By John D. McKinnon And Laura Saunders
Top lawmakers in the House and Senate have begun their own
probes into a recent spate of fraudulent tax filings made through
Intuit Inc.'s TurboTax, as federal agents try to determine what has
happened.
The scrutiny comes as recent attempts to obtain tax refunds
using stolen identities highlight the dark side of two things many
in Congress and many taxpayers hold dear: the ease of electronic
tax filing and the speedy payment of tax refunds.
"E-filing" and quick processing of returns enable criminals to
file large numbers of bogus returns and collect billions of dollars
in fraudulent refunds before taxpayers and authorities realize what
has happened.
The problem has grown rapidly, to a record of almost two million
suspected incidents by 2013 from about 440,000 in 2010, recent
Internal Revenue Service data show.
The IRS has instituted new screening methods that have helped it
cut back on successful fraud attempts. But the federal government
still lost about $5.2 billion in the 2013 filing season to the
problem, while blocking about $24 billion in attempts, a Government
Accountability Office report last fall estimated.
Intuit, which suspended filing of state returns for about 24
hours earlier this month after the company and state tax
authorities saw a lot of fraudulent filings, said it doesn't
believe its system was breached. Both Federal Bureau of
Investigation agents and IRS criminal investigators are looking at
the TurboTax incident to try to determine the extent of the
apparent fraud and how it was done, according to a person familiar
with the matter.
Intuit spokeswoman Julie Miller said that "to the best of our
knowledge, Intuit is not the target of that [FBI] investigation"
and that Intuit employees "work with law enforcement, including the
FBI, on a regular basis to detect and prevent fraud."
Jodie Stewart, an executive at a health-care company in Anna,
Ill., on Feb. 3 created her federal and state tax returns using
TurboTax. The next day, she received an email from TurboTax saying
that both had been rejected, and she learned that someone had filed
using her Social Security number.
Now, she faces a long process involving the police, IRS and
credit-reporting companies. "It is absolutely exasperating, and
this is just the beginning," she said. "The victim has a long
punishment, and the thief is free to do this to someone else."
Some potential fixes of stolen-identity refund fraud may be
unpalatable, such as a later start to the tax-filing system or
longer processing times. Currently, the IRS says nine out of 10
refunds are received within 21 days.
"America is addicted to fast refunds, and that addiction is
sucking good money out of the [government] budgets," Verenda Smith,
an official at the Federation of Tax Administrators, an association
of state and local tax agencies, said last week. "What we need from
politicians is permission to process a return for a month or two
before sending out a refund."
Some administration officials hope the incidents will help them
secure legislation to arm tax authorities with more information
sooner--for example, by requiring employers to share wage
information with the government earlier in the year.
Currently, the IRS often doesn't get employers' wage data until
late spring, much later than employees typically get it. This means
that the agency is sending out tens of millions of refunds without
being able to check the return's wage data against employer
data.
Some payroll firms, as well as other employers, have opposed a
speedup in the past, arguing it is too burdensome. The IRS might
also need a funding boost to do faster data matching.
Fraudulent tax-refund claims have been elevated for several
years. But some of the recent incidents are particularly troubling,
experts say, because of the specificity of the personal information
that scammers have obtained--for instance, some exact numbers from
taxpayers' prior returns.
In Washington, Senate Finance Committee Chairman Orrin Hatch
(R., Utah) last week in a statement termed the revelations
"troubling," and said his panel is taking a closer look. Aides
expect the filing problems to be examined at a hearing Mr. Hatch
plans for next month on tax scams. The House Ways and Means
Committee is looking into the matter and has held bipartisan
staff-level discussions with the IRS and Intuit. On Friday,
President Barack Obama held a White House summit on cybersecurity
to address what has become a major headache for businesses and
consumers alike. An administration official said that some of the
new safeguards companies are discussing could make identity theft
harder and therefore "cut back on the criminals' ability to do"
tax-refund fraud.That has helped save the government money by
simplifying processing, while also giving rise to a
multibillion-dollar electronic-filing industry--and creating
opportunities for crooks. In the last couple of years, the IRS
appeared to begin to turn a corner on stolen-identity refund fraud.
But the new problems that have appeared at the state level this
year could suggest more troubles for the federal system too,some
state officials believe.
The emerging frailties of the huge national electronic
tax-filing system are at least partly of the government's own
making.
Washington and the states have used the promise of easy filing
and rapid refunds to boost the percentage of taxpayers who are
filing their returns electronically. Over the decade through 2014,
the percentage of individual returns e-filed to the IRS rose to
about 84% from about 55%, according to an IRS spokesman.
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