The 2013 tax season still has a number of weeks to run but from what I am seeing, mostly anecdotal to be sure, it seems that the expected tsunami of fraudulent returns using stolen identities has not materialized this year, and the IRS seems to be gaining the upper hand in its battle against doling out tens of millions in counterfeit refunds.
To give you an example of the kind of anecdotal items I am seeing, Florida has been the epicenter of this scam on Uncle Sam over the past few years. Recently a Palm Beach newspaper interviewed a number of major tax preparers in their area and all said they have had far fewer returns they declined this year because a previous return has been filed — almost always by a scammer. One preparer, for instance, said this year he has had only four returns declined while last year at the same time he had more than a dozen.
An area IRS manager, also interviewed, said the number of people coming in to seek help because their returns had been rejected has dropped noticeably to a few-a-day, whereas last year "they would be lined up waiting when we opened in the morning."
If in fact the numbers of fraudulent returns are down — or at least the numbers that are going undetected and yielding refunds are down, the "why" this is happening is interesting. Because the last-minute changes in the tax law resulted in the Agency not starting to process returns until the end of January, this gave more time for people to file their legitimate returns before processing began and upped the possibility that two returns — one real and one phony — would be spit out of the system with the phony return easily detected.
Then, too, the IRS says it has installed five new "traps" that they hope will catch phony returns. The IRS has dozens of identity theft screens now in place to protect tax refunds. We don't know how successful these traps have been, but the Agency seems confident they will have a high level of success.
Finally, a major enforcement push by the IRS's Criminal Investigations Unit along with the FBI, Secret Service and the Postal Inspectors in January was very successful and undoubtedly sent a message to those contemplating filing fraudulent returns.
The coast-to-coast effort in 32 states and Puerto Rico, which involved 215 cities targeted 389 identity theft suspects and led to 734 enforcement actions in January, included 109 arrests, 189 indictments, information (a sworn statement of charges), criminal complaints and 47 search warrants. This on top of some 2,400 other enforcement actions against tax related identity thieves during 2012.
"As tax season begins this year, we want to be clear that there is a heavy price to pay for perpetrators of refund fraud and identity theft," said IRS Acting Commissioner Steven T. Miller. "We have aggressively stepped up our efforts to pursue and prevent refund fraud and identity theft, and we will continue to intensely focus on this area. This is part of a much wider effort underway for the 2013 tax season to stop fraud."
The deterrent, as well as the changes in process procedures, may be working and we may see the scourge of phony returns on the decline.