Over the past five years, the IRS has been experiencing issues around identity theft. Evidence of stolen identity tax refund fraud, or simply tax refund fraud (TRF), began to emerge as early as 2004 when individuals began submitting fictional tax returns from prison. According to the Treasury Inspector General for Tax Administration (TIGTA), in 2004, prisoners submitted 18,000 returns, which cost U.S. taxpayers $68 million. In 2010, they submitted 91,000 returns, with a loss of $757 million. Over that time, the prisoners also increased the average amount of money they collected, jumping from $3,777 in 2004 to a staggering $8,318 in 2010. Their tax fraud scheme exposed a flaw within the tax filing system.
Organized criminal enterprises understand flaws in the tax filing and refund system that allowed them to exploit procedural weaknesses and reap large returns for their efforts. TRF has evolved into a sophisticated criminal enterprise process with organized fraud rings filing thousands of fraudulent tax returns annually.