Georgia Revenue Commissioner Douglas MacGinnitie knows firsthand what it’s like to be a victim of income tax fraud. Three years ago his joint tax filing was rejected because someone had already filed a return using his wife’s Social Security number. For the MacGinnities, getting their taxes properly filed that year was more of a hassle than anything else—it took several months to get their state return processed and a year and a half for their federal return. But for Georgia and other states—and the IRS—false filings are more than a mere nuisance. They’re scams that result in the loss of billions of dollars each year.
A federal report estimated that 1.5 million potentially fraudulent tax returns were filed in 2012, totaling more than $5.2 billion in bogus refunds at the federal level alone. With more returns being filed electronically each year, the problem is getting worse—that same federal report estimates that the IRS could issue $21 billion in potentially fraudulent tax refunds between 2012 and 2017.
So when MacGinnitie took over as revenue commissioner a year after his own experience with tax fraud, he acted quickly to combat the scammers. The results in his state have been particularly impressive. Last year, Georgia saved $100 million by stopping the money before it went out the door. Three-quarters of that money was flagged through the state’s internal blocking system; the remaining $25 million was saved through a service offered by LexisNexis that checks all tax-filing information against its database of personal information. The returns identified as potentially fraudulent totaled 160,000, or 4 percent of all returns filed in 2013.
Georgia initially flagged far more returns. When a return is flagged—say, because a new mailing address is used and doesn’t show up as a prior address on LexisNexis—the filer is sent a notice to answer a few basic personal questions to verify his or her identity. If filers check their email or mail regularly, the return will only be delayed by a few days, says MacGinnitie. “We’re trying to balance the need for this against grinding the process to a halt,” he says. “To have a program like this, it’s going to add a little bit of time for some people, but I think everybody thinks it’s a fair trade-off.”