It may still be 2016 but the Internal Revenue Service (IRS) is already thinking about the 2017 tax season. The IRS convened with state tax agencies and industry partners this month to talk about plans for improving identity theft protections for taxpayers. The collective message? Cooperation is the key to protecting taxpayers from identity theft related tax fraud.
“We’ve made remarkable progress this year in our efforts to protect taxpayers following the unprecedented coordination with the states, the tax industry and the financial sector,” said IRS Commissioner John Koskinen. “Working together, this coalition has expanded its activities in many different areas, and we are focused on strengthening our systems and processes even more for the upcoming tax season.”
Those successes, say Koskinen, include fewer bad returns, fewer bad refunds, and fewer taxpayers becoming victims. The proof is in the numbers. Identity theft affidavits, which are affidavits filed with the IRS by taxpayers claiming they were victims of identity theft, dropped 50% during the first nine months of 2016 as compared to the same period in 2015. Specifically, in the first nine months of 2015, the number of new affidavits was 512,278; the number for the same period in 2016 was just 237,750.
Koskinen also reported that more fraudulent returns were stopped before processing. Nearly 50% fewer fraudulent returns made it into the IRS tax processing systems this year. Through the first nine months of 2016, the IRS stopped 787,000 bogus tax returns claiming more than $4 billion in fraudulent refunds before those returns hit the system. For the same nine-month period in 2015, the IRS stopped 1.2 million bogus tax returns claiming more than $7.2 billion.
Koskinen cites the IRS partnership with industry and state leaders as key to those improvements, including 57,000 bad tax returns that would have bypassed IRS processing filters without Security Summit assistance. The Security Summit is the official name of the collaborative effort between IRS, states and tax industry partners which began in March of 2015. In June of 2015, the Security Summit announced continuing cooperative efforts and a formal Refund Fraud Information Sharing and Assessment Center (ISAC). ISAC will make its debut in 2017 and will serve as an improved early warning system, identifying emerging identity theft schemes which will be shared among Summit partners.
Taxpayers can also look forward to additional security measures, including the Form W-2 Verification Code initiative started by the IRS last year which will expand to 50 million forms in 2017. Taxpayers who participate in the initiative will be asked to enter a 16-digit verification code to validate the information on the Form W-2. IRS anticipates the verification code will be expanded in future years for all Forms W-2. This, together with accelerated due dates for forms W-2, will make it more difficult for scammers and thieves to sneak bogus tax returns past filters.
The goal, of course, is a better, more secure process for taxpayers. Alabama Revenue Commissioner Julie Magee said that she could already see the benefit of participating, noting that not so long ago, thieves could easily file multiple fraudulent returns from state to state. Now, with increased participation, including weekly calls among state tax agencies to discuss trends and suspicious activities, it’s more difficult for thieves to find opportunities to cheat the system. She lauded the states who have joined the efforts and noted that states you haven’t yet joined might be putting taxpayers at risk. Koskinen agreed, saying, “You can’t afford not to be involved.” Out of the 44 states with an income tax, 40 had already signed onto the Security Summit.
Additional security measures and taxpayer education initiatives will be rolled out as tax season approaches.
