H&R Block helps feds fight stolen identity refund fraud
Tax prep is personal. Extremely so.
It often takes places in neighborhood tax offices, where clients and tax professionals huddle over coffee to parse tax situations as unique as proverbial snowflakes. They talk about intimate and private stuff: births, deaths, marriages and divorces; wages; retirement; identification numbers; and more.
So, the last thing clients and tax professionals want is for thieves to steal confidential, e-filed tax return information. But online crooks apparently don’t share that concern – and pilfer billions of dollars from the U.S. Treasury every year by filing fraudulent returns and pocketing illegitimate refunds.
Since 2010, billions of dollars have been lost to identity thieves impersonating taxpayers and filing for fraudulent refunds. However, this summer, the IRS reported that it had achieved a 46 percent reduction in stolen identity refund fraud (SIRF) – down from 698,770 victims in 2015 to 376,500 in 2016. The first five months of 2017 saw further decreases, with only 107,400 taxpayers reporting SIRF.
To stop tax identity refund fraudsters in their tracks, the IRS works with an advisory group called the Electronic Tax Administration Advisory Committee (ETAAC). Its mission? To address the challenges of SIRF, then make recommendations about focus areas and priorities to the IRS and Congress. Enhanced security measures provided by the Protecting Americans from Tax Hikes (PATH) Act and the Security Summit, a partnership among the IRS, state tax administrators and the tax industry, have also helped reduce SIRF.
And in on the action is Kathy Pickering, vice president and executive director of The Tax Institute at H&R Block (TTI).
Advice from enhanced information sharing to implementation of cybersecurity standards
Recruited by the IRS to join ETAAC last fall, Pickering recently contributed to ETAAC’s Annual Report to Congress. Released in June, the report made 22 recommendations that may:
- improve the taxpayer experience,
- strengthen information sharing,
- enhance security,
- expand financial institution engagement,
- improve taxpayer and tax professional outreach and
- increase e-filing.
Of those, Pickering focused on information sharing and led a working group that reviewed the initial stages of a newly launched group called IDTTRF – ISAC (Identity Theft Tax Refund Fraud – Information Sharing and Analysis Center).
“The ISAC provides analysis and insight, based on the information that is shared about suspicious behavior and fraudulent patterns,” said Pickering. “It’s very new and challenging for the state taxing authorities, the IRS and all of our competitors to build trust and relationships that enable us to share the fight against identity theft refund fraud.”
But so far, so good.
“The ISAC accomplished a lot this year,” said Pickering, “and the key recommendations from the ETAAC report spoke to the importance of this work and ensuring funding and support to keep it going.”
Successes in finding, stopping and preventing fraud
ETAAC’s not the first anti-fraud effort embraced by Pickering. In 2015, she also helped launch the IRS Security Summit, a broad, public/private partnership of the IRS, state departments of revenue and the tax industry.
“It’s important for H&R Block to have a voice on advisory groups like ETAAC and the Security Summit,” said Pickering. “We provide an important perspective based on our experience, our retail footprint, our tax software products, and knowledge of consumers and tax preparers.”
The Security Summit is an unprecedented partnership among industry, states and government. For example, in the past two years, the IRS and industry have collaborated to create an initiative to verify the authenticity of Form W-2 data. The IRS partnered with payroll providers to include a 16-digit verification code provided to employees that the IRS can verify upon filing.
The IRS projected that 50 million Forms W-2 would have the verification code in 2017. With this code, the IRS can verify that the Form W-2 is authentic, and be more assured that the federal income tax withholding reported on the tax return is accurate and not a fraudulent amount created by an identity thief to generate a fictitious refund.
The PATH Act allowed IRS more time to verify identities and tightened access to ITINs
The PATH Act, passed in 2015, requires Form W-2 and Form 1099-MISC payers to submit their information statements to the IRS on or before Jan. 31 each year. The law also requires the IRS to hold refunds for people claiming certain refundable credits, such as the earned income tax credit, until February 15. This extra time allowed the IRS to verify more taxpayer identities before issuing refunds – and stop many fraudulent refunds.
“These credits are target rich for tax identity thieves and fraudsters. In fact, the EITC has one of the highest improper payment rates identified by the government,” said Pickering. “The more we can root out and eliminate fraud, the more we can protect taxpayers – not just the victims of tax refund identity theft, but also the taxpayers who claim refundable credits that thieves so often target and undermine.”
The law also included a provision that allowed the IRS to expire individual taxpayer identification numbers (ITINs) if the numbers haven’t been used on a tax return for three straight years. This measure helped the IRS to further restrict identity thieves from stealing ITINs for SIRF.