Tax Refund Theft Targeted In New U.S. Justice Department Crackdown

* Federal prosecutors gain new authority for criminal tax cases

* Effort focuses on ID theft for tax refunds

WASHINGTON, Sept 18 (Reuters) - The U.S. Justice Department launched a new effort on Tuesday to combat identity theft used to steal income tax refunds, granting federal prosecutors authority to quickly arrest suspects.

Federal U.S. attorneys now need approval from the Justice Department Tax Division before starting a prosecution in criminal tax cases.

But the agency said that effective Oct. 1, attorneys may bypass the Justice review process and authorize arrests immediately in ID theft tax cases. Justice's Tax Division will still need to review federal indictments for criminal tax cases, the agency said.

The change is a "green light that U.S. attorneys have to deal with this in a more-rapid response," said Mark Matthews, a lawyer at Caplin & Drysdale and former head of the criminal investigation division at the Internal Revenue Service.

In 2011, 641,052 taxpayers had their identities stolen, up from 270,518 the previous year, according to IRS statistics cited in a report by the Treasury Inspector General for Tax Administration.