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IRS Reviews Its Efforts To Combat Identity Theft And Refund Fraud

by Mike Godfrey, Tax-News.com, Washington

09 January 2014


In a review of its work in 2013, and measures it will take this year, the United States Internal Revenue Service (IRS) has professed that stopping identity theft and refund fraud is one of its top priorities.

The agency's work on identity theft and refund fraud has continued to grow, and will also be expanded for the 2014 filing season. The IRS has assigned more than 3,000 employees to work on identity theft-related issues – to prevent refund fraud, investigate identity theft-related crimes and help taxpayers who have been victimized by identity thieves – and, in addition, has provided appropriate training to more than 35,000 employees.

The IRS has seen a significant increase in refund fraud that involves identity thieves who file false claims for refunds by stealing and using someone's Social Security number. For 2014, the IRS will continue to increase both the number and efficiency of the identity theft filters that are used to identify potentially fraudulent returns due to identity theft prior to the processing of the return and release of any refund.

As a result of its efforts to combat identity theft from 2011 through November 2013, the IRS confirmed that it has stopped 14.6m suspicious returns, and protected over USD50bn in fraudulent refunds.

Direct investigative time applied to identity theft related investigations has increased 216 percent over the last two years. In Fiscal Year (FY) 2013, the IRS initiated almost 1,500 identity theft related criminal investigations, an increase of 66 percent over investigations initiated in FY 2012, while indictments and sentencing doubled in FY 2013.

In January 2013, the IRS conducted a coordinated and highly successful identity theft enforcement sweep, while the Law Enforcement Assistance Program, which provides for the disclosure of federal tax return information associated with the accounts of known and suspected victims of identity theft with the express written consent of those victims, has been expanded nationwide.

The Identity Theft Clearinghouse (ITC) has also continued to develop and refer identity theft refund fraud schemes to the IRS Criminal Investigation Field Offices for investigation. For FY 2013, the ITC received over 1,400 identity theft related leads, relating to more than 391,000 tax returns claiming in excess of USD1.3bn in potentially fraudulent federal income tax refunds.

However, while the agency said that it has made considerable progress in fighting identity theft, it acknowledged that more work remains. Fighting identity theft is seen as an ongoing battle as identity thieves continue to create new ways of stealing personal information, and the IRS is continually reviewing processes and policies to minimize the incidence of identity theft and to help those who find themselves victimized.

Among the steps underway to help victims, the IRS pointed to the expansion of Identity Protection PIN (IP PIN) numbers that are assigned annually to victims of identity theft for use when filing their federal tax return and show that a particular taxpayer is the rightful filer of the return. The IP PIN will allow these individuals to avoid delays in filing returns and receiving refunds.

Furthermore, the IRS continues to dedicate more employees to resolution of victim cases that are usually extremely complex to resolve, frequently involving multiple issues and multiple tax years. The IRS is working hard to streamline its internal process, but a typical case can take 180 days to resolve, and the IRS is working to reduce that time period.

TAGS: individuals | compliance | tax | tax compliance | law | Internal Revenue Service (IRS) | enforcement | tax authority | United States | individual income tax

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