According to the IRS, over two million tax returns were "potentially fraudulent last year." If true, this increase would mean a jump of fraudulent tax filings by over 70 percent since last year.
The massive jump in potentially fraudulent filings comes at a time when the IRS is under increased pressure by Congress to promptly issue refunds. As a result, payments are often issued before the tax forms are properly referenced.
This lack of proper reference coupled with additional pressure to stop payment on potentially fraudulent refund claims has resulted in many honest taxpayers finding themselves not only without a refund but also struggling to defend themselves against accusations of fraud.
Honest Taxpayer Accused of Fraud
Although there are many forms of fraud, taxpayers often find themselves addressing one particular area of fraud growing at an alarming rate: identity theft.
For example, one taxpayer attempted to file his taxes only to be told by the IRS that his taxes were already filed and the refund already issued. It turns out his social security number had been stolen and someone else cashed in on his $2,000 refund.
The taxpayer will not receive his refund for another year, and the IRS is completing an intense investigation requiring multiple forms of identification. Although this citizen did nothing wrong, he now finds himself in the middle of a tax fraud investigation.
Such stories are becoming more common. During tax filing season, the IRS held "tens of thousands" of returns listed as potentially fraudulent that were legitimate. This often results in taxpayers waiting months and spending a great deal of time attempting to contact IRS representatives to address the problem.
Source: Ozarks First, "IRS Struggles to Keep Up Amid Surge in Tax Fraud," June 28, 2012