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Cyber crime and identity theft need more preventive attention

With about two months before the April 15 deadline for filing federal income taxes, many taxpayers are beginning to think about their tax returns — and in many cases their tax refund. Unfortunately, criminals using stolen data from corporate computer breaches are ahead of most tax filers — and even ahead of fraud-detection efforts at the Internal Revenue Service.

There is often widespread anxiety when people hear news stories such as the computer hacks at Target and Home Depot, where credit card information was stolen. There is fear that thieves will use stolen credit card numbers and go on a costly buying binge.

But financial pain to individuals is typically limited in those cases. The more dangerous computer breaches are the ones that risk identity theft. A recent example is the computer break-in at Anthem Inc., the multistate Blue Cross-Blue Shield health insurance company, where 80 million records were stolen, including Social Security numbers and other personal data from tens of millions of current and former customers.

Cyber attacks of corporate databases and other forms of identity theft are being used to submit false tax refund forms. The IRS reports that about $5.2 billion was paid out in bogus refunds in the 2013 tax filing season. The tax-collection agency says it caught — and prevented payment of — undeserved tax refunds worth another $24 billion in the same year.

The threat to taxpayers from identity thieves is real and growing. And this threat comes at a time when Congress has cut the budget for the IRS, meaning there is less money to catch and stop fraudulent tax refunds.

The latest alert to the dangers of fake tax refund filings came last week when the FBI said it was investigating the filing of fraudulent tax refund applications in 19 states. Software company Intuit, the maker of the popular tax filing program Turbo Tax, said it was temporarily stopping the transmission of electronic tax returns in cooperation with law enforcement agencies.

While trying to stop bogus refund payments based on false refund forms, the IRS also is trying to provide good customer service. In some ways, the two goals are conflicting.

Partly at the urging of Congress, the IRS tries to process refunds quickly. But the prompt service means tax refunds are issued or wired to bank accounts before the IRS sees backup documentation, such as W-2 forms filed by employers. That’s crazy. The IRS should slow down processing refunds — at least until there is verification that the filing is legitimate and the correct taxpayer will receive the refund.

A pilot program the IRS is conducting in Flordia and a few other states with lots of identity theft crime involves the use of PIN numbers for identity verification, just like debit cards use. This, and other methods of verification, should be expanded — and rapidly — to block the criminals cashing in with fraudulent tax refund filings.

Experts report that cyber crimes, such as filing bogus tax refunds and Medicare fraud, are so lucrative and relatively risk-free that many criminals are shifting leaving the drug trade to focus on identity theft crimes.

Instead of bashing the IRS and cutting its budget, Congress should increase the tax collection ageny’s funding to boost staffing and technology efforts to stop fraudulent refund filings as well as other forms of tax cheating. Every dollar lost to tax cheating, whether from identity theft or secret Swiss bank accounts, has to be made up — relaced — by honest taxpayers paying more.

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