IRS Flags Almost 2 Million Tax Returns in Anti-fraud Efforts

The Internal Revenue Service has identified and started reviewing almost 2 million returns for possible fraud, Deputy Commissioner Steven Miller told a Senate subcommittee.

With almost a month remaining in the tax-filing season, that number “approaches the total” of returns identified in 2011, Miller said today. A primary cause of such fraud, Miller said, is identity theft.

“The IRS is confronted with the same challenges as every major financial institution in preventing and detecting identity theft,” he said. “We cannot stop all identity theft. However, we are better than we were and we will get better still.”

Last year, the IRS prevented $14 billion in fraudulent refunds from being issued, Miller said. The agency this year has added hundreds of employees to its anti-fraud efforts and implemented new filters that flag questionable returns.

Senator Bill Nelson said criminals have turned to tax fraud instead of stealing cars or dealing drugs, affecting honest taxpayers.

“Their lives are being turned upside down by identity theft and then tax fraud,” said Nelson, a Florida Democrat who chairs the Senate Finance subcommittee holding today’s hearing. “They have their tax refund stolen and then they are delayed when the IRS sorts out the mess.”

Nelson has introduced legislation that would impose tougher penalties and make it harder to gain access to the Social Security numbers of dead people.

Nelson’s bill is S. 1534.