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Victims of stolen tax refunds down 50 percent this year, IRS says

In this photo March 22, 2013 file photo, the exterior of the Internal Revenue Service (IRS) building in Washington. (Susan Walsh / AP)
By Jonnelle Marte Washington Post

WASHINGTON – The number of people who reported having phony tax returns filed in their names fell by more than 50 percent this year from 2015, the Internal Revenue Service said Thursday.

In the first nine months of this year, some 237,750 people filed reports with the IRS saying that their identities had been stolen. That is down from the same period last year, when 512,278 people reported being victims of identity theft.

The IRS and other tax authorities cracked down on tax-related identity theft after noticing a surge in suspicious tax returns in 2015. “Just a few years ago ID theft exploded and threatened to overwhelm the nation’s tax system,” said IRS Commissioner John Koskinen.

Criminals stealing tax data from the IRS and tax preparation websites accessed sensitive tax information in recent years that made it easier for them to file sham tax returns. Using details from previous tax returns – such as a person’s income, address and Social Security number – fraudsters were able to file fraudulent returns that closely mimicked legitimate returns. Some state tax agencies noticing the spike in fraud temporarily stopped accepting tax returns.

“Our fraud filters went into overtime,” said Julie Magee, the commissioner of revenue for Alabama.

The surge in fraud led to a sweep of changes from tax software providers, the IRS and state tax agencies. During the most recent tax-filing season, the IRS and state tax agencies coordinated with tax preparers and tax software providers to share more information about potentially fraudulent returns.

Tax software providers also made changes. For example, Intuit, the maker of TurboTax, widely rolled out multi-factor authentication and added more alerts to let customers know when their account has been accessed or key information has been changed.

The IRS said the changes have led to a drop in the number of fraudulent returns. The IRS stopped 787,000 fraudulent tax returns through September of this year, amounting to about $4 billion in potentially fraudulent tax refunds. That is down from the 1.2 million scam returns detected during the same period in 2015, which added up to $7 billion in attempted refunds.

Tax authorities and industry officials will be making more changes to fight fraud during the next tax filing season. For instance, tax refunds for people claiming the Earned Income Tax Credit, a lucrative tax break for low-income families that is a major target of fraudsters, won’t be paid out before Feb. 15. That delay is meant to give the IRS more time to spot fraud. (Though the agency says taxpayers should still file their returns as early as possible.)