IRS agents make big dent in combatting identity theft

WASHINGTON — The IRS strikes back: The tax agency reports that the number of identity theft victims plummeted last year after agents struggled for years to combat what has become a multibillion-dollar industry.

The number of victims dropped by 46 percent, to 376,000, the IRS said. These taxpayers had their identities stolen by criminals who used their Social Security numbers and birth dates to obtain fraudulent tax refunds.

The IRS stopped nearly 1 million fraudulent refunds from being issued last year. They totaled almost $6.6 billion, the agency said.

“It’s a much more challenging time for the cybercrooks,” said Mark Ciaramitaro, vice president for retail tax products and services at H&R Block. “All of the easy paths have been closed.”

Identity theft exploded from 2010 to 2012, and “for a time overwhelmed law enforcement and the IRS,” said John Dalrymple, deputy IRS commissioner for services and enforcement.

At the IRS, it peaked in 2014, when the agency identified more than 766,000 victims. That same year, the IRS blocked 1.8 million in fraudulent refunds from being issued. They totaled $10.8 billion.

“We’ve driven a lot of the fraud out of the system,” Dalrymple said.

The IRS is a popular target for sophisticated identity thieves because the agency issues more than $300 billion in tax refunds each year.

Several years ago, it was as simple as using another person’s Social Security number and birth date to fill out a fake tax return claiming a big refund. If thieves filed the return early in the tax filing season — before the legitimate taxpayer — they could get refunds before the IRS received verifying financial information from employers, banks and brokers.

To make it easier, thieves can get fraudulent refunds on prepaid debit cards that are not linked to bank accounts.

In recent years, the IRS has beefed up its computer filters to identity potential fake tax returns. If there are dramatic differences in a taxpayer’s return from year to year, it might get flagged for additional review.

Two years ago, the IRS also teamed up with major tax preparers and state tax agencies to share information and improve security.