A new government report charts an alarming rise in tax return refund identity thefts and that few of the thefts are even investigated by the IRS.
The U.S. Government Accountability Office (GAO) report said the Internal Revenue Service identified 641,690 incidents of identity theft involving tax fraud this year as of Sept. 30, a major increase from the 232,142 incidents reported in 2011.
Just 0.1 percent of these cases initiated criminal investigations and the rest of the crooks were able to keep the ill-gotten gains. Only 898 criminal investigations were initiated in fiscal 2012, the report said.
"Notwithstanding the IRS's efforts, its resources and ability to resolve cases are stretched thin," according to the Taxpayer Advocate Service's 2011 annual report to Congress.
Beth Tucker, IRS Deputy Commissioner for Operations Support, testified in front of the House Committee on Oversight on Thursday, saying, "The IRS is working to speed up and further streamline identity theft case resolution so that innocent taxpayers will experience as little inconvenience as possible."
The dollar volume of fraudulent refunds is not known, according to the GAO. Financial institutions recognized and returned to the IRS $754 million in tax refunds they found suspicious between January and Sept. 30, 2012. The GAO said that figure is only a fraction of the total amount of refund fraud.
James White, spokesman for the GAO, said the nearly 642,000 cases included many attempts by individuals or groups of criminals, but the IRS does not know how many individuals are responsible.
Thieves can obtain a taxpayer's name, and Social Security number in many ways, including hacking into a computer system or stealing paper files at one of the many organizations that use names and Social Security numbers in their records, including employers, schools and financial firms. They then file a fraudulent tax return seeking a refund, often early in tax filing season before the real taxpayer files.
IRS officials said that "one of the challenges they face in combating this type of fraud is its changing nature and how it is concealed," the GAO reported stated.
"While perfect knowledge about cases and who is committing the crime will never be attained, the better IRS understands the problem, the better it can respond and the better Congress can oversee IRS's efforts," the GAO report stated.
Karen Greenwood of Cary, N.C. is one of the growing number of victims of tax fraud-related identity theft.
In 2009, Greenwood was expecting a refund check of $2,300 that was desperately needed after she was laid off from her job as an executive assistant. She was instructed to contact the IRS when she was unable to check the status of her refund online. She then learned her taxes had been filed fraudulently by someone in New Jersey who had stolen her refund.
Greenwood suspects that someone stole her personal information from an e-commerce site in 2006.
"People really have to pay attention and can't be so naive," Greenwood previously told ABC News. "You really have to be cautious now. I'm extra cautious and trust nobody basically."
The IRS has said it is pursuing ways to detect, resolve and prevent identity theft-based refund fraud, including a new filtering process that analyzes tax return characteristics.