IRS and tax industry team up to reduce refund fraud tied to identity theft

As many as 80 Shawnee residents found out this year that someone else beat them to their tax refunds, thanks to identity theft.

That’s more refund fraud victims than Detective John Stirling helped last year, which had produced more victims than two years ago.

So many cases happen nationally that Stirling now waits three to four months for copies of the fraudulent returns from the IRS instead of the two weeks he waited a few years ago.

“It’s increased exponentially,” the detective said.

Which is why the IRS, H&R Block, TurboTax maker Intuit and others in the tax industry announced joint battle plans Thursday to reduce tax refund fraud tied to identity theft.

And they pledged to have those defenses in place before Americans file their returns next year.

A campaign to educate taxpayers how to protect themselves is part of the plan as well, but the threat has grown beyond personal financial pain.

This is also about protecting the nation’s tax system, said John Koskinen, head of the Internal Revenue Service.

“We are dealing more and more with organized crime syndicates here and around the world,” Koskinen said during a presentation to reporters.

Taxpayers increasingly have become victims of fraud as schemers use stolen identities to file false tax returns and claim refunds before the taxpayer files. In many cases, the taxpayer finds out something is wrong when the IRS rejects the tax return because one in the taxpayer’s name already had been filed by a scammer.

The plans outlined Thursday grew out of meetings among federal, state and corporate officials that began in March.

Bill Cobb, chief executive of Kansas City-based H&R Block, praised the outcome of the three-month effort but said more can and will be done.

Federal, state and company agents pledged to keep working on ways to combat schemes that have led the IRS to stop 19 million “suspicious” returns from 2011 through last October and avoid $63 billion in fraudulent refunds.

Koskinen said the IRS stopped 3 million tax returns “at the door” in the recent tax filing season because they looked “suspicious.”

Refund fraud feeds in part on data breaches that have exposed millions of Americans’ personal information to potential theft at major retailers, smaller businesses and even the IRS.

Koskinen acknowledged the tax agency’s recent admission that hackers used stolen identities to gain access to tax information on about 100,000 Americans through an IRS app called Get Transcript. He said the app has been shut down and an investigation continues.

Upcoming changes will affect how tax return information is handled rather than how taxpayers will complete and submit their tax returns.

Koskinen said filers may notice “a slight question here or a requirement there,” but otherwise filing will work “pretty much like this year.”

Behind the scenes, however, new efforts will seek to authenticate returns as they’re filed and before refunds are paid. These include checking identifying data about the computer used to submit a return and reviewing how long it takes to complete a return to detect “mechanized fraud,” the IRS said.

To ferret out fraud, companies and government agents may set up a center specifically to access tax season activity and detect signs of fraud, as well as improve the information available to law enforcement in pursuing thieves.

This story was originally published June 11, 2015 at 5:13 PM with the headline "IRS and tax industry team up to reduce refund fraud tied to identity theft."