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No action from Congress as tax refund fraud spreads

Women walk out of an Internal Revenue Service office in New York April 18, 2011. REUTERS/Lucas Jackson
Women walk out of an Internal Revenue Service office in New York April 18, 2011. REUTERS/Lucas Jackson

By Patrick Temple-West

WASHINGTON (Reuters) - Legislation has stalled in Congress that would help the Internal Revenue Service fight a wave of tax refund fraud, prompting one Florida lawmaker to appeal for more action.

Democratic Representative Kathy Castor, whose Tampa district is an epicenter for tax refund fraud, introduced a bill in February that would allow the IRS to share more tax information with local police.

So far, the measure has gained little momentum, but that may be changing, she said in an interview with Reuters.

Tax refund fraud "is an epidemic in Florida," Castor said, adding that lawmakers from districts less hard hit by the problem are starting to see "what a huge hole in the Treasury this is."

Members of the Senate and House of Representatives tax-writing committees support anti-tax refund fraud legislation, according to committee staffers. But so far no members have signed on to co-sponsor Castor's bill.

Tax refund fraud perpetrators typically use stolen names and Social Security numbers to file phony electronic tax forms and then claim the tax refunds that follow.

The number of IRS criminal investigations into identity theft more than tripled in fiscal year 2012 and is on pace to double again this year, acting IRS Commissioner Steven Miller told reporters in February.

A strict taxpayer protection law prevents the IRS from sharing most tax information with local police. Castor's bill would loosen some of those restrictions in tax fraud cases.

Some taxpayer privacy advocates worry that tax information shared with local law enforcement could be used for other purposes.

Congress has put "identity theft fraud on the back burner," said Jim Buttonow, a former IRS official who started a tax software business in North Carolina.

A Treasury Department watchdog projected that tax refund fraud could cost taxpayers $21 billion over the next five years.

Keith Fogg, a tax professor at Villanova University School of Law, said he recently helped resolve a fraud case involving an 80-year-old Pennsylvania woman who fell prey to a bogus tax refund filing from Florida.

"She was totally bumfuzzled" about why the IRS was billing her, Fogg said, adding that changes such as the ones Castor has proposed might help prevent these abuses.

(Editing by Kevin Drawbaugh. Editing by Andre Grenon)

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