IRS Stopped $50 Billion in Tax Refund Fraud

Identity theft-related tax refund fraud has been a big trend in recent years, and it’s growing. In fiscal year 2013, the Internal Revenue Service started more than 1,400 identity theft investigations, leading to twice as many indictments and sentences than in the previous year. The average prison term for such cases was a little longer than three years, and the longest was 26 years.

In a recent review of its identity-theft prevention measures, the IRS said it has stopped 14.6 million suspicious tax returns from being processed since 2011, as of November 2013, keeping $50 billion in refunds from being fraudulently dispersed.

For fiscal year 2014, which ends in September, the IRS is expanding its efforts to fight identity theft. As part of this initiative, the IRS will give more than 1.2 million taxpayers an Identity Protection PIN, a unique six-digit number issued to identity theft victims so they do not encounter problems when filing taxes; assign more employees to help identity theft victims (current case resolution takes about 180 days, and the IRS wants to shorten that time frame); give more options for identity theft victims to get help; and provide more information on IRS.gov.

An annual report from the Federal Trade Commission listed tax and wage-related fraud as the most common kind of identity theft in 2012, accounting for 43.4% of incidents reported to the agency. That’s up from 24.3% in 2011 and 15.6% in 2010, though the FTC is also taking in more complaints every year.

Oftentimes, consumers don’t know they’ve been a victim of tax-related identity theft until they go to file their tax return, only to find someone else has already used their personal information to do so. Sometimes the IRS is the first to notify people they may be victims of identity theft. With fraudsters trying to beat you to the refund, it’s a good strategy to file your taxes as early as possible.

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The IRS has assigned more than 3,000 employees to focus on identity theft issues, but it’s still up to you to do your best to protect yourself. Using strong passwords to protect online activity as well as guarding your personal information is a smart way to avoid identity theft on the front end, and regularly checking your credit reports and bank statements can help you spot suspicious activity indicative of identity theft. By monitoring your credit scores regularly, which you can do for free using Credit.com’s Credit Report Card, you can also watch for unexpected drops in your scores, which could be an indicator of identity theft.