IRS Reports Drop in Identity Theft Tied to Fraudulent Tax Refunds

By Richard Rubin Features Dow Jones Newswires

Fewer taxpayers are reporting identity theft to the Internal Revenue Service, a drop the agency attributes to its yearslong effort to prevent what was once a booming crime.

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The IRS received 107,000 reports from victims in the first five months of 2017, down from 204,000 in the same period in 2016 and 297,000 for the same period in 2015.

"We are clearly making progress in this battle," IRS Commissioner John Koskinen said on a conference call with reporters.

Identity theft using tax-refund fraud boomed a few years ago as thieves took advantage of the government's increasing speed in delivering refunds. Criminals, using names and Social Security numbers typically obtained outside the tax system, would file fake tax returns and get refunds on debit cards before the real taxpayer ever knew what happened.

Mr. Koskinen credited the partnership between the IRS, private-sector tax preparers and state tax officials to make taxpayers and tax preparers more aware of data security.

Nina Olson, the independent taxpayer advocate inside the IRS, reported similar data last month.

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She wrote that she couldn't be certain what was causing the decline.

Ms. Olson wrote that the IRS has improved its procedures for assisting victims and computerized filters for flagging suspicious returns. It also limited how many refunds can be delivered to a single bank account.

In a statement on Tuesday, Ms. Olson said the IRS systems were still flagging too many legitimate tax returns as potentially fraudulent.

"Those taxpayers are unduly burdened with a quirky authentication process that sometimes requires taxpayers to authenticate their identities in person," she said. "We need to do better."

Criminals have moved to other weak spots in the tax system. Common techniques now including impersonating IRS agents to demand money from taxpayers and attempting to breach the data-security measures used by employers, payroll companies and tax practitioners.

"They're increasingly taking aim where large amounts of taxpayer data reside," Mr. Koskinen said.

Laura Saunders contributed to this article

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

July 25, 2017 13:49 ET (17:49 GMT)