Identity thieves target federal aid applicants

Internal Revenue Service Commissioner John Koskinen said Thursday the information of up to 100,000 taxpayers may have been stolen in a security breach of an online tool used to apply for federal student aid.

Testifying before the Senate Finance Committee, Koskinen said the IRS identified suspicious activity in the files of people who were using a “data retrieval tool” as they filled out the Free Application for Federal Student Aid. FAFSA is the form the government and colleges use to determine financial aid for millions of students.

The web-based IRS data tool lets people upload tax-return information, but the IRS and Education Department disabled it in March after identity thieves tried to use personal information from it to file fraudulent tax returns. Koskinen told lawmakers that about 8,000 fraudulent refunds were issued, totaling $30 million. The IRS prevented another 14,000 illegal refunds from going out the door and halted action on 52,000 other returns.

The agency is notifying about 100,000 taxpayers of the possible breach, although some of the FAFSA applications that were flagged for suspicious activity are legitimate, Koskinen said.

Tracking hacking

Security concerns about the data retrieval tool first emerged in September at the IRS, according to the agency head. Officials learned that with relatively little stolen information, identity thieves could pretend to be students, start the financial aid application, and give permission for the IRS to populate the form with tax data that could then be used for fraudulent returns. The IRS alerted the Education Department in October, the same month that the FAFSA application went live. The agencies monitored the situation, but were reluctant to disable a tool that helps families avoid tedious paperwork.

“We agreed with (Education officials) since we did not have, at that time, any volume of criminal activity that rather than shutting it down and add to the burden of people applying for financial aid, we, with them, would monitor that system,” Koskinen said. “But I told them that as soon as there was any indication of criminal activity, we would have to take that application down.”

By mid-February, Koskinen said it became clear that “there was a pattern of activity ... that was clearly not consistent with people going on to actually apply for student loans.”