Identity Theft Harms Innocent Taxpayers Through Employment And Refund Fraud

Identity theft harms innocent taxpayers through employment and refund fraud, the Government Accountability Office (GAO) said in congressional testimony on June 2. (GAO-11-721T) In refund fraud, an identity thief uses a taxpayer's name and Social Security Number (SSN) to file for a tax refund, which IRS discovers after the legitimate taxpayer files a return. In employment fraud, an identity thief uses a taxpayer's name and SSN to obtain employment. When the thief's employer reports income to IRS, the taxpayer can face enforcement action because of apparent unreported income on a tax return. According to GAO, in 2010, IRS identified more than 245,000 identity theft incidents “that affected the tax system.” Even though this number constituted just a small percentage of tax returns filed, “for those affected, the problems can be quite serious,” GAO testified. GAO discussed steps IRS has taken to resolve, detect and prevent employment and refund fraud. However, the congressional watchdog agency pointed out that IRS's ability to address identity theft issues is constrained by several factors, including the following: privacy laws that limit the agency's ability to share identity theft information with other agencies; the amount of time it takes to detect fraudulent activity; the lack of resources needed to pursue potential criminal refund and employment fraud cases; and the burden that stricter screening would likely cause taxpayers and employers since more legitimate returns would fail such screening. This report can be found at http://www.gao.gov/new.items/d11721t.pdf.