The recent spate of refund tax fraud related scams takes advantage of a flaw in the IRS' electronic filing system. The IRS' system will detect when two returns are filed under the same Social Security Number but the system does not match returns to employer-filed W-2 income forms until after the filing season ends. This is why the IRS fails to catch false returns filed by identity thieves but rejects the legitimate returns filed by the identity theft victims later in the tax season.
Although IRS Commissioner Douglas Shulman said that he's working on "real-time" matching of W-2 income before issuing refunds, many Florida taxpayers will face tax audit and collection issues before this system change happens. An audit can be an intimidating thing to go through, and it is important to contact an experienced tax law attorney to help you through the audit process.
Identity theft-related tax fraud incidents skyrocketed to 248,000 last year, which is five times the number in 2008. It is unclear how many tax fraud prosecutions have been brought against Florida residents or if any of these tax fraud cases are brought against identity theft victims.
The cause of the problem stems from a Congressional mandate that the IRS process returns faster so people can get refunds quicker. People do in fact get their refunds quicker, but the IRS has not found a good way to properly scrutinize the returns it receives.
If you suffer an audit because of identity theft then be sure to contact an experienced tax law attorney who can deal with the IRS and protect your interests.
Source: Press Herald, "IRS hustles to fix flaws as identify theft adds to tax fraud," Dec. 28, 2011