Identity theft tax refund fraud is an expensive problem in America. Last year, the Internal Revenue Service (IRS) received more than 1 million fraudulent tax returns and managed to stop nearly $7 billion in fraudulent tax refunds – and that’s just the feds.
The IRS and state tax authorities have been looking at ways to combat tax fraud while still ensuring that honest taxpayers have their tax returns processed (and refunds issued) in a timely manner. With that in mind, the Alabama Department of Revenue is hoping that new technology will help them stay ahead of scammers and thieves. All it takes is a cell phone.
Here’s how it works: taxpayers create an electronic ID (eID) using a mobile app that works with iOS or Android. Then, taxpayers file their tax return as usual. Taxpayers who registered an eID will be notified once the Department of Revenue has received the taxpayer’s tax return. To verify the taxpayer’s identity, the taxpayer will be asked to take a selfie. Yes, one of those photos you take of yourself with your phone – minus the silly faces and celebrity look-alikes. That photo will be matched up with your driver’s license photo.
Alabama Revenue Commissioner Julie Magee said, “Ever since the proliferation of criminal activity in the tax refund world using stolen PII (personally identifiable information), I have been searching for a proactive and effective solution to offer to future and past victims of identity theft. This electronic identification application delivers that and more, so I am very excited for its launch later this year.”
The biggest challenge, of course, will be getting taxpayers to sign onto new technology. Magee says, “It’s completely optional but I hope taxpayers choose to take advantage of this opportunity. It’s easy.”
How easy? “I think just about everyone knows how to download an app,” says Magee, “and that is all you have to do to get this monitoring program started. The app will walk users through the registration process that can be done any time prior to filing a tax return.”
It’s not just about the initial identity verification: once the Department of Revenue verifies the taxpayer’s identity with the selfie, the return can be skipped ahead for processing. Remember that thieves often try to get a jump on honest taxpayers by filing early. By using the system, your return will be processed more quickly. That makes it useful for everyone, claims Magee. “It doesn’t matter whether the taxpayer is accustomed to getting a refund or writing a check, this is a worthwhile app for all.”
Magee calls the program “a secure and cost effective way to offer new services to taxpayers” and expressed gratitude for support from Secretary Stabler of the Alabama Law Enforcement Agency. The integration between law enforcement and ADOR computer systems is now taking place, she says, and the system is expected to go live in November.
Similar systems are being tested in other states. MorphoTrust USA (Safran), working with a grant from the National Institute of Standards and Technology (NIST), is introducing an eID pilot program in North Carolina and Georgia (MorphoTrust is also attached to Alabama’s program). According to a spokesperson from the Georgia Department of Revenue, the goal is to register a total of 75,000 taxpayers: 40,000 in Georgia and 35,000 in North Carolina. Those numbers are, however, just a target. There’s no cap. The program is voluntary: residents of North Carolina and Georgia will have the opportunity to opt-in to participate. “If everybody in the state of Georgia wants to use it,” the Department of Revenue would be happy to sign them up.
As in Alabama, taxpayers will get started with eID through an identity verification process which matches with driver licenses in each state.
Georgia is excited about the opportunity to use technology to stop fraudsters from exploiting taxpayers. Tens of millions of dollars in fraud have been blocked by the Department of Revenue each year for the past few years. In 2015, they blocked a whopping $312,895,381 in fraudulent returns. That number is a bit misleading since the Department noted that a single taxpayer tried to claim several large refunds including one for $94 million. The Department has blocked a more representative number – just $49 million – in fraudulent returns so far for 2016.
The hope is, of course, to see fewer fraudulent returns introduced into the system. As more taxpayers use the system, it should reduce not only fraud attempts but slowdowns since verified returns would be processed more quickly.
The program isn’t in public testing just yet – it’s still in programming. Officials want to “make sure it’s right” before making the system available to taxpayers. Georgia hopes to have the program in place by end of the year and ready for the 2017 tax year.
