From 2011 to 2014, the IRS paid out a whopping $5.8 billion in fraudulent refunds, that is, refunds made to individuals who were not entitled to the money. Although it prevented about $24 billion from going out to similar fraudsters, the fact is, according to this Forbes report, that there is really no way to accurately gauge how much the IRS pays out in identity theft refunds. This is not only a problem for the IRS but also for you, the taxpayer, because if your tax information falls into the wrong hands, refunds that are lawfully yours may be going into someone else’s account. This is only one of the many ways in which IRS identity theft may spell disaster for you.
As Jessica Rich, director of FTC’s Consumer Protection Bureau describes it, there has been an ‘explosion of complaints’ about identity theft over the past couple of years and this makes it very important for you, the taxpayer, to know what is identity theft and how to safeguard against it. The IRS is making its own efforts to reduce this menace and the recent initiatives stand testament to this fact.
Steps taken for identity theft prevention
Prevention is definitely better than cure in the case of IRS identity theft because tracking wrong payments, tracing the fraudsters, and recovering the funds is virtually impossible. With a view to improving identify theft prevention, over 20 data elements that will appear alongside tax returns are being highlighted by the IRS Summit. A look at these elements indicates can tell you if there is anything suspicious about the return. Based on recommendations, the IRS is incorporating process changes to give special, extra care to these elements so that fraudulent returns can be identified before refunds are approved and processed.
The Summit has also inspired the software industry to come up with solutions that will improve validation procedures on tax related processes along with implementing better identity verification systems.
Focus is also being invested in improving identity verification processes for those individuals who use a tax filing software to file their returns. These will include the incorporation of security questions in the software and device recognition at log-on to alert if a new, unfamiliar device is being used to access the software. These are security procedures that are extensively used in banking and other financial sectors and now these are being implemented to the tax arena to boost protection to taxpayers and prevent IRS identity theft.
According to IRS Commissioner John Koskinen, these new security features will come into force for the 2016 tax season, meaning that taxpayers will enjoy additional layers of identity theft protection this year. The new features are the result of the collaborative effort between IRS, leading software companies and tax preparation experts, as well as, state tax administrators and financial/ tax product makers. The Security Summit (as the collaboration is known) participants have also listed out many other areas of concern in taxation that will be looked into in the coming months. These will be addressed on an ongoing basis and the collaborative efforts and resources of the participants will be leveraged to come up with effective solutions.