The IRS versus Tax Frauds

Last updated on January 21, 2022

Although the IRS claims it is making efforts to curb tax fraud, a report by the US Treasury Department’s Inspector General for tax administration has revealed statistics about tax fraud that have come as a surprise, not only because of the extent of tax fraud taking place, but also because of the IRS’ incapability to stop it.

While the number of fraudulent returns stopped by the IRS has doubled during the past two years, tax fraud continues to increase annually. In 2012, there were more than 173,000 fraudulent tax returns filed by prison inmates, more than double the number spotted in 2010. The IRS does not have the resources to handle the epidemic that tax fraud is becoming.

The WashingtonPost adds, “In 2010, the [Inspector General’s] office found that nearly 50,000 prison inmates claimed more than $130 million in tax refunds without providing any wage information to the IRS, according to a 2010 audit. That same year, the [Inspector General] found that nearly 1,300 prison inmates had improperly received more than $9 million in home-buyer tax credits while they were locked up.”

Prison inmates have found ways to extract tax filing information from even inside prison. It is incredible that the IRS has sent tax refunds to prison inmates, and only those cases that get busted are public knowledge. Even the IRS finds it hard to determine the extent of tax fraud in the US. The WashingtonPost shares some of the methods tax frauds use to extract the identity of taxpayers to file fraudulent returns from the prison:

“Over the years, investigators have found that crafty inmates will go to great lengths to try to steal identities or trick the IRS into sending them a refund they don’t deserve,” said Karen Kraushaar, spokeswoman for the Inspector General.

“Some inmates scour obituaries, looking for identities to steal. Others use the identities of fellow inmates or even their own to file multiple tax returns. They use their access to computers to file the tax returns online. They can have refunds electronically deposited into the bank accounts of friends on the outside. Some inmates have even identified businesses that have filed for bankruptcy and claim to work there, using the bankruptcy as an excuse for why the company didn’t send them a W-2 form.”

During this tax season, tax thieves in and outside of prison become active. Their prime method of deceiving taxpayers is through ID phishing, where they use fake websites and emails to extract sensitive tax information. Millions of taxpayers fall victim to identity theft every tax season. With a large number of fraudulent tax returns filed every year, how will the IRS fare this tax season?