Identity theft refund fraud have been a growing concern for the IRS and tax professionals for years now. When income tax refunds are falsely claimed, it causes major disruptions in the tax preparation process for the individual victims of the fraud.
In an effort to combat this growing trend, the IRS has announced a new partnership with representatives of tax preparation and software firms, payroll and tax financial product processors, and state tax administrators. As part of the agreement, all stakeholders identified key areas where they’ll be collaborating. These new initiatives will be in place at the start of the 2016 tax season:
Taxpayer authentication — Mechanisms will be in place to detect patterns in computer usage that may signal fraudulent tax return submissions. Tracking multiple uses of the same IP address and monitoring data that links returns to specific computers, capturing metadata in the electronic transaction, and monitoring the amount of time taken to complete the return will all be used.
Increased data sharing — The IRS and other stakeholders agreed to an unprecedented level of data sharing to help identify patterns in fraudulent tax filings. With far more stakeholders actively sharing post-filing tax data, large-scale fraud schemes will be easier to identify. Discussions are continuing on the creation of a Refund Fraud Information Sharing and Assessment Center (ISAC) to formalize the sharing and access to this information.
Total alignment with cybersecurity standards — The tax industry professionals not currently aligned with the National Institute of Standards and Technology (NIST) cybersecurity framework agreed to get on board. This will ensure that information technology infrastructure is sufficiently protected across the entire tax preparation and submission process.
Increased taxpayer awareness — All stakeholders agreed that an increased awareness campaign is needed to inform taxpayers of the heightened risk of identity theft refund fraud. The importance of protecting sensitive personal information during the tax preparation process needs to be stressed to taxpayers to help them avoid becoming victims.
These changes are a definite win for taxpayers. With the IRS, states, and tax professional sharing information more closely and monitoring for patterns of fraud, it will be more likely that large-scale fraud efforts will be found. And the public information campaign about the dangers of identity theft refund fraud will increase taxpayer awareness of the important issue.