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February 2, 2014

State cracking down on tax fraud with ID checks

Some 10 percent of filers may be quizzed on identity.

INDIANANAPOLIS — Some taxpayers may be asked to provide something extra this year with their state tax returns: Proof of identity.

With the start of the tax filing season Friday, the state Department of Revenue is piloting an automated verification system designed to intercept identity thieves who’ve stolen tens of millions of dollars in tax refunds by duping revenue collectors.

“These are criminals who know what they’re doing and who are making a lot of money at it,” said state Department of Revenue Commissioner Mike Alley.

The criminals run the gamut from a relative who uses a family member’s information to file a tax return and intercept the refund, to a national network of thieves who steal identity information from multiple sources to divert tax refunds into their own bank accounts.

Last year investigators identified more than 1,500 cases of Indiana taxpayers whose refunds were stolen by people pretending to be those tax filers. Many cases were detected only after taxpayers contacted the Department of Revenue to ask why they hadn’t received their refunds.

Alley said investigators probably caught less than half of the crime that occurred.

In cases where fraud was detected, the state still gave refunds to taxpayers who were affected. That meant the state ate the costs of the crimes.

“We don’t know the exact extent of the problem, but we know it’s costing us millions, actually tens of millions of dollars, every year,” Alley said.

This year the department will use an identification verification system developed by LexisNexis, a global research company. The system has been used by a handful of other states.

Alley said the system is designed to root out fraud without much disrupting Indiana’s promised turnaround time of 14 days for a tax refund.

Portions of each return seeking a refund will be fed through software that screens selected information against billions of publicly available identity records culled by LexisNexis.

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