the crime. There's the bank fraud or tax fraud portion where someone uses your information to get money from a bank or file a tax report in your name. (In my case, it was a credit card in my name which - luckily - the thieves messed up on and had delivered to my house.) Before they can do this, though, they need to get your information. *THIS* is the portion that I'd call "Identity Theft." In my case, I'll nev

    • by cpm99352 (939350)
      According to the law, illegal aliens are entitled to Social Security if they have paid into the system. https://www.fas.org/sgp/crs/misc/RS21732.pdf [fas.org]
      • According to the law, illegal aliens are entitled to Social Security if they have paid into the system.https://www.fas.org/sgp/crs/misc/RS21732.pdf [fas.org]

        It's quite a bit more complicated than that. They may or may not be able to collect, depending on many factors, such as what country they're living in, whether they ever had legal work status while they had a SSN, and so on. The details are all buried in the various editions of the Social Security Protection Act of [insert almost any year after 2000]. TL; DR.

        Even legal permanent/temporary workers and US citizens who have paid into social security may not be able to receive benefits, depending on where th [socialsecurity.gov]

  • Right from the first page of the report: "However, in view of its ongoing efforts to improve the detection of identity theft, the IRS did not agree with TIGTA’s estimate of $21 billion in potentially fraudulent refunds as a result of identity theft over the next five years." So what DOES the IRS think?
    • by Anonymous Coward

      So what DOES the IRS think?

      Considering that the IRS is so lazy and incompetent about checking their data that they sent 2,137 refunds totaling $3.3 million to a single address [yahoo.com], and that fact is now known to the public, they should realistically expect the amount of fraudulent refunds to be dramatically higher than the $21 billion estimate.

      • by tomhath (637240)
        To their credit, it was an IRS audit the reported those refunds. After the fact, unfortunately.
  • $21 billion in savings alone would be enough to figure out a solution. I know.... I new agency-wide IT project!!
  • Maybe they could start by saying, 'Please'...

    "You gotta ask me nicely."

  • by Anonymous Coward on Friday August 03, 2012 @04:28PM (#40873121)

    I filed my taxes on February 3rd electronically and found out someone had already filed under my SSN. I filled out the correct paperwork and sent it in, along with opening a case with the FTC and heard nothing from the IRS until I went into my local office 2 weeks ago. I found there is an open case but that I will be lucky to see my return (approx $1500) within 2 years. I have filed my return from the same address for several years, and it was my second year filing jointly with my wife. I believe there is little to no fraud detection at the IRS, as a tiny amount of research on their part would have stopped this entire mess.

    • I believe there is little to no fraud detection at the IRS, as a tiny amount of research on their part would have stopped this entire mess.

      Have to agree with you there considering this most recent story,

      IRS Accepts 2,137 Returns From ONE Address in forum [wsj.com]
    • That's the price you pay for a society that resists mandatory personal ID.

      • by Qzukk (229616)

        Because the mandatory personal SSN worked so well.

        • So because they did the worst possible thing once, it should never be fixed? SSNs have the problem of being insanely easy to 'steal' combined with being the only thing each citizen is sure to have. So anyone that wants to check your identity has to accept them as 'proof', since there is no requirement for any other way of identifying yourself.

          If you think SSNs are such a bad idea, just imagine if even they would not exist. How would you identify yourself? Just by your name - plenty of people have the same n

          • This is like using a nuclear bomb to kill a flea.

            All the IRS has to do is track a bit more information tied to the SSN and check it. Like home address and employer address.

            If the return doesn't agree with data on file bounce it.

            • And those things don't change do they? A person could move every year, and have ten jobs each year. And and ID card is not that much of a burden for a person to carry. Think of a smaller, harder to forge driver's license.

              • by tuck182 (43130)

                But they could flag for more careful review anything that didn't match (ie, any return going to an address that's inconsistent with any of the W2's or previous addresses on file) and expedite any returns that ARE consistent. It would be a way for them to focus their fraud prevention efforts, rather than just saying, "Oh it's too difficult to track, so we'll just mail out a return to anywhere, no questions asked."

          • by hellop2 (1271166)
            I can imagine SSNs not existing. What's so bad about that? How would I identify myself? Like this: "Hello, here I am."

            If SSNs didn't exist then it would stop a lot of identity theft. I have creditors calling me for things like unpaid phone and electric bills in states I never lived in. This could not happen if there were no SSNs. I can't think of one good reason for Gov't mandated unique identifiers except for the purposes of totalitarian oppression.

            Take for example: wage taxes. An idea once fou
            • How about social security?

              • by hellop2 (1271166)
                Are you giving me an example of a massive fuckup as evidence why we don't need SSNs?

                *sigh* Here's a video [youtube.com] suggesting why we're fucked by the rich through SS. Jump to 4:15 and 6:10 to to feel that fucked by the gov't (rich people, Bush, right-wing tools) feeling once again.

                Really, capitalism is based on continual growth, which is impossible. I wish we humans could produce some smarter outlier individuals like Einstein, Newton, Aristotle, etc... A Tesla of Economics who could formulate provable optim
                • Please take a look at this video [youtube.com].

