In 2011, the Georgia Department of Revenue detected more than 100,000 fraudulent tax return requests, stopping $71 million from being sent to fraudsters.
This year, the state is escalating the fight. Department officials anticipate an additional $20 million will be saved, due to a new system launched in January that puts a finer screen to potentially fraudulent requests.
The new system, LexisNexis Tax Refund Investigative Solution, screens tax refund requests against billions of identity records collected from various public records sources.
“Looking at the numbers, I think the impact is huge,” said Staci Guest, director of the department’s Office of Special Investigations.
The LexisNexis system, which the state contracted for between $2 million and $3 million with appropriated state funds, has more specific detection than the Revenue Department’s internal system, Guest said.
The old system was easier to trick, said Haywood Talcove, CEO of LexisNexis Special Services Inc. The address “123 Main St.” might go through, for instance, because there would be no reason to flag it as potentially fraudulent. Additional data, however, would show that the address did not exist.
“If someone steals your credit card, you’ll receive a call from the credit card company,” Halcove said. “But they don’t have that for the social sector.”
If a refund request is flagged as potentially fraudulent, the taxpayer receives a letter asking to verify his or her identity through a series of questions only the taxpayer should know. If the answers are correct, the department mails the check to its rightful recipient. If the test-taker fails, he or she is asked to call the special investigations team.
Some of the questions go beyond common knowledge, said Bradford C. Dickson, tax principal at Windham Brannon in Atlanta. Dickson said he had a number of clients inquire about identity verification letters.
“It took people aback when they got questions about their first marriage or the square footage of their house,” Dickson said. “I think people were more taken aback by the questions more than the actual letters.”
A number of fraudsters don’t even attempt the quiz, Guest said, and those who do fail the quiz often won’t try to call the special investigations number.
“Fraudsters will dial in, but not even say anything,” Talcove said. “They’re scared to death now. They’ll say, ‘I’m a fraudster; I don’t want to impact my enterprise.’ ”
About 6 percent of the refund requests have generated identity verification letters, department officials said. One-third of that 6 percent was deemed fraudulent and halted. Those who are able to verify their identities may experience additional waiting time for the refund check to arrive. A bona fide request could be flagged if a person married or moved within the last year, Talcove said.
“I told my clients, even if it’s new, even if it’s an inconvenience, there’s a reason they are doing it,” Dickson said.
Identity fraud is a growing problem, officials say. The state discovered 29,000 fraudulent returned in 2009, which grew to 52,000 in 2010 and then nearly doubled last year.
Fraudsters have had to become more inventive. Talcove said some will steal one person’s name, another person’s address, a third’s social security number and then use all three to create a bank account to receive refunds directly.
“We don’t know if the person is in Georgia, they could be in Europe,” Guest said. “It’s so easy to file an electronic return.”
The new system is a return on a good investment, Guest said.
“It’s a growing problem,” Guest said. “But we’re doing what we can and hope it will have an effect.”
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