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IRS sets out accomplishments, future plans for fighting identity theft refund fraud

IR 2016-94; Fact Sheet 2016-21, June 2016

IRS Commissioner John Koskinen prepared remarks: Security Summit Press Briefing (June 28, 2016).

In a News Release, Fact Sheet and prepared remarks from IRS Commissioner John Koskinen, IRS has set out its accomplishments in the last year, and its future plans, with respect to protecting taxpayers and the tax system against stolen identity refund fraud.

Background. On Mar. 19, 2015, IRS Commissioner Koskinen convened a Security Summit with chief executive officers and leaders of private sector firms and federal and state tax administrators to discuss emerging threats on identity theft and expand existing collaborative efforts to stop fraud. In addition to companies from the private sector, the Summit team included several groups including the Electronic Tax Administration Advisory Committee (ETAAC), the Federation of Tax Administrators (FTA) representing the states, the Council for Electronic Revenue Communication Advancement (CERCA) and the American Coalition for Taxpayer Rights (ACTR). The teams focused on developing ways to validate the authenticity of taxpayers and information included on tax return submissions, information sharing to improve detection and expand prevention of refund fraud, and threat assessment and strategy development to prevent risks and threats.

In June, 2015, IRS announced the ways in which it and its partners would work in a collaborative effort to protect taxpayers from identity theft tax fraud. See Weekly Alert ¶  23  06/18/2015.

IRS sets out its recent accomplishments in the fight against refund fraud. The Security Summit met in Washington on June 28 to review its 2016 successes and finalize its 2017 efforts.

Among its accomplishments in the past year are:

  • New protocols required all individual tax software customers to update their security credentials to a minimum 8-digit password and to establish security questions.
  • Software providers shared approximately 20 data elements from tax returns with IRS and states to help identify possible fraud. These elements are confidential but include information to identify returns prepared quickly by automated programs.
  • Summit members launched a “Taxes. Security. Together” campaign to increase public awareness about the need for computer security and provide people with tips on how to protect their personal information.

Commissioner Koskinen noted these accomplishments had the following impact on curbing stolen identity refund fraud:

…From January through April 2016, IRS stopped $1.1 billion in fraudulent refunds claimed by identity thieves on more than 171,000 tax returns; compared to $754 million in fraudulent refunds claimed on 141,000 returns for the same period in 2015.
…Thanks to leads reported from the private sector, IRS suspended for further review 36,000 suspicious returns during the period January through May 8, 2016, and $148 million in claimed refunds. This was twice the amount suspicious returns in the same period in 2015—15,000 returns claiming $98 million.
…Because of Summit efforts, the number of anticipated taxpayer victims fell between 2015 and 2016. Since January, the IRS Identity Theft Victim Assistance function experienced a marked drop of 48% in receipts, which includes Identity Theft Affidavits filed by victims and other identity theft-related correspondence.
…The number of refunds that banks and financial institutions returned to IRS because they appeared suspicious dropped by 66%.

IRS also sets out its initiatives for the future. IRS has also set out the following 2017 initiatives:

Tax professionals. IRS is concerned that identity thieves are turning their attention more and more to focus on tax return preparers. IRS saw some evidence of this during the last filing season. Accordingly, the Summit’s subgroup devoted to tax professionals is charged with identifying steps that it can take to help return preparers safeguard their own information and their clients’ data. IRS will be launching a new campaign in this area. IRS will have more details on that available soon and will be reaching out directly to return preparers on this issue at this summer’s IRS Nationwide Tax Forums.
Information sharing. A new Identity Theft Tax Refund Fraud Information Sharing & Analysis Center (IDTTRF-ISAC) will launch in 2017. IRS will use this ISAC to centralize, standardize and enhance the way data from Summit partners is collected and analyzed.
Expand IRS verification code program. IRS will be expanding its W-2 Verification Code pilot for the 2017 filing season. This program involves a special code included on W-2s, which is entered on the tax return to confirm the accuracy and integrity of electronically filed returns. IRS ran a pilot this past filing season with several payroll service providers involving 2 million W-2’s. For 2017, IRS is expanding the pilot to add this special protective code on up to 50 million W-2s. The objective is to verify the information at the point of filing and prevent fraudsters from using fake Forms W-2 to create fraudulent refunds.
Other increased verification efforts. States and IRS will receive new data elements from individual returns that will help improve authentication of the taxpayer and identify possible identity theft scams. These new data elements are in addition to the more than 20 elements identified last year. Summit partners also will share data elements from corporate tax returns to expand identity theft protections to businesses. Summit partners will enhance authentication efforts of tax return preparers and transmitters using Electronic Filing Identification Numbers (EFINs).
Taxpayer, etc. awareness. The Summit’s “Taxes. Security. Together.” campaign will expand to also focus its efforts on education and outreach aimed at the nation’s 700,000 tax return preparers and make sure they have the information they need to protect themselves from cyberattacks and to safeguard taxpayer data.
Financial institutions. A new program that has been subscribed to by 23 states will allow the financial industry to help identify those state tax refunds that appear fraudulent and return them to states for validation and review rather than depositing them.
Administrative change. Starting July 1, 2016, the Summit’s efforts will come under the ETAAC.

References: For identity theft, see FTC 2d/FIN ¶  T-10164.4; TaxDesk ¶  901,032.