The IRSs ability to detect identity theft-related refund and employment fraud is limited, but by the end of 2008, the IRS had cataloged over 50,000 incidents, according to a
Approximately 90 percent of fraudulently claimed refunds were stopped in 2008 with about $15 million issued before the IRS became aware of the fraud. The IRS does not know the amount of refund or employment fraud that goes undetected, however.
In 2008, IRS began implementing four new initiatives in an effort to better detect and resolve identity theft cases. These include an identity theft indicator that the IRS places on victims' accounts so that IRS personnel can more easily recognize and assist the legitimate taxpayer in case of future account problems. The indicator further enables the IRS to screen returns to prevent fraudulent refunds from being issued to identity thieves. The IRS also decided to resolve legitimate taxpayers' identity theft problems using a decentralized process; the activity that discovers a problem has the responsibility to resolve it.
For the 2010 filing season, the IRS is considering whether to expand its screening; however, the IRS does not know how well its current strategy is working. The IRS said it will develop performance measures, but it is not known whether the measures will be suitable for determining the effectiveness of the new initiatives, such as the number of false positives and negatives in the screening process or the success of the decentralized resolution process. Nor is it known when the new measures will be implemented.
Measuring effectiveness matters because there have been glitches in implementing the initiatives, the GAO report noted. The IRS is working to correct some discrepancies in the screening process and a GAO analysis of IRS data showed that some fraudulent refunds were issued even though taxpayers had indicators on their accounts.
The IRS is revising its strategy for preventing, detecting and resolving identity theft-related tax problems. It has coordinated with other agencies on how to manage identity theft programs, but so far such coordination is limited. Statutory provisions protecting the privacy of tax data prohibit the IRS from sharing taxpayer information with other agencies in many cases, nor does the IRS routinely receive identity theft case data because of concerns with substantiation.
