IRS pays billions in refunds to identity thieves

The IRS has been doling out billions of dollars in fraudulent tax refunds to identity thieves, according to a report released Thursday.

The agency failed to prevent 1.5 million potentially fraudulent tax returns from being processed last year -- resulting in refunds totaling more than $5.2 billion, according to an audit conducted by the Treasury Inspector General for Tax Administration.

While the IRS successfully detected 938,664 identity-theft related tax returns and blocked $6.5 billion in fraudulent refunds from being issued last year, the inspector general said it is "extremely troubling" that so many others slipped through the cracks.

The government watchdog estimates that the IRS could issue $21 billion in fraudulent tax refunds as a result of identity theft over the next five years.

Identity thieves often use the same address to file hundreds -- and even thousands -- of potentially fraudulent returns, the audit found. The same address in Lansing, Mich., for example, was used on 2,137 tax returns, resulting in more than $3 million in potentially fraudulent refunds, according to the report.

In fact, just five addresses were used to file nearly 5,000 returns -- resulting in a total of $8.1 million in potentially fraudulent refunds.

Tampa was identified as the city with the most tax-related identity theft, with more than $468 million in potentially fraudulent refunds. Roughly $130 million of that amount was uncovered in an identity-theft related tax refund scheme that the Tampa Police Department and federal authorities said involved criminals stealing the identities of the deceased and those who receive public assistance.


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