A new report from Uncle Sam shows that the feds are wrongly paying out billions in tax refunds each year because of identity theft; even worse, the Internal Revenue Service doesn't have the power to look at certain documents that could stem some of those losses.
The impact of identity theft on tax administration is significantly greater than the amount the IRS detects and prevents," reads a report from the Treasury Inspector General for Tax Administration.
While the IRS is doing more in trying to prevent identity theft focused on tax returns, the review found the growing use of direct deposit is making it even easier for criminals to get money from the feds without being detected.
In 2011, the IRS identified over "1.1 million incidents of identity theft that affected the tax system," - most often it was people using another person's name and Social Security Number to file a bogus tax return and then a fraudulent tax refund.
The TIGTA report says one reason the IRS has a hard time stopping ID theft from getting fraudulent tax refund checks is that third-party income and withholding information "is not available until well after tax return filing begins."
The report says the IRS should get broader access to what is known as the NDNH - the National Director of New Hires - which contains information on workers like their W-4, name, address, Social Security number and more.
The IRS has asked Congress before to allow for greater access to that information to help double check tax return claims, but legislative changes haven't happened.
The report also found that some basic clues might help stop tax return fraud - like the use of a single address for many tax returns.
One address in Lansing, Michigan was used for 2,137 tax returns that netted over $3 million in tax refunds.
One address in Chicago had 765 returns for $903,000 in refunds.
You get the picture.
The report also looked at returns filed by dead people - something that should logically raise a red flag - as $415 million in 2010 went to 104,950 individuals who were deceased.
$695 million went to 288,252 students ages 16 to 22.
But the biggest chunk went to people who didn't have an income level that was high enough to require a tax return to be filed.
Those 952,612 instances found by this review added up to $3.3 billion in tax refunds.
Another idea offered by the Inspector General report was to limit the number of tax refunds that could be issued to one bank account - that might seem logical - especially when you see the data that shows one account received 590 direct deposits for tax refunds by the IRS, for a total of $909,000 in refunds.
The report says if the IRS were to tighten its procedures, it could save taxpayers $20.7 bilion in fraudulent refunds over the next five years.
That's enough for maybe 20 yearly judicial conferences of the Ninth Circuit Court of Appeals at the Hyatt Regency Resort & Spa in Maui.
