The IRS launched their very user-friendly electronic filing system around 25 years ago during the late 80’s. Since that time, people who e-file their federal income tax returns receive their tax refunds directly deposited into their bank accounts as soon as 10 days after electronically submitting the return.
While there are some checks and balances built into the IRS’ e-file system, much of the system’s integrity is based on nothing more than the population’s collective honesty. This naïveté of the developers of the e-file system has left the federal government open to a multi-billion dollar fraud where scammers file fake tax returns using randomly obtained social security numbers and directing the refunds to be deposited into their reloadable debit cards or the scammer’s bank account.
As an example of a glaring oversight, the IRS waits until July to compare the W-2 information included as part of the e-filed tax return with their database of that year’s W-2s filed by the country’s employers. With the current scam based on phony W-2 information being included as part of the fraudulently e-filed tax returns, this three or four month delay is a critical and easily exploitable weakness to the system.
While this identity tax refund fraud is growing exponentially, the IRS has moved slowly to come up with a solution. In a recent article on Accounting Today, “…the IRS estimates it paid $5.2 billion in fraudulent identity theft refunds in the 2013 filing season, while preventing $24.2 billion in such refunds, based on what it could detect.”
How big is this problem for US taxpayers? Big enough that 60 Minutes aired an exposé about this fraud on their September 21st program available at:
To be honest, my tax return is on extension and I’m a little concerned that this fraud is so widespread that when I file my 1040 during the next few weeks it will be rejected due to another return already being fraudulently e-filed using either my social security number or my wife’s.
With a projected fraud of $5 billion and growing, can’t the government hire Google, Amazon, Microsoft, or Apple to help develop a system where each taxpayer is given a unique PIN? I suggest that adding a PIN to each taxpayer’s record is a viable solution costing significantly less than the $5 billion currently being stolen from our Treasury