                  It was uploaded 1.5 years ago, and has only 460,000 views. Obviously, it has not yet experienced the "Slashdot effect." Don't you think maybe, it should?
      • Because a mandatory personal ID will somehow prevent fraud. Right. Gotcha.

        • It won't come close to preventing it. But it will require the criminals to at least put some effort into it. And if filing a false tax return suddenly requires a few days of work ( compared to a few seconds) for a hundred dollars it might no longer be such an attractive way of making money.

    • by Bourdain (683477)
      While I'm a CPA but not a tax accountant, I'd suggest asking a tax accountant about the option of "underwithholding" to the tune of $1500 for this next year and apply this unpaid refund against your balance a method to avoid this issue, at least in part, is to structure your tax payments and withholding to never yield a refund from the IRS in the first place which is not a perfect science but can be pretty close in most cases if you're organized...
      • While I'm a CPA but not a tax accountant

        Indeed.

        I'd suggest asking a tax accountant about the option of "underwithholding" to the tune of $1500 for this next year

        Doing what you suggest is probably illegal and may, depending upon how much is "under-withheld" or under reported (if self-employed), result in penalties if the difference between what should have been withheld or paid and what was actually withheld or paid exceeds a certain threshold (penalties begin after about $1,000 difference or so and climb from there). Also, it says specifically on the W-4 instructions that claiming allowances to which you're not entitled, regardless of whether or not they res

        • They can follow you to the ends of the earth, seize your assets and your bank accounts, and generally make your life extremely difficult.

          They can in theory, but in practice they are underfunded and slow to process paperwork. So it becomes a gamble if your name comes up to be harassed before the prior years straighten themselves out.

        • by Bourdain (683477)
          Can't you apply non-yet received refunds against your liability though?
    • As someone who has had his identity stolen, I'd recommend freezing your credit. Depending on your state, you might be able to do this for free. The credit agencies will push fraud alerts, but those are very ineffective. They may or may not alert you if someone opens a line of credit in your name, but they're completely voluntary. A credit freeze, though, will block anyone from opening any lines of credit unless you first thaw the credit. Yes, it means that you won't be able to sign up for that store cr

  • Judging from its performance last time I was on it, I'd say they're way ahead of schedule! Bam!
    Shall we try another? Ok!
    They've been killing their network all along! Bam!
    Ohhh... I could keep this up for hours...
  • by GodfatherofSoul (174979) on Friday August 03, 2012 @04:58PM (#40873395)

    Can't have the revenue man collecting taxes or anything like that.

  • If the IRS is allowed to impose fines and penalties for tax return issues shouldn't they have the same fines and penalties imposed on them for accepted fraudulent tax returns? Simple enough - once they find AND correct the error they apply the same formula they use for the taxpayers and tack it on as NON-TAXABLE income to the correct return.

    That would be some incentive for them to look into and resolve problems quickly.

    • by DRJlaw (946416)

      That would be some incentive for them to look into and resolve problems quickly.

      Because losing the claimed refund amount (which anecdotally appears to be in the high 4 figures, greater than the typical refund) somehow costs less than the interest and penalties that would be reversed on the actual refund amount due?

      Nevermind that the IRS doesn't lose the money and wouldn't pay those amounts, but the general treasury does and would.

      Just look to the mortgage crisis, where the party in control (the mortgage bro

    • If the IRS is allowed to impose fines and penalties for tax return issues shouldn't they have the same fines and penalties imposed on them for accepted fraudulent tax returns?

      The IRS subject to the same rules as you or I? LOL, never happen. The IRS has long enjoyed effective immunity to any penalties, no matter how incompetent they are , while penalizing the average taxpayer mercilessly for even the smallest and most innocent mistakes. All of this due to a tax code which even US Senators and Congressmen have conceded on numerous occasions is needlessly complicated, contradictory and nonsensical. Under such circumstances errors or disputes are practically inevitable. BTW, if you

    • by shentino (1139071)

      And bam, incentive for collusion.

  • by J'raxis (248192)

    Thieves stealing from thieves. Nice.

  • e Next 5 Years
    A better headline imo.
    • by tuck182 (43130)

      If you think that's a fitting headline, I don't believe you actually read the story.

      The money the IRS is losing is money they paid out to criminals filing returns with fraudulent information and claiming a refund. This is ultimately going to cost citizens (both for the initial false payouts and for the costs to clean up the mess), and the only people who win here are the criminals taking advantage of a broken system.

  • that's some identity crisis. I blame congress' split personality... .

  • ...they want their insecure ID number back.

  • The SSN was not supposed to be used for anything but social security. And what do we have? The SSN is being used in precisely the way the "doom sayers" predicted before it all came to be. But now we are seeing where this practice is costing the government Billions of Dollars. Perhaps NOW is the time to extract some SSN abuse reform?

  • $21 billion sounds like a lot, but over 5 years it's 4 billion a year.

    US tax revenues are what? 3 trillion a year? That's about 0.1% we are talking about.

    Betcha that there are much holes in the tax system than this.

    Then of course there is the question of how much the counter-measures would actually cost, and whether or not the counter-measures would actually reduce fraud rather than just cause the crooks to find a different mode of exploitation.

    As usual just throwing out a statistic doesn't provide anything

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