IRS stopped $1.1 billion in fraudulent refunds this year
More 'under the hood' taxpayer security enhancements planned for 2017 filing season
Tuesday, June 28, 2016
Taxpayer security, despite some recent issues, actually is improving. That's the word from the Internal Revenue Service and its private sector Security Summit partners
Tax crooks tried to claim $1.1 billion in fraudulent refunds on 171,000 returns this latest main tax-filing season, the IRS announced at a press conference this morning. But the agency caught those fake returns filed from January through April before any money was sent to the identity thieves.
That's an improvement over the prevention rate the year before, when the IRS stopped $754 million in fraudulent refunds claimed on 141,000 fake returns.
The improved identification of fraudulent returns is because, says the IRS, its Security Summit efforts have provided better data from returns and information about tax identity theft and fraud schemes.
And things should get even safer for taxpayers in 2017, says the agency.
2016 taxpayer security wins: In addition to preventing more than $1 billion in tax money from falling into crooks hands, as well as saving hundreds of thousands of filers from having to deal with tax identity theft, the IRS cited several other Security Summit victories.
Leads from industry partners allowed the IRS to suspend for further review 36,000 suspicious returns filed from January through May 8. That's more than twice the amount of flagged fake returns during the same time frame in 2015. And this year's questionable filings that were stopped meant that $148 million in fake refunds weren't issued.
The prevention meant that the agency saw fewer taxpayers reporting that they were identity theft victims. Since January, the IRS Identity Theft Victim Assistance reported a 48 percent drop in such reports, which includes Identity Theft Affidavits (Form 14039) filed by victims and other identity theft related correspondence.
Similarly, the IRS saw a marked reduction in the number of refunds that banks and financial institutions returned to the IRS because they appeared suspicious. The 66 percent decrease here, say IRS officials, is another indication that improved data led to better filters, which reduced the number of bad refunds being issued.
More to come in 2017: This year's security successes are encouraging, but IRS Commissioner John Koskinen emphasized that the processes will continue and be improved for the next filing season.
"But as I've said many times, there can't be any let-up in this fight," said Koskinen. "Refund fraud caused by identity theft is a serious and complicated threat that continues to grow. Criminals – many of them sophisticated, organized syndicates – are redoubling their efforts to gather personal data to file fraudulent federal and state income tax returns, hoping to find new ways to slip through our fraud filters and steal refunds. So while I'm encouraged that we've made significant progress against this threat, we have a lot more work to do."
Most of that work will be under the tax hood, meaning they generally will be invisible to taxpayers.
In 2017, the IRS plans to:
- Expand a W-2 Verification Code test to cover approximately 50 million forms in 2017. The selected forms contain a 16-digit code that taxpayers and tax preparers enter when prompted by software. The code helps validate not only the taxpayer's identity but also the information on the form. This pilot is among the most visible Summit action for 2017.
- Identify additional data elements from tax returns that will help improve authentication of the taxpayer and identify possible identity theft scams and sharing data elements from corporate tax returns.
- Launch the Identity Theft Tax Refund Fraud Information Sharing & Analysis Center. It will serve as the early warning system for partners, collecting and analyzing tax-related identity theft schemes.
- Expand its public awareness campaign to tax return preparers to ensure they have the information they need to protect themselves from cyberattacks and to safeguard taxpayer data.
- Create a process for financial institutions to identify questionable state tax refunds and return them to states for validation. To date, 23 states have signed on.
Good news after some missteps: The IRS' security successes this year and continuing efforts are good news for filers, as well as for the agency, which needed a boost after some recent security lapses.
An official Treasury watchdog office found that the IRS had overlooked some taxpayer accounts that had been hacked by crooks who got into its now-reopened Get Transcript web tool.
Then the agency had to pull the plug on another electronic option, the e-file Personal Identification Number, after a second hacker attack on that service.
But tax security, like everything in life, is a process. Good things happen. Bad things happen. Rinse. Repeat.
And the IRS is to be commended for its continued work on its tax ID theft and refund fraud prevention process. Special kudos to the agency for realizing it can't go it alone and enlisting the private tax preparation industry, as well as state tax officials and the financial sector in taxpayer protection efforts.
When it comes to stopping tax identity theft and fraud, it definitely takes a tax village. The larger that preventative population, the better.
You also might find these items of interest:
If the irs joined forces with the welfare system. To automatically tell the preparer how much each client received from the government. That would help stop some of the selling of children's info to claim child tax credits.also how about coming up with a system that show who (just a name ) filed the children in the past 3yrs. So that the tax agencies can somewhat help to flag a person that's claiming children that may not be their own. At that point if 3 different people have claimed this child we could then as for more proof that you should be filing them .
A mother has 4 kids gets welfare to help care for her kids that all live with her now she just started working two years ago , but somehow her boyfriend still got the child tax credit before she started working. It's illegal for him to claim that credit if the irs and welfare work together alot more fraud could be stopped on both sides .
Posted by: Teatime | Sunday, December 25, 2016 at 01:46 AM
ruralcounsel, I'm checkin on the amount of uncaught fraudulent refunds. As for the legitimate refunds, folks whose identity was stolen and used to make the fake claims do get their proper amount of refund, but it takes a while. One of key suggestions from everybody in and outside the agency, and one the IRS is working on, is to make the process easier/quicker for ID theft/tax fraud victims to get their due.
Posted by: Kay | Thursday, June 30, 2016 at 11:38 AM
So what is their estimate of the fraudulent payouts they didn't stop?
For instance, how many e-files got rejected because of an earlier filing that is claimed to be fraudulent (by the second filer) due to identity theft? And how much $ was refunded to those first returns?
Posted by: ruralcounsel | Wednesday, June 29, 2016 at 09:00 AM
I remember watching american greed the tax fraud edition. 1.1 billion is probably only a fraction of the real fraud. The IRS needs to get better at finding all the fraud and saving the tax payers billions.
Posted by: South Texas Vocational Technical Institite | Tuesday, June 28, 2016 at 07:31 PM