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IRS To Perform Better Against Identity Theft: GAO

by Mike Godfrey,, Washington

28 January 2016

The US Government Accountability Office (GAO) has confirmed in its blog that the Internal Revenue Service (IRS) should have a better chance in 2017 of preventing identity thieves from obtaining fraudulent tax refunds, due to a tax compliance provision within last month's "tax extenders" legislation.

GAO noted that refund fraud occurs when fraudsters use a stolen Social Security number and other identifying information to file for a tax refund. Identity theft refund fraud can burden legitimate taxpayers who may wait months for delayed refunds.

It wrote in its blog that, while the IRS has said that it prevented USD22.5bn in 2014 tax refunds from going to identity theft fraudsters, the agency has also estimated that it paid USD3.1bn in such fraudulent refunds, largely because fraudsters have taken advantage of its approach to verifying tax returns.

The IRS usually issues refunds in April each year, months before employers provide wage information forms. "While this approach helps IRS get refunds to taxpayers quickly," GAO added, "it creates a window during which fraudsters can make off with your refund."

However, the provisions of the Protecting Americans from Tax Hikes (PATH) Act now mean that, from 2017, the deadline for employers to report wage information on forms W-2, W-3, and form 1099-MISC has been brought forward to January 31 of the year following the calendar year to which the return relates. This should provide additional time for the IRS to review refund claims before their payment.

"According to the IRS," GAO concluded, "a program that would match W-2 data to tax returns before issuing refunds would expand the number of fraud schemes the IRS detects, saving a substantial part of the billions currently lost to fraudsters. The challenge to the IRS is to balance timely refunds to legitimate taxpayers, while protecting against fraud."

TAGS: compliance | tax | tax compliance | law | Internal Revenue Service (IRS) | tax authority | legislation | United States | tax breaks | individual income tax | Tax

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