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Uncle Sam seems to be paying out some nice coin to bad guys as they gained nearly $4 billion last year by filing fraudulent tax returns after stealing taxpayers’ personal information, a new report said.

Ninety-three percent of all potentially fraudulent tax returns are filed online, according to a report by security vendor ThreatMetrix.

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Cybercriminals often file a return for a child, an adult whose income doesn’t merit a return, or even a deceased person, ThreatMetrix said. A 2013 report by the Treasury Inspector General found the Internal Revenue Service (IRS) gave away nearly $4 billion in fraudulent tax refunds the previous year.

Many consumers also begin to file their tax returns only to find out someone else illegally filed a return in their names, according to the ThreatMetrix report. Bad guys often receive returns on prepaid cards, which the criminal turns into cash. The taxpayer then has to report the crime to the IRS, file a proper return, and protect their data and identity from fraudulent use.

Cyber Security

After a legitimate user files his or her tax return online, cybercriminals can compromise the system and steal personally identifiable information, the report said. In the first half of 2013 alone, 1.6 million taxpayers ended up affected by identity theft.

Cybercriminals are increasingly using social networks to collect data about their victims — such as marital status or number of children — which helps them to file more accurate tax returns and increase the success of their fraud, ThreatMetrix said. The IRS’s launch of a new mobile app this year could also increase the rate of fraud, the report said.

Click here for an infographic on the report.

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