IRS has plan to combat refund cheats Kevin McCoy

Continuing an effort to battle taxpayer identity theft, IRS and tax industry leaders said Tuesday they’ve tested more than 20 new data elements on tax returns that will be used in 2016 to prevent fraudulent refunds.

The new safeguards, part of an unprecedented public-private information sharing, mark the latest effort to halt a years-long surge in tax refund fraud, including an embarrassing breach in which cyber-thieves stole as much as $39 million in federal refunds based on taxpayer information hacked from an IRS website.

Tax return preparation firms and other industry participants will share the data with the IRS and state tax agencies at the time of electronic filing, members of the so-called security summit said. Elements include:

Reviewing the transmission of tax returns, including any improper or repetitive use of Internet Protocol numbers, the originating address of the return.

Examining computer device identification data linked to the return’s origin.

Checking the time it takes to complete a tax return, an effort designed to detect signs of computer mechanized fraud.

Capturing metadata from the computer transaction that will allow review for fraud related to identity theft.

Also, IRS and industry officials said tax software providers have agreed to strengthen validation requirements for new and returning customers by toughening password standards and implementing other measures to guard against account takeover by criminals filing fraudulent tax returns.

Passwords will require a minimum of eight characters with uppercase, lowercase, alphabetic, numerical and special characters. Three security questions will be added to the software, and a new timed lockout feature will limit unsuccessful log-in attempts, the officials said.

More than 34 state departments of revenue and 20 tax industry members have signed memorandums of understanding regarding their roles in the information-sharing, the IRS said.

The anti-fraud effort comes amid budget cuts that have hampered some IRS taxpayer services. The National Taxpayer Advocate’s office reported in July that the 2015 filing season was the worst in memory, as phone calls dropped by the IRS switchboard soared, rates of calls answered fell sharply and the length of call waiting times rose.

IRS Commissioner John Koskinen characterized the crackdown on identity-theft fraud as a priority that would move forward. But he said other IRS services could suffer, even while predicting the new security measures would give taxpayers “more protection than ever when they file their tax returns.”

IRS Commissioner John Koskinen predicts the new security measures would give taxpayers “more protection than ever.”