Report: IRS Issues Billions of Dollars Worth of Fraudulent Tax Refunds Each Year

One could reasonably expect the IRS to keep a tight eye on their finances… right? After all, this is the agency that requires taxpayers to keep onerous records of charitable donations, education expenses, childcare costs, and a whole host of other items. And this is the agency that requires business owners to document every penny of income and every expense that they claim on their tax return.

But according to recent reports, the IRS routinely issues billions of dollars worth of refund checks to individuals who use falsified information to claim their refunds. As reports:  

The IRS could issue nearly $2.3 billion in fraudulent tax refunds to individuals who forge tax identification numbers each year, according to the Treasury Inspector General for Tax Administration (TIGTA).

An audit released on Thursday found that the tax agency routinely issues refunds to business accounts with fabricated Employer Identification Numbers (EINs).

“Perpetrators of fraud are using stolen or falsely obtained EINs to submit tax returns with false income and withholding documents to the IRS for the sole purpose of receiving a fraudulent tax refund,” TIGTA said.

The audit identified 285,670 stolen or falsely obtained EINs that were used for 767,071 tax returns in 2011. As a result, a total of $2,273,177,371 in potentially fraudulent refunds were dispensed that year.

“Based on our analysis we estimate that the IRS could issue approximately $11.4 billion in fraudulent refunds over the next five years because of stolen and falsely obtained EINs,” TIGTA said.

The IRS does maintain a list of “suspicious EINs,” which includes 6,333 fake identification numbers that have been used since 2003.  Based on its list, the IRS prevented $35.1 million in fraudulent refunds in 2012.

TIGTA said the agency’s efforts are not enough to make a substantial impact against fraud.

“The IRS has developed a number of processes to prevent fraudulent refunds claimed using stolen and falsely obtained EINs,” the audit said. “However, the IRS does not have the third-party Form W-2 information needed to make significant improvements in its detection efforts.”

As a tax attorney, I have worked closely with hundreds of families, individuals, and business owners that have had their lives turned upside down by an IRS dispute. That’s why it is so shocking to see how easy the IRS apparently makes it for scam artists to defraud the treasury. Perhaps the IRS could spend a bit more time implementing common-sense systems to safeguard their revenue, and spend a bit less time tormenting hardworking taxpayers who are just looking to provide for their families.

But, like it or not, the IRS holds tremendous power in America today, and going up against the agency in a tax dispute can be a stressful and expensive prospect. The good news is that you don’t have to face it alone. If you’re engaged in a tax dispute with the IRS, we want to assist. Please contact us today to learn how we can help!

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