WASHINGTON — The Internal Revenue Service announced this week it would take new steps to catch online criminals, which are intensifying efforts to collect personal data that can be used to file fraudulent tax returns and steal refunds.
The agency said that starting next tax season it will work with tax software providers, including H&R Block and Intuit, and state tax officials to share information about suspicious returns so that the tax officials can get better at recognizing fraud. Officials said they came up with a list of data that can be shared when tax returns are filed to help tax authorities verify taxpayers’ identities.
“This means that the federal government, states and industry will stop more fraud related to identity theft up front,” IRS Commissioner John Koskinen said during a news conference.
This comes more than two weeks after the IRS admitted that fraudsters used stolen personal data to download old tax return data for more than 100,000 taxpayers and tried to steal the tax records of 100,000 others. The agency has been criticized for not doing more to head off such fraud and is under pressure from Congress to improve protections for taxpayers.
Tax officials said they would start paying closer attention to how tax returns are prepared to get better at spotting suspicious returns that were more likely to be prepared by a robot or computer program than a human being. For instance, they will watch for multiple returns being filed from the same IP address, which could be a sign that thieves are sending multiple fraudulent returns at once. They will also collect information on how long it took to prepare a tax return and flag returns that are completed faster than it would take a normal taxpayer or tax preparer.
Some tax preparers already flagged suspicious returns for the IRS, but it wasn’t required. Now it will be, IRS officials say. “We’re also making clear that companies need to let the IRS know if they detect any suspicious activity or refund fraud patterns in their processes,” Koskinen said.
This will be the first time that so much data will be shared with tax authorities. And the information will be shared sooner in the process. For instance, Intuit, the maker of TurboTax, the largest online tax filing service, often shared data about potentially fraudulent returns three weeks after they were filed — typically too late for the IRS to act since most refunds are issued within three weeks of a return being filed. (Intuit agreed to share that information more quickly after noticing a spike in suspicious tax filings earlier this year.)
The steps will fall short in a key way: They do not change the deadline for when employers need to send W-2 forms with taxpayer data to the IRS. The wage information, which the agency uses to verify tax returns and catch fraud, is not due until months after taxpayers can start filing returns. Moving up that deadline would give the IRS a chance to verify all returns before refunds are issued. But that change requires congressional action.