Scam artists conned the federal government out of at least $5.2 billion in fraudulent tax refunds last year—and though that estimate is shocking enough—the amount is likely much higher, auditors warned on Monday.
Identity tax refund fraud has ballooned in recent years as electronic filing gives thieves an easy way to use stolen social security numbers and simply file phony tax returns. Though the electronic filing has made the tedious process more bearable and user-friendly for taxpayers, it has also made it much easier for criminals to scam the system.
Thanks to electronic filing, fraudsters armed only with laptops or smart phones can steal millions of dollars from taxpayers—all from the comfort of their own homes.
“I could wake up in the comfort of my own home, and just get on a laptop, do about 15 returns a day,” a former tax scammer, Corey Williams, told 60 Minutes. “Fifteen times $3,000 a return, that's $45,000 a day,” he said, adding that he raked in this money (which is just under the annual salary of an average American worker) while “wearing boxers and a t-shirt.”
Williams said fraudsters buy or collect a list of stolen identities by offering say a person in the billing department of an insurance company or a doctor’s office a $1,000 for a list of names and social security numbers; then they go to one of dozens of tax preparation websites and fill out bogus W-2 forms—claiming modest refunds of around $3,000 – 4,000. They tell the IRS where to send the money, whether it’s to their home addresses, bank accounts or prepaid debit cards that can quickly be discarded.
Williams said the IRS sent him tax return money about 40 percent of the time. And it only took about seven days.
In 2012, Treasury Department auditors found that the IRS issued more than $3.3 million through 2,137 tax refunds to a single address in Lansing, Michigan.
So how are these fraudsters able to pull this off without raising suspicions from the IRS? One reason is the software used by the IRS is not programmed to kick back or stop claims with suspicious data. That’s what credit card companies like Visa and American Express are able to do through sophisticated algorithms that verifications.
A new report from the Government Accountability Office suggests that fraudsters are easily taking advantage of the IRS’s “look back” compliance model—where the agency issues refunds after conducting only selected reviews. For its part, under this process, the IRS prevented another $24.2 billion from being lost to fraud.