From the U.S. Government Accountability Office, www.gao.gov

Transcript for: Identity Theft Refund Fraud

Description: Audio interview by GAO staff with Jim White, Director,
Strategic Issues

Related GAO Work: GAO-14-633: Identity Theft: Additional Actions Could
Help IRS Combat the Large, Evolving Threat of Refund Fraud

Released: September 2014

[ Background Music ]

[ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and
information from the U.S. Government Accountability Office. It’s
September 2014. Using stolen identities to file for tax refunds is a
type of fraud that harms legitimate taxpayers and threatens the tax
administration system. A team led by Jim White, a director in GAO's
Strategic Issues team, recently reviewed IRS's efforts to combat
identity theft refund fraud. GAO's Sarah Kaczmarek sat down with Jim to
talk about what they found.

[ Sarah Kaczmarek: ] How big of a problem is identify theft refund
fraud, and how much money is at stake here?

[ Jim White: ] Let me start with what identity theft refund fraud is.
This is a situation where a crook files a fraudulent tax return claiming
a refund from IRS. And if IRS sends the refund to the crook, it gets
deposited in a bank account. Typically the crook withdraws the money
right away and is gone with the money. The problem is significant in
size. In filing season 2013, IRS estimates that there was over $29
billion in attempted identity theft-related refund fraud. Of that, about
5.2 billion was successful ID theft refund fraud. So IRS stopped a
little over 80 percent of the attempted fraud. But over $5 billion went
out the door.

[ Sarah Kaczmarek: ] Why is this happening? Is there something I should
be doing differently when I'm filing my own taxes to protect myself?

[ Jim White: ] Part of what's going on here is the crooks are taking
advantage of the normal process for filing a tax return. And this
process is designed to get refunds to taxpayers quickly. So taxpayers
file a tax return. IRS at that point does some computerized checks of
the tax return. But they don't complete all of their checks of
taxpayers’ tax returns until many months after the tax return is filed.

[ Sarah Kaczmarek: ] If someone suspects that they're a victim of this
type of identity theft, what can they do?

[ Jim White: ] The first thing they should do is look at the IRS
website. IRS has on their homepage, at the bottom of their homepage,
they've got a link to a number of identity theft pages. And so taxpayers
should go there. They've got information there on what to do in
different situations. If their identity has been stolen for example, and
they don't know that the crook is using it to commit tax refund fraud,
but they're worried about it. There's a phone number to call at IRS to
deal with that situation. If they believe they've already been a victim
of tax refund fraud, that'll be a different situation. But again,
there's contact information on the IRS website for dealing with these
kinds of cases.

[ Sarah Kaczmarek: ] I understand your team made multiple
recommendations to IRS, as well as a matter for congressional
consideration. Could you tell me a little bit more about the
recommendations to IRS?

[ Jim White: ] We're making two sets of recommendations to IRS. One set
of recommendations is to develop better information for Congress on the
benefits and costs of taking some fairly significant actions to deal
with this identity theft-based tax refund problem. And those actions
might include moving back the start date of the filing season. Moving up
the due date for information on returns, such as W-2s. Another step that
would be needed is beefing up IRS's information systems. IRS right now
does not have the capability to do real time matching of tax returns to
information returns. So we also made a recommendation, a separate set of
recommendations to IRS on providing more feedback to third party
financial institutions, especially banks. Those banks and other
institutions sometimes submit suspicious-looking refunds to IRS. So if
the IRS issues the refund, the refund gets deposited at the bank, and
the bank notices something suspicious about it, they'll notify IRS.

[ Sarah Kaczmarek: ] And finally, for taxpayers, what do you see as the
bottom line of this report?

[ Jim White: ] First of all, there's a substantial amount of successful
identity theft refund fraud that's occurring. Second, in order to deal
with this problem, taxpayers may have to be willing to make some
adjustments. It may be necessary to move the filing season start back
some number of weeks in order to give IRS the tools to prevent this kind
of fraud from occurring in the first place.

[ Background Music ]

[ Narrator: ] To learn more, visit GAO.gov and be sure to tune in to the
next episode of GAO's Watchdog Report for more from the congressional
watchdog, the U.S. Government Accountability Office.