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IRS watchdog: BILLIONS paid out in potentially fraudulent refunds due to false or stolen EINs

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Caroline May
Political Reporter

The Internal Revenue Service’s failure to fully weed out stolen or falsely obtained Employer Identification Numbers (EIN) results in billions of dollars paid out in potentially fraudulent refunds, according to the Treasury Inspector General for Tax Administration (TIGTA).

EINs are numbers the IRS assigns to identify taxpayers’ business accounts. People looking to scam the government use false or stolen EINs to report false income and withholding information.

TIGTA — which conducted a review of the IRS’ processes to identify this type of false information — estimated that such fraud could cost the government about $2.3 billion annually, and an estimated $11.4 billion over the next five years. (RELATED: IRS lost $4 BILLION to identity thieves in 2012 as it targeted the tea party)

“With an estimated Tax Gap in excess of $450 billion, it is imperative that the IRS use all available data to increase its ability to detect tax returns with false income and withholding associated with stolen or falsely obtained EINs,” J. Russell George, Treasury Inspector General for Tax Administration, said in a statement.

While the watchdog reported that the IRS does have a number of controls in place to fight fraud of this kind, TIGTA’s review of the 2011 electronically filed individual tax returns found 767,071 returns that got refunds based on fraudulent information.

TIGTA reported in its announcement:

Of the 285,670 EINs used on these tax returns:

  • 277,624 were stolen EINs used to report false income and withholding on 752,656 tax returns with potentially fraudulent refunds issued totaling more than $2.2 billion.

  • 8,046 were falsely obtained EINs used to report false income and withholding on 14,415 tax returns with potentially fraudulent refunds issued totaling more than $50 million.

The watchdog recommended that the IRS update its fraud filters, a recommendation with which the IRS agreed.

“Pending implementation of long-term corrective actions, we are reviewing options to adjust current processes to increase the effectiveness of fraud detection,” Peggy Bogadi, commissioner of the IRS Wage and Investment Division wrote in response to the audit.

“We are developing a process to identify EINs that are obtained for entities fabricated for the purpose of submitting false income withholding information. Similar processes are being developed for valid EINs that appear to be stolen. In both cases, fraud filters will be set to identify returns containing those EINs as needing additional review,” she added.

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