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IRS is overwhelmed by identity theft fraud

The Washington headquarters of the IRS, where officials say they have improved their ability to detect identify theft.
The Washington headquarters of the IRS, where officials say they have improved their ability to detect identify theft.Credit: Drew Angerer for the globe

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The ease with which criminals have stolen the identities of taxpayers and received refunds has raised searing questions about how the IRS handles the citizenry’s most sensitive private information. It highlights the agency’s failings at what seems to be a basic task: verifying that a return is filed by a living and legitimate taxpayer. That failure has cost the federal government — and thus real taxpayers — billions of dollars.

All told, in just the first six months of last year, 1.6 million taxpayers were affected by identity theft, compared with 271,000 for all of 2010, according to a recent audit by the Treasury Department’s inspector general. While the IRS said it discovered many of the incidents, other have resulted in a slew of potentially fraudulent refunds.

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