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[2023 Top Fraud Trends Special Series] Tax Refund Fraud

[2023 Top Fraud Trends Special Series] Tax Refund Fraud

Senior Director of Strategic Alliances
LexisNexis Risk Solutions - Government

This blog is part of a special series featuring top fraud trends predicted for 2023.

If Social Security fraud (Trend #3) makes the top of the list for Fraud Trends in 2023, chances are tax refund fraud is going to be on that list too! After all, the Social Security Number that is effective in Social Security fraud it is going to be as effective for tax refund fraud. But tax refund fraud would always be a fraudster favorite because there is a lot of money to grasp. In 2022 the U.S. government collected $4.90 trillion in revenue and the primary source of that revenue is from individual tax returns.

Though many successes in preventing fraud have been achieved by the IRS, the number of attacks is large and growing, both in terms of volume and sophistication. The Internal Revenue Service posted on their website a report from the Identity Theft Tax Refund Fraud Information Sharing Mission and Analysis Center (thankfully there is an acronym, ISAC). The report found that eight million tax forms appeared suspicious in 2022, up from two million in 2021.

These thieves don’t really have to have a high skill set in hacking or know how to code in order to get the Personal Identification Information needed to commit tax refund fraud. Scammers trick people in many ways such as a text with bogus links claiming to be from the IRS, or a fraudulent email that appears to be from the IRS. Once armed with little more than your name, birthdate and Social Security number, a crook can file a fraudulent tax return and collect a refund. This method of fraud is easy to perpetrate since it can take years before a fraudster is caught. Case in point, Thomas Addaquay was found guilty, November 7, 2022 of stolen identity tax refund fraud. For four years, Addaquay fraudulently obtained the names, social security numbers, and dates of birth of taxpayers to prepare and file thousands of false federal income tax returns.

Addequay was finally caught, but it probably could have been caught earlier if the IRS had a little help from the banks. Addaquay took the refund checks, issued in the names of the victims whose identities he stole, to a third-party payment processor who deposited them in to Addaquay’s accounts! $12 million in total! Financial institutions could play an important role in fighting against federal refund fraud as they are the end of the fraud chain. While the IRS is attempting to curb the fraud through new processes and compliance filters to detect fraud, they don’t know where the funds go once they mail the check!

For fiscal year 2022, the IRS Criminal Investigation Divisions initiated nearly 1,600 investigations and identified $2.3 billion in tax fraud schemes. Incredible work by this team. But as IRS-CI Chief Jim Lee says “We’ve followed criminals into the dark web and now into the metaverse. Tax and other financial crimes know no borders.”

The metaverse! To infinity and beyond for the fraudsters! There are no borders.


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