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IRS is Overwhelmed by Identity Theft Fraud

Photo Credit: DREW ANGERER FOR THE GLOBERashia Wilson bought a $92,000 Audi, proclaimed herself a millionaire, and announced on her Facebook page that she was “the queen of IRS tax fraud,” as prosecutors told the story.

But even more than her flamboyance, it was the seeming ease of her crime that was most stunning: She and an accomplice were alleged to have hijacked the identities of other taxpayers to get fraudulent refunds. They used stolen Social Security numbers, a computer, and basic knowledge of how to file a tax return, according to the government.

After the Florida mother of three was caught and pleaded guilty last year to crimes totaling at least $3 million, her defense attorney, Mark O’Brien, made his own plea. He said in court that he hoped the “IRS will figure out a way to prevent this from happening in the future, so someone with a sixth-grade education can’t defraud them so easily.”

Across the country, the theft of taxpayer identities has taken off, while receiving far less attention than the loss of credit card information. Even some drug dealers, always with an eye out for easy profits, have turned to taxpayer identity theft after hearing how uncomplicated it was to scam the IRS. A medical assistant at a nursing home stole the identities of hundreds of patients. A prison guard stole the identities of inmates and filed false returns under their names.

All told, in just the first six months of last year, 1.6 million taxpayers were affected by identity theft, compared with 271,000 for all of 2010, according to a recent audit by the Treasury Department’s inspector general. While the IRS said it discovered many of the incidents, the cumulative thefts have resulted in billions of dollars in potentially fraudulent refunds, according to an array of government reports.

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Government gone wild: IRS paying billions in fraudulent tax refunds

Photo credit: saturnism

The IRS is paying out billions of dollars in fraudulent tax refunds to identity thieves; a problem that the tax service’s inspector general told CNBC is a “growing problem” involving numbers that are increasing “exponentially.”

In a new report to be issued Thursday, the inspector general for the IRS says that tax thieves are stealing the identities of taxpayers and then filing bogus returns on their behalf and collecting fraudulent refunds as a result.

The inspector general estimates that the IRS could issue as much as $21 billion in fraudulent tax refunds over the next five years.

The scam is so rampant that thieves are apparently sending in false returns in bulk without even bothering to change the mailing address on the returns. The inspector general said it found one residential address in Lansing, Michigan that was the source of an astonishing 2,137 tax returns, and to which the IRS directed more than $3.3 million in potentially fraudulent refunds.

In another case, a single residential address in Chicago was the source of 765 tax returns, generating more than $900,000 in potentially fraudulent refunds, the report said.

Read more from this story HERE.