IRS Takes Further Steps to Combat Tax-Related Identity Theft

I have blogged before on tax-related identity theft (Identity Theft Pervasive, Overwhelms IRS and When Your Return Preparer Betrays You) and the efforts the IRS is making to curb the still-growing epidemic. The IRS has stated that, during 2015, it expanded its efforts to better protect taxpayers and help victims and that its employees continue to work hard to prevent refund fraud, investigate identity theft-related crimes and help taxpayers who have been victimized by identity thieves. The following are some specific measures taken by the IRS.

In addressing refund fraud, the IRS will continue to increase the number of efficiency of identity theft data models and filters used to identify suspicious and potentially fraudulent returns. In addition, the IRS has limited the number of direct deposit refunds to a single financial account or pre-paid debit card to three refunds. After the third deposit, any subsequent refunds will be mailed in paper check form to the taxpayer. This would also work to prevent dishonest tax return preparers from improperly depositing client refunds into their own accounts.

Regarding the victims of tax-related identity theft, the IRS has instituted measures to minimize the incidence of identity theft and help the victims that can face a long and complex process for addressing the effects. The cases are extremely complex and sometimes involve multiple years and multiple tax issues. A typical case can take 120 days to resolve and the IRS is working hard to streamline process and reduce taxpayer frustration.

For those that have already been victimized, the IRS has introduced The IRS Identity Protection PIN (IP PIN), a unique six digit number that is assigned annually to victims of identity theft for use when filing their federal tax return that shows that a particular taxpayer is the legitimate filer of the return. This features an online process through the IRS website to allow taxpayers that lose their IP PIN to create an account and receive an IP PIN online.

Taxpayers that may be unaware that they are identity theft victims but have been identified by the IRS as potential victims because their accounts have indications of identity theft will be able to opt in to the IP PIN program. In addition, the IRS continues to operate its IP PIN pilot program that allows taxpayers that filed tax returns last year from Florida, Georgia or the District of Columbia to opt into the IP PIN program.

The IRS Criminal Investigation (CI) division detects and investigates tax fraud and other financial fraud and often detects identity theft through its Questionable Refund Program (QRP) in which it detects false returns which may have used stolen identities to claim fraudulent tax refunds. CI has four Scheme Development Centers (SDCs) across the country whose primary mission is detecting refund fraud. CI is also the lead agency or is actively involved in more than 78 multi-regional task forces or working groups including state/local and federal law enforcement agencies solely focusing on identity theft.

The IRS reminds taxpayers to make efforts to preventing becoming victims of identity theft by safeguarding personal computers and other devices, being aware of telephone scams and internet phishing scams, and protecting personal information in paper files and other documents.