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Media Coverage

IRS, Private Sector, States Seek to Combat ‘Common Enemy' in Identity Fraud Push

19 March 2015

The IRS, state tax administrators and private tax preparation companies, including H&R Block Inc. and Intuit Inc., are teaming up to share information and develop technological solutions to prevent identity theft and fraudulent tax returns.

The groups are forming three working groups to present solutions to identity theft and fraud issues as soon as next filing season, Internal Revenue Service Commissioner John Koskinen said March 19 at a news briefing after meeting with chief executives of the companies.

“People understand that authentication is going to be more complicated than in the past,” Koskinen said. The goal is to reduce the frequency of identity theft and the amount of refunds distributed to falsified returns, he said.

The IRS has been seeking to curb return fraud and recently created an internal group combining several previously ad hoc efforts to improve taxpayer identity authentication. The IRS estimates it prevented $24.2 billion in fraudulent refunds in 2013. It paid out about $5.8 billion for returns later determined to be phony (29 DTR G-5, 2/12/15).

‘Common Enemy.'

“We really do have a common enemy,” H&R Block CEO William Cobb said. “As an industry, we're probably behind.”

The group is looking to the banking and financial services industry for cues on what types of authentication and fraud prevention techniques could be used in the tax world, including additional multi-factor identification, and verification from a third party, like an employer or bank.

“There are a wide range of actors who are stealing this information,” Marcus Christian, a partner at Mayer Brown LLP, told Bloomberg BNA. “You don't have to be a rocket scientist to commit this fraud.”

Seventy-seven percent of taxpayers would be willing to answer additional questions to verify their identity, an 8 percent increase from a year earlier, according to a survey published by H&R Block in February.

The challenge, Koskinen said, is balancing additional taxpayer burden with the necessary steps to protect the data.

AICPA Letter

The American Institute of CPAs supports a single point of contact for identity theft victims, the group said in a letter to the Senate Finance Committee Working Group on Individual Income Tax.

“The growing amount of fraudulent tax refunds paid and the economic and emotional impact to individual victims of identity theft is unacceptable,” the AICPA said in the March 17 letter.

The IRS has begun to make progress in addressing identity fraud for taxpayers, Koskinen said. It used to take up to a year to resolve an identity theft. It now takes less than 120 days.

“In light of our past experience, we think that identity theft should go down and improperly paid refunds should go down,” Koskinen said. “I would be disappointed if we don't see significant progress.”

The groups plan to report their findings by summer so new technology can be designed and implemented.

Reproduced with permission from Daily Tax Report 54 DTR G-3 (Mar. 20, 2015). Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033)

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