The crackdown on crooks who use stolen IDs to file fraudulent tax returns will expand in 2017 — including boosting efforts to identify phony W-2 forms and a plan involving delaying tax refund cash for some lower-income consumers.
Taxpayers who claim the earned income tax credit or the additional child tax credit will face increased scrutiny and won’t see their refunds until Feb. 15 at the earliest because of a new federal law.
Financially strapped consumers who rely on tax refund checks early in the year to deal with rent or other bills need to brace for a few days of delay.
John Koskinen, Internal Revenue Service Commissioner, said tax filers and tax professionals should still file the returns with the earned income credit and additional child tax credit early in the season.
“They should file as they normally do, so they don’t add to any delay already in the system,” Koskinen said.
The IRS and its Security Summit Partners, which include H&R Block, Intuit and state tax agencies, have disclosed some milestones of progress in their collective fight against ID theft.
William Cobb, president and CEO of H&R Block, said in a conference call that it is heartening news that fewer tax filers ran into ID theft issues in the first nine months of 2016. But he said practitioners and government agencies still must work together to defeat the fraudsters.
Julie Magee, the Alabama Revenue Commissioner, said during the call that much progress has been made by a coordinated effort, which includes weekly calls among state tax agencies to discuss what criminal activity has been spotted in the season.
As part of the continued crackdown, the IRS said it will expand what’s called a “Form W-2 Verification Code” initiative that began last year.
About 50 million W-2 forms will include a 16-digit verification code that tax filers or preparers will need to add when prompted by tax software. About 2 million W-2s had such a code during the 2016 filing season.
The IRS anticipates that the verification code ultimately will be used on all W-2 forms in future years.
Koskinen said the verification code can help the IRS validate that the W-2 itself is authentic and that the real taxpayer is filing the return.
He said consumers should not end up waiting longer for a refund because of the W-2 verification process. Instead, the new coding could help the IRS process legitimate returns more quickly, he said.
The IRS said more fraud is being stopped at the door, before fake returns are even processed and refund money is issued to criminals.
One sign of success, according to the IRS, is that fewer taxpayers filed their returns this year and then suddenly discovered that their name and Social Security number had been used already to file a different fake tax return.
The evidence: The IRS said the number of affidavits filed involving tax-related ID theft was cut in half during the first nine months of 2016, compared with the same period the year before.
The IRS said 237,750 affidavits were filed during the first nine months, compared with 512,278 during the same time in 2015.
Through September, the IRS said it stopped 787,000 confirmed identity theft returns, which claimed refunds of more than $4 billion. During the same time last year, the IRS stopped 1.2 million confirmed ID theft returns, claiming about $7.2 billion.
