IRS E-Filing Could Be to Blame for an Uptick in Tax Identity Theft

NEW YORK (Credit.com) — In the past several years, the number of incidents of identity theft related to consumers’ tax returns has surged, and there seems little the Internal Revenue Service can do about it. Some experts say a major reason for this increase in fraud could be the result of the agency’s e-filing option.

The ability to submit one’s taxes online is a major convenience for Americans across the country who may fret every filing season, as well as the IRS itself, which can handle the hundreds of millions of submissions it gets every year more expediently, according to a report from The Wall Street Journal. But all that ease of use can also pose a major problem for taxpayers because it opens the door for identity thieves to more quickly get in and out of the system when they try to commit fraud.

When a criminal is armed with a person’s real name and Social Security number, as well as bogus W-2 or Schedule C forms, pushing a tax filing through isn’t all that hard, the report said. And because e-filing allows for payouts to anonymous prepaid cards, a criminal may be able to get significant fraudulent funds in short order and potentially get away with the crime more easily. For instance, one transaction made in Oregon in 2011 allowed for a criminal to report false wages of $3 million and get $2.1 million in refunds from that state’s Department of Revenue.

Correcting the issue can be as difficult as committing identity theft through e-filing can be easy, the report said. The IRS cautions that an investigation into claims of fraud can take more than a year, and it’s dealing with a backlog of more than 650,000 cases.

Identity theft can affect not only people’s taxes and finances, but also their overall credit standing, depending upon what sensitive data a criminal has access to.

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