Academic journal article Journal of Accountancy

TIGTA Recommends Identity Theft Safeguards

Academic journal article Journal of Accountancy

TIGTA Recommends Identity Theft Safeguards

Article excerpt

The Treasury Inspector General for Tax Administration (TIGTA) reported that the IRS had failed to detect 1.5 million tax returns with potential identity-theft-related fraudulent tax refunds exceeding $5.2 billion for the 2011 filing season (TIGTA Rep't No. 2012-42-080). The IRS itself reported that it detected 938,664 returns with fraudulent tax refunds of $6.5 billion in the same period. TIGTA also reported that known instances of tax-related identity theft more than doubled from 2009 to 2011 (see related graphic).

TIGTA recommended that the IRS make the following changes to its procedures to reduce the problem:

1. Develop processes to use the National Directory of New Hires (NDNH), a database containing information on all newly hired employees, to verify wage and other information. (Currently, the IRS is not permitted to access this information for this purpose.) The IRS should also use prior-year third-party income and withholding information to identify fraudulent returns. The IRS agreed with this recommendation.

2. Develop processes to analyze characteristics of fraudulent tax returns resulting from identity theft and to refine the IRS's existing tax processing filters. TIGTA used as an example its discovery that a large number of fraudulent tax returns came from the same address, noting that this was one method to flag suspicious returns. The IRS also agreed with this recommendation.

3. Seek legislation authorizing the IRS to obtain information from the NDNH frequently and regularly. The IRS agreed with this recommendation.

4. Develop a process to detect false Social Security benefit income and withholding claims at the time tax returns are processed, using Form SSA-1099 information from the Social Security Administration. That information is received each December, and the IRS should be using information from those forms earlier in the year, before it issues refunds. The IRS agreed and said that it had used the information in January this year while processing 2011 tax returns.

5. Develop a process with federal agencies and banks to ensure that tax refunds issued by direct deposit are made only to an account in the taxpayer's name. The IRS said it will discuss with the government's Financial Management Service whether such restrictions can be implemented. …

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