In a constant battle against savvy internet identity theft schemes, the IRS and state tax agencies have taken various steps to protect taxpayers from fraud and scams. Since enhancements have been made to enable electronic filing of individual tax returns on the internet, as well as online shopping, credit card use, and electronic data reporting, identity theft has significantly increased its footprint in our society. If one of these individuals is able to obtain a matching social security number and legal name, they can file a fraudulent tax return claiming a refund. In 2016, the IRS saw a 50% reduction in the number of affidavits of taxpayer identity theft filed comparing to years prior. The agency hopes to build upon this success in 2017.
The Internal Revenue Service has made significant progress toward protecting the identities of taxpayers and strengthening the vetting process for electronically submitting tax returns. The agency is rolling out upgrades in their cyber security measures both at the taxpayer level and tax assessor level of the process. In preparation for the 2017 filing season, the agency assembled representatives from state tax authorities, accounting firms, and tax software developers to discuss security challenges and solutions at its Security Summit.
Resulting from this meeting are a listing of additional requirements for verifying one’s identity when submitting a tax return electronically. Additionally, security measures have been enhanced by tax software companies to beef up the password security settings as well as implementing “timing out” features in tax preparation software during longer periods of inactivity.
Finally, several states are now requiring a state-issued identification number (typically, a driver’s license number) be entered when submitting returns. States implementing these procedures include New York, Ohio, Alabama and Louisiana. Each state’s information request is somewhat different, but they all require additional identity verification. Other states have chosen to implement these programs on a voluntary basis. These states include Kansas, California, Illinois and Wisconsin. The request of information varies from state to state. Some states, such as California and Alabama, are asking taxpayers to fill out a “questionnaire” or “ID Confirmation Quiz” before submitting tax returns to the states. Other states may require driver’s license numbers be entered before submitting a return electronically. All of these measures are an effort to reduce identity theft.