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IRS Paid $2.1 Billion To Likely Phony Tax Filers

Internal Revenue Service officials paid $2.1 billion for nearly 800,000 likely phony tax returns in 2012, a government watchdog said Thursday.

“We identified 787,343 Tax Year 2012 undetected potentially fraudulent tax returns with tax refunds totaling more than $2.1 billion,” the Treasury Inspector General for Tax Administration said in a  report. Nearly half of 2012’s phony returns were likely products of identity theft.

The $2.1 billion lost to fake returns was something of an improvement, having decreased by about $3.1 billion since 2010, with an estimated 700,000 fewer phony tax returns.

Dead people who “filed” more than 12,000 tax returns receive $22.2 million in refunds. Another almost 2,000 returns worth nearly $1.5 million were issued to children under 14 years old.

Investigators also reported that more than 158,000 Social Security numbers were used on multiple tax returns. An estimated $162 million was paid to fakers who filed returns before the legitimate taxpayer.

The IRS has also continued to delay deactivating tax identification numbers assigned to people that aren’t required to file taxes.

Likely fakers used those identifiers to file more than 140,000 tax returns worth around $375 million of refunds.

The IRS took some actions to improve its fraudulent return detection capabilities, such as grouping addresses and bank routing numbers through filters to catch duplications.

However, IRS officials told investigators “the filters … were not as effective as they could have been,” but they claimed “improvements were made” before the 2013 filing season.

The IRS still faces at least one major challenge detecting identity theft, but the report redacted specifics. It did note that it caused one-fifth of 2012’s fraudulent tax returns to go undetected.

Investigators previously found 1.5 million tax returns worth $5.2 billion likely filed by fakers in 2010, and another 1.1 million worth $3.6 billion in 2011.

The IRS prevented $21.6 billion from being distributed through 3.7 million tax returns in 2012, according to the inspector general. That amount rose to 4.1 million tax returns worth 24.3 billion in 2013.

The IRS announced Tuesday that more than 100,000 taxpayers had confidential information exposed after hackers gained access to the agency’s records.

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