The Internal Revenue Service has improved its ability to flag tax returns for signs of potential identity theft, adjusting its filters to reduce false positives and spot actual fraud, according to a new report.
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The IRS uses systemic filters and manual processes to evaluate individual tax returns for potential identity theft at the time tax returns are processed and before a refund is issued. The filters use characteristics of known and potential identity theft to screen tax returns. Tax returns selected by identity theft filters are generally not allowed to post to the taxpayer's account to prevent the refund from being issued until the IRS can authenticate the tax return.
The IRS needs to balance its fraud detection efforts against the burden they may cause taxpayers, the TIGTA report pointed out. To reduce the burden on taxpayers, the IRS resolves and releases selected tax returns without contacting the taxpayer. For example, the IRS resolved 955,000 selections from the identity theft filters in 2024 and 2025 (as of November 2025) without issuing a notice to the impacted taxpayer. For processing years 2023 and 2024 tax returns that required taxpayer authentication, the IRS posted the tax returns within 13 days on average once the taxpayer authenticated.
"Individuals continue to be victims of tax-related identity theft, impacting their ability to file a tax return or receive a refund," said the report. "Tax-related identity theft occurs when someone uses another individual's identifying information, most often a Social Security Number, to file a fraudulent tax return."
The IRS stopped $9.2 million in refunds associated with confirmed ID theft returns and identified another $49.3 million in refunds associated with potential identity theft returns because of external alerts received during fiscal year 2024.
The IRS partners with state tax agencies, financial services companies, and tax industry officials through the Information Security Analysis Center to share information on developing fraud schemes and methods to identify fraudulent tax returns. The IRS and its partners also share fraud leads and alerts in real-time. The IRS estimates its external partnerships have contributed to almost $277.7 million in protected revenue since 2017.
The IRS estimates that the ISAC program has contributed to almost $277.7 million in protected revenue since its inception in 2017. Like identity theft, the IRS has filters to detect other types of refund fraud. However, the report cautioned that the IRS doesn't always have the information it needs to detect potential fraud patterns before refunds are issued. During the 2024 filing season, the IRS did not have information returns available at the time tax returns were filed for approximately:
- 15 million (75 %) of the 20 million tax returns that reported Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance, Contracts, etc. income. These returns claimed over $46 billion in refunds.
- 1 million (77%) of the 1.3 million tax returns that reported Form W-2G, Certain Gambling Winnings income. These returns claimed $3.6 billion in refunds.
The IRS estimates it could potentially increase revenue protected by $944 million for fiscal years 2025 through 2034 if the filing deadline for certain information returns were earlier.
TIGTA recommended the IRS work with the Treasury Department's Office of Tax Policy to request legislation that would accelerate the filing deadline for all information returns whose current deadline is March 31. The IRS agreed with TIGTA's recommendation.
"As reported, statutory authority does not exist for the IRS to change the filing due dates of information returns," wrote Kenneth Corbin, chief of the IRS's Taxpayer Services Division, in response to the report. "We previously submitted legislative proposals to accelerate the due dates of information returns with withholding credits. To date, legislation has not been enacted to modify the filing dates of these returns. Having a more complete universe of data available from which to evaluate the accuracy of tax refund claims and to confirm the authenticity of the identities of individuals claiming those returns would significantly enhance our ability to stop improper claims from being paid."
