The IRS, various state tax agencies and the tax industry have joined together to improve identity theft protections for individual and business taxpayers during the 2017 tax season. These initiatives will be in addition to successful efforts begun in 2016 during which the number of new people reporting stolen identities on federal tax returns fell by more than 50%, with nearly 275,000 fewer victims compared to a year ago.
Other improvements include:
- More fraudulent returns stopped before processing.There was a nearly 50% drop in fraudulent returns that made it into the IRS tax processing systems. Through September of this year, the IRS stopped 787,000 confirmed identity theft returns, totaling more than $4 billion. For the same nine-month period in 2015, the IRS stopped 1.2 million confirmed identity theft returns, totaling about $7.2 billion.
- Fraudulent refunds fell. The number of suspect refunds stopped by banks and returned to the IRS dropped by more than 50%, to 108,539 in 2016 compared to 243,361 in 2015, demonstrating improved safeguards to stop fraudulent returns before refunds are paid. The dollar amount of suspect refunds dropped to $239 million from $829 million in 2015.
- Shared information stopped more bad returns.Industry and state partners provided information that helped improve IRS fraud filters and stop additional bad tax returns, including 57,000 that would have bypassed IRS processing filters.
- Shared data elements helped identify new areas.Several new data elements shared on tax returns helped the IRS stop over 74,000 suspicious returns, representing over $372 million in refunds that were prevented from being paid.
More Steps Planned for 2017 Tax Season
For the 2017 filing season, the IRS is taking additional actions. As with 2016, many of the new features will not be visible to taxpayers but will provide the IRS and states with the information they need to identify and stop fraudulent identity theft returns.
Among the new or expanded features for 2017:
- New data elements transmitted by the tax industry with every tax return have been updated and expanded. In all, 37 new data elements have been added for 2017, providing additional information to strengthen the authentication that a tax return is being filed by the real taxpayer.
- The tax industry is sharing with the IRS and all 50 states 32 data elements from business tax returns – extending more identity theft protections to business filers as well as individuals.
- More than 20 states are working with the financial services industry to create their own version of a program that allows the industry to flag suspicious refunds before they are deposited into taxpayer accounts. Also, private sector partners are enhancing efforts to identify the “ultimate bank account” to ensure that the refunds go into the true taxpayers’ accounts.
- The Form W-2 Verification Code initiative started by the IRS last year will expand to 50 million forms in 2017 from 2 million in 2016. When completing a tax return, the 16-digit verification code should be entered when prompted by tax software used by both individuals and tax professionals to validate the information on the Form W-2. The IRS anticipates the verification code will be expanded in future years for all Forms W-2.
- The software industry continues to enhance software password requirements for individuals and tax professional users – providing additional safety prior to filing.