How the IRS Is Fighting Identity Theft

Identity theft is not a problem that just affects the private sector. The IRS has been struggling with it for many years as well. But a recent report indicates that they are having significant success fighting it.

Chuck Rettig, who is the commissioner of the IRS, said in the report that his organization has made great progress in stopping both refund fraud and the stealing of identities. He cited a partnership with both industry and states as the reason why the IRS was able to protect so many taxpayers last year.

The partnership with cyber-specialists in the private sector and state governments began in 2015. It was then that the IRS created the Theft Tax Refund Fraud Information Sharing and Analysis Center, which consists of 65 separate organizations, whose purpose it is to stop identity theft.

Just how successful has this partnership been?

From 2015 to 2018, the number of taxpayers who have reported identity theft has fallen by more than 70%. Also, the number of tax returns with stolen identities has decreased by more than 50%, and $24 billion in refund fraud was prevented by the IRS. What’s more, the agency was further able to recover close to $1.5 billion in fraudulent returns that were already paid out.

The IRS was able to do all this through a combination of methods, which included software changes as well as adaptations to procedures.

Back in 2016, the partnership began collecting a set of indications of fraudulent tax returns. Such indications included the amount of time it took for someone to prepare a return. The IRS then took these indications and used them to update their fraud filters, which they applied to both personal and corporate tax returns.

But the changes were not limited to IRS. Because of the partnership, states began requiring more information on their tax returns, including driver’s license numbers. Software companies also made improvements to their software, by strengthing password requirements and by utilizing other security features, such as multi-factor authentication. Even changing the document destruction habits to ensure that it was virtually impossible to obtain this information from previously shredded documents. Banks and debit card companies improved their practices as well.

These changes have hindered identity thieves, who use a slew of methods, such as stealing Employee Identification Numbers (EINs) so that they can create fake W-2 forms.

The IRS credited banks and other financial institutions for helping them recover fraudulent tax refunds. Last year, these institutions recovered more than $100 million of fraudulent tax returns, and in previous years they recovered even more. This includes more than $200 million in 2017, nearly $300 million in 2016 and more than $850 million in 2015.

But Commissioner Rettig insists that, in spite of all the success the IRS has had in fighting identity theft, there is still more to do. For example, business-related identity theft actually increased last year by 10%, with 2,450 cases being reported as opposed to 2,233 a year earlier.

Rettig says that identity thieves are often part of large international criminal organizations with significant financial and technological resources. So, the partnership must continue to develop the means to fight them.

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