NCPA - National Center for Policy Analysis

Identity Theft Is Taking A Toll On Tax Refunds

April 17, 2015

The first tax deadline has now passed, and many individuals still needing extra time will file extensions.  But some who have electronically filed their returns are surprised to receive notice that a tax return for them has already been submitted — by somebody who is not the taxpayer.

This tax-related identity theft is a real and growing problem for the Internal Revenue Service (IRS) and for hundreds of thousands of taxpayers. Tax-related identity theft occurs when someone steals a person's Social Security number and uses it to file a tax return claiming a false refund.  These phony electronic filings, reporting false wage and tax withholding information, are typically made early in the year, before employers are required to provide data to the IRS (due in March) from which the IRS could reconcile the reported numbers and identify the false claims.

Taxpayers are unlikely to find out they have become victims of tax-related identity theft until they attempt to file a tax return, and learn that one has already been filed using their Social security number. Resolving the problem with the IRS and receiving the refund a tax payer is legally entitled to, can take the better part of a year.  The IRS says it assisted over 800,000 suspected victims of tax-related identity theft last year alone. According to the latest available data, the IRS lost an estimated $5.8 billion to fraudulent refunds in 2013, and stopped another $24.2 billion in false return refunds from being paid.

Source: Jeff Lerner, "Tax-Related Identity Theft — A Real and Growing Problem," National Center for Policy Analysis, April 15, 2015. 


Browse more articles on Tax and Spending Issues