$5.8 Billion Dollars in Fraudulent Refunds!


By Brenda Gundersen

A U.S. Government Accountability Office report found that the IRS paid out $5.8 billion in fraudulent refunds in 2013, and prevented or recovered $24.2 billion in bogus refunds.  Also, identity theft complaints increased 47% in 2015 from 2014.  The IRS estimates that in addition to these headaches, it takes 278 days for the identity theft victim to have his or her tax account corrected and refund reissued.  These statistics are frightening and identity theft could happen to anyone.

U.S. Representative Jim Renacci (R-OH) has sponsored the Stolen Identity Refund Fraud Prevention Act of 2016 (HR 3832).  The House passed the bill on May 16, 2016, and it is expected to pass the Senate.  Rep. Renacci was himself a victim of identity theft.  The fake return included Renacci's and his wife's actual Social Security numbers and a dummied-up W-2 form for his congressional income.

Stolen Identity Refund Fraud Prevention Act of 2016 (HR 3832)

  • The Act established a centralized point of contact at the IRS for victims of identity theft.
  • Requires the IRS to notify a taxpayer if the IRS determines that there was unauthorized use of the taxpayer’s identity.
  • Establishes an Information Sharing & Analysis Center (ISAC) to collect, analyze and share actionable data and information to detect and prevent identity theft.
  • Requires the IRS to submit a study on the feasibility of establishing a program for victims of identity theft tax fraud to opt out of electronic filing.
  • Requires a taxpayer identification number on W-2 forms instead of a Social Security number.
  • Requires employers to provide the Social Security Administration with workers' W-2 data by January 31 (currently February 28).  The IRS currently receives W-2 information roughly two months after the employee receives the W-2s, which provides a window for fraudsters to file false tax returns. 

For those who are committing the crime, the bill includes a mandatory minimum sentence of two years for "aggravated identity theft" regardless of circumstances and increases the maximum sentence from 10 to 20 years.

The bill also provides stiffer penalties for identity theft related to the most often targeted groups, which are:

  • Deceased taxpayers
  • Taxpayers over the age of 55
  • Citizens of territories or possessions of the U.S.
  • Taxpayers under the age of 14
  • Persons not required to file a federal income tax return due to low earnings
  • Active-duty military

If you or someone you know is a victim of identity theft, the Federal Trade Commission has recommended steps that identity theft victims should take.  See www.identitytheft.gov for more information on this topic.  For more information on the Stolen Identity Refund Fraud Prevention Act of 2016 (HR 3832) please contact us.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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