IRS Working With State Agencies & Tax Preparation Companies To Combat Refund Fraud

It’s been a rough year for the Internal Revenue Service, what with thieves stealing information for roughly 100,000 taxpayers and a slew of fraudulent refunds filed with TurboTax that had the FBI and various states scrambling to investigate. Now the IRS says it’s working with state agencies and tax-preparation firms to combat stolen-identity refund fraud.

In an effort to strengthen the security of the tax-filing system, the IRS says it’s seeking closer cooperation with tax-preparers and that it wants to work more closely with the industry to fight criminals.

“We’re asking every company that helps taxpayers file returns to provide us information that will add layers of security and step up their pre-refund authentication,” IRS Commissioner John Koskinen said Thursday. “We’re also making clear that companies need to let the IRS know if they detect any suspicious activity or refund fraud patterns.”

One big issue: Finding ways for taxpayers to more securely authenticate their identities when filing returns. The IRS said industry and government groups have already identified new kinds of data that be shared at filing time that will help with this, as well as detect potential refund fraud.

For example, things like the Internet address and computer associated with the return and other characteristics of the transaction could be used to validate a taxpayer’s identity. In the recent hack of 100,000 taxpayers, thieves were able to steal data by gaining access to the IRS’ transcript system, which uses some pretty basic questions to identify taxpayers — questions like “Which of these is a past address of yours?” Those kinds of answers can be easily looked up if you’ve got the know-how.

Two lawmakers working on better antifraud legislation say they’re pleased with the action.

“The steps announced by the IRS today are a move in the right direction,” said Senate Finance Committee Chairman Orrin Hatch and Sen. Ron Wyden of Oregon. “The devil’s in the details, and we will be carefully monitoring how the new agreements are carried out.”

Koskinen says it’s stopped three million fraudulent filings this year, in a 30% increase from last year. The IRS can use any good news in that realm, as it lost more than $5.8 billion in 2013, according to a study by the Government Accountability Office.

IRS, Tax-Preparation Firms Join Forces to Combat Return Fraud [Wall Street Journal]