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Improving Identity Theft Protection for Taxpayers

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With the continued use of technology comes the heightened risk of identity theft, and the Internal Revenue Service (IRS) is not immune to this risk.  The most common scenario affecting taxpayers is when a criminal files a tax return using stolen personal identification to fraudulently claim tax refunds. Taxpayers are unaware of this fraudulently filed tax return until they attempt to file their returns, only to find out a return has already been filed using their name and social security number.  This causes hardship for taxpayers across the country every year.

Criminals continue to create new ways of stealing personal information.  To address this, the IRS is working with tax return preparers, and tax preparation and filing software companies, to develop ways to safeguard against personal information theft.  This group is focusing on:

  • improved validation of the authenticity of taxpayers and information on returns;
  • increased information-sharing to improve refund fraud detection and expand prevention; and
  • more sophisticated threat assessment and strategy development to prevent risks and threats.

One new safeguard to be implemented during the 2016 filing season relates to authentication of the taxpayer’s identity using information submitted during electronic filing. This will assist the IRS in authenticating the taxpayer’s identity prior to issuing tax refunds.  Some of the data submitted during electronic filing includes:

  • information sent upon transmission of the return, including use of improper and/or repetitive originating internet addresses;
  • the time it takes to complete a tax return, which identifies computer-mechanized fraud; and
  • the metadata in the computer transaction, allowing for the review for identity theft.

There are also limits being added on the number of direct deposit refunds to a single financial account or pre-paid debit card.  During the 2015 filing season, the IRS detected and prevented more than 3.8 million suspicious returns and will continue to implement tools and strategies to prevent and address fraudulent tax filings.

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein.  Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities.  This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

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