The Fraud Examiner

Identity Theft Tax Refund Fraud: Everybody Is at Risk

By Michael Hoffmann, CFE

October 2014


Fraudsters who use stolen personally identifiable information can perpetrate a wide variety of fraudulent financial schemes, such as hacking online accounts, submitting phony insurance claims, and applying for loans and credit cards to pad their bank accounts. Increasingly, though, identity theft tax refund fraud is becoming a favorite money-making scheme for criminals.


There have been many newsworthy stories in recent months of identity theft and how the information can be used against individuals. Because identity theft tax refund fraud has become the most popular tax scam around, you might even know someone who has been a victim of it. All that is needed is a computer (or even a cell phone with the necessary app) and someone’s Social Security number (SSN) and date of birth.


This fraud is so rampant that the U.S. Internal Revenue Service (IRS) estimates that it mistakenly paid $5.2 billion to identity thieves in 2013, according to a report by the Government Accountability Office (GAO). The fraudsters filed fraudulent tax returns on behalf of millions of unsuspecting taxpayers, and the IRS did not catch the scheme until well after the refund checks had been processed. However, the financial damage could have been far worse: The IRS also estimates that it was able to identify and stop $24.2 billion in attempted identity theft tax refund fraud last year.


Components of the Scam

Believe it or not, this fraud scheme is fairly easy to execute. Citizens usually receive a W2 tax form from their employers by the end of January each year. For the most part, taxpayers then file returns by April 15. During that window, fraudsters are able to steal individuals’ personal information, usually Social Security numbers, file fake returns as the victims and collect the refund checks. Because the IRS attempts to issue refunds within three weeks of receiving submitted tax returns, the scam happens quickly and painlessly for the fraudsters.

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