IRS clamping down on refund fraud, ID theft

New safeguards help cut numbers of fake returns, victimized tax filers, agency says

An Internal Revenue Service tax industry crackdown is making progress in the battle against identity theft and tax refund fraud, officials said Tuesday as they announced plans for additional safeguards in 2018.

Fewer federal tax returns linked to identity theft entered the tax system in 2016, and the number of taxpayers who said they’d been victimized also dropped, along with the number of fraudulent refunds issued, the officials said.

Among the highlights:

►T●★ IRS stopped 883,000 tax returns with confirmed links to identity theft in 2016, a 37% drop from the year before. It stopped 443,000 potential tax refunds linked to identity theft, a 30% year-over-year decline.

►Financial institutions stopped 124,000 suspect tax refunds in 2016, half the number detected in 2015. The companies have stopped 127,000 suspicious refunds so far this year, reflecting a handful of cases involving several thousand accounts.

►T●★ number of taxpayers who told the IRS they had fallen victim to identity theft dropped to roughly 376,000 in 2016, a 46% decline from the year before.

“We’ve seen the number of identity theft-related tax returns fall by about two-thirds since 2015,” IRS Commissioner John Koskinen said in a statement.

“This dramatic decline helped prevent hundreds of thousands of taxpayers from facing the challenges of dealing with identity theft issues.”

The declines stem in part from a first-of-its-kind partnership, launched in 2015, between the IRS, state tax agencies, major taxpreparation companies and other tax industry participants.

The agencies have been sharing information and implementing new electronic safeguards and other measures aimed at thwarting identity thieves.

For instance, tax industry representatives have shared dozens of key data points from electronically filed tax returns that have helped the IRS to identify tax scams and block fraudulent refunds.

“We all need to work diligently and together to combat this common enemy.”

IRS Commissioner John Koskinen

As the crackdown continues in 2018, all official IRS W-2 forms used to file federal tax returns for the first time will include a verification code box. A 16-character code will appear on approximately 66 million W-2 forms, more than half of all forms issued, Koskinen estimated.

Taxpayers who prepare their own tax returns and tax preparers will be urged to enter the code in the verification box if their form includes the 16-character entry.

Additionally, the IRS will ask tax professionals to gather more information about clients who file business tax returns.

Koskinen’s IRS term expires in November.

“We know that cybercriminals are planning for the 2018 tax season, just as we are,” Koskinen said. “This coming filing season, more than ever, we all need to work diligently and together to combat this common enemy.”