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IRS & tax industry join together to fight identity theft refund fraud

IR 2015-87

Following a three-month effort, IRS has announced that IRS and leading tax partners, including tax preparation and software firms, payroll and tax financial product processors and state tax administrators, have joined in a collaborative effort to protect taxpayers from identity theft tax fraud.

Background. On March 19, 2015, IRS Commissioner Koskinen convened a Security Summit with the 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. Three specialized working groups were established as part of the Security Summit, with members from IRS, states and industry co-chairing and serving on each team. 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.

New initiatives. IRS Commissioner John Koskinen said that, “This agreement represents a new era of cooperation and collaboration among the IRS, states and the electronic tax industry that will help combat identity theft and protect taxpayers against tax refund fraud.” As a result of this effort, Koskinen predicted that taxpayers filing their tax returns next filing season should have a safer and more secure experience.

The groups agreed to several important new initiatives, including:

(1) Taxpayer authentication. The industry and government groups identified numerous new data elements that can be shared at the time of filing to help authenticate a taxpayer and detect identity theft refund fraud. The data will be submitted to the IRS and states with the tax return transmission for the 2016 filing season. Issues included:

…reviewing the transmission of the tax return, including the improper and or repetitive use of Internet Protocol numbers, the Internet address from which the return is originating;
…reviewing computer device identification data tied to the return’s origin;
…reviewing the time it takes to complete a tax return, so computer mechanized fraud can be detected; and
…capturing metadata in the computer transaction that will allow review for identity theft related fraud.

(2) Fraud identification. The groups agreed to expand sharing of fraud leads. The entire tax industry and others (as to opposed to just some groups in the past) will share aggregated analytical information about their filings with IRS to help identify fraud. Such a post-return filing process has produced valuable fraud information because trends are easier to identify with aggregated data.

(3) Information assessment. The groups will look at establishing a formalized Refund Fraud Information Sharing and Assessment Center (ISAC) to more aggressively and efficiently share information between the public and private sector to help stop the proliferation of fraud schemes and reduce the risk to taxpayers.

(4) Cybersecurity framework. Participants with the tax industry agreed to align with IRS and states under the National Institute of Standards and Technology (NIST) cybersecurity framework to promote the protection of information technology (IT) infrastructure.

(5) Taxpayer awareness and communication. IRS, industry and states agreed that more can be done to inform taxpayers and raise awareness about the protection of sensitive personal, tax and financial data to help prevent refund fraud and identity theft. These efforts will increase through the year and expand in conjunction with the 2016 filing season.

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

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