Filing Fake Tax Claims Is Easier Than Ever

Feb 16, 2015 at 2:17 PM ET

The number of people sentenced for tax fraud increased by over 50 percent over the last decade, even as the IRS has cut back on the number of agents, and the number of investigations has stagnated, according to the agency’s latest statistics.

Last year, the Internal Revenue Service identified more than 1.48 billion fraudulent refund requests. The agency was able to halt payment on about 88 percent of identified fake claims, but still issued around 1.6 billion in unwarranted refunds, according to the most recent report from the Treasury Inspector General for Tax Administration.

The increase follows a surge of tax fraud based on identity theft, which has been facilitated by the ease of filing taxes electronically and an abundance of accessible digital personal information. Enterprising hackers have been mining government databases for identifying information. Their efforts have been bolstered by massive data breaches, like the recent hack into Anthem Health that could have released millions of social security numbers. (Even would-be president Jeb Bush released several thousand by accident.) Scammers can use the info to file fake tax returns online and send the money electronically to prepaid debit cards, where it becomes hard to trace.

Brad Smith, CEO of Intuit, which makes TurboTax, sent a letter to the IRS last Monday urging the agency to take action on the plague of fraud after his company was forced to shut down returns for 24 hours due to a flood of fake submissions. Nineteen states said they had found signs of potentially fraudulent transactions via TurboTax, but the company insisted its security was not at fault.

In the meantime, the IRS reiterated some common-sense tips to help keep identity thieves at bay.