Internal Revenue Service Tax Refund Fraud

IRS Adopting Additional Safeguards To Prevent Tax Refund Fraud – Amidst Crippling Budget Cuts, Machine To Weed Out Imposters?

IRS will adopt newer safeguards to prevent refund fraud involving millions of tax dollars and identity theft.

The IRS will now adopt additional safeguards to prevent fraud during the tax refund process. As many as 20 new “data elements” will be added to the process to ensure only valid and genuine people benefit from the refund.

To combat identity theft and routine attempts to fool the tax refund process to siphon off tax dollars, the Internal Revenue Service or IRS is infusing newer safeguards, data verification checkpoints, and security protocols. These measures are meant to battle taxpayer identity theft. As many as 20 new data elements will be incorporated within the framework to prevent fraudulent refund claims.

The new process of filing returns and claiming refunds is expected to be implemented as soon as next year, and those filing their income tax refund could experience a lot of new additions to the process. The IRS assures us, though, that they won’t be cumbersome or daunting, reported CNN.

The need for additional safeguards was acutely felt after the IRS lost a ton of money to one of the biggest refund frauds in modern times. Though there have always been talented individuals who managed to figure out the loopholes and limitations of the system to claim refunds of other people by impersonating them, there was an unusual surge this year.

Cyber-thieves managed to hack their way into 104,000 taxpayer accounts at the IRS. By carefully manipulating the parameters of the refund process, the tricksters successfully fooled the IRS into paying out close to $39 million in fraudulent tax refunds, reported Washington Examiner. The data breach and refund fraud were confirmed by IRS Commissioner John Koskinen who added that the accounts were successfully breached through the “Get Transcript” application on the IRS site.

Many of the accounts had already filed a return for the previous year and would have been useless for the refund fraud. Apparently, of the 104,000 accounts, only 13,000 possibly fraudulent returns yielded $39 million to the cyber-thieves. That’s an average of $3,000 per account. What’s concerning, besides the sheer volume of the fraud, is that even though the majority of the accounts didn’t yield money, the hackers still managed to get their hands on financially sensitive personal information, which could be used for identity theft in the future.

What’s even more bizarre is that the IRS is still trying to figure out, “how many of these returns were filed by actual taxpayers, and which were filed using stolen identities,” said Koskinen.

So how is the IRS combating refund fraud? The IRS has sought the help of “tax industry leaders” to incorporate multiple autonomous checkpoints and backend verification techniques to spot suspicious activities. Tax return preparation firms and other ancillary industries will share their data with the IRS and state tax agencies at the time of electronic filing, reported USA Today.

Servers accepting refund requests will verify if the same computer is being used to file returns for multiple people or observe if excessive number of returns is being filed from the same Internet Protocol numbers or IP addresses. Essentially, computers at the backend will try and confirm if the person doing the filing is legitimate or not.

The IRS also added that the filing process will get a little more stringent about time-limits, login attempts, and passwords. The servers will now be verifying multiple metadata to prevent identity theft and dissuade hackers looking to commit refund fraud. Additionally, users of the online filing platform will now be mandated to use complicated passwords.

In one of the biggest efforts to curb refund fraud, IRS has secured the cooperation of more than 34 state departments of revenue and 20 tax industry members. Do you think these safeguards are enough to curb refund fraud?

[Photo by Andrew Harrer / Bloomberg via Getty Images]

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