The Internal Revenue Service held a meeting Tuesday of its Security Summit members to discuss progress on combating identity theft-related tax refund fraud this past tax season along with plans for next year, including a greater focus on education and new security standards for tax preparers.

IRS Commissioner John Koskinen pointed to progress since the Security Summit group was set up in March of last year, bringing together the IRS, state tax authorities and private industry, including major tax prep chains and tax software developers.

He noted that the number of people who have filed affidavits telling the IRS they were victims of identity theft has dropped 48 percent in the first half of 2016, compared to the first half of 2015. In addition, the number of suspicious refunds that financial institutions returned to the IRS for review was 66 percent lower through mid-June of this year compared with the same period last year.

“That’s more evidence our fraud filters are getting better and stopping more false returns before refunds can be issued,” Koskinen said during a conference call with reporters following the Security Summit meeting. However, he admitted the IRS could not yet provide hard numbers on the number of identity theft victims this year.

This year through April, though, the IRS stopped over $1 billion in fraudulent refunds claimed by identity thieves on more than 170,000 tax returns. “During the same period last year, we had stopped about $754 million in fraudulent refunds claimed on 141,000 returns,” said Koskinen. “So you can see we’re making progress—stopping tens of thousands more returns worth a quarter billion dollars.”

This year through May 8th, leads from industry partners directly resulted in the suspension of 36,000 tax returns, he noted, on which a total of $148 million in refunds was claimed. “That’s more than twice what was identified by industry leads through May 8th of last year—15,000 returns claiming $98 million,” said Koskinen. “That’s protecting $50 million more of taxpayer money.”

Koskinen said the Security Summit Group will be made permanent this year, operating under the auspices of the Electronic Tax Administration Advisory Council, or ETAAC. The IRS has also created additional teams for tax professionals, financial services and public communications. In addition, it is establishing a new Identity Theft Tax Refund Fraud Information Sharing and Analysis Center, or ISAC, which will provide a clearinghouse for sharing information about identity theft-related tax fraud.

“We will use the ISAC to centralize, standardize and enhance the way data from Security Summit Group partners is collected and analyzed,” said Koskinen. “This will allow us and our partners to make the best possible use of the data being shared—to analyze and spot trends as they emerge. I’m confident we’ll have key components of the ISAC working by the next filing season. With the ISAC in place, the ability of all partners in the Security Summit Group to safely share and access information will be greatly improved, to the benefit of all.”

In addition, Koskinen noted that the IRS is going to be expanding a W-2 Verification Code pilot program for the 2017 filing season. “This involves a special code included on W-2s, which is entered on the tax return to confirm the accuracy and integrity of electronically filed returns,” he said. “We ran a pilot this past filing season with several payroll service providers involving 2 million W-2’s that helped verify information and protect the taxpayer. For 2017, we’re expanding the pilot to add this special protective code on up to 50 million W-2s during the season. We appreciate the support we’ve had from the payroll service community and the software industry on this project. This will be an extra layer of protection that will help taxpayers and the tax system.”

Tax Preparer Security Standards
Another major initiative will be to ensure better awareness among tax preparers on ways to safeguard against identity theft, with education efforts and sessions at the IRS’s Nationwide Tax Forums, along with an upcoming set of security standards.

“We are also expanding our efforts to collaborate with a group that’s absolutely critical to the tax system—the tax return preparer community,” said Koskinen. “We’re very concerned that identity thieves, in their never-ending hunt for taxpayer data, are focusing more and more on tax return preparers. We already saw some evidence of this during the last filing season. So our subgroup devoted to tax professionals is already hard at work identifying steps that we can take to help return preparers safeguard their own information and their clients’ data.”

Efforts will include getting the word out to tax preparers to help them better understand what safeguards they can put in place themselves. “We will be launching a new campaign in this area,” said Koskinen. “We’ll have more details on that available soon, and we will be reaching out directly to return preparers on this issue at this summer’s IRS Nationwide Tax Forums to be held in cities around the country. The first Tax Forum will be in Chicago in two weeks.”

Accounting Today asked if those efforts will include enforcement or just additional education. Koskinen said that subject came up for discussion during the Security Summit meeting before the press conference.

“I would stress it’s not an enforcement operation,” Koskinen responded. “We’re really trying to be supportive and helpful. We have representatives of preparers and professional groups as part of the Summit, and we stressed this morning that the goal of all of us—certainly the states and everybody in the private sector—is to try to figure out how we can be supportive and helpful. So it’s primarily an educational campaign to try to get people aware of the facts and then providing them also with resources of what they can do and what steps they can take to provide security. We also are developing with one of our security working groups a set of security standards that can be agreed upon by all preparers and those in the private sector, large and small. We’re sensitive to the fact that there are a lot of preparers out there that are relatively small organizations and to try over time to give them guidance of what the security standards are that people should be meeting.”

He believes the Security Summit partners can help amplify that message. “We’ve had a discussion this morning about different organizations volunteering,” said Koskinen. “They would be happy to reach out to their members to provide as much information as they can. Again, one of the advantages of the Summit and the reach we have is that we can get a common shared sustained message out. Our goal would be that by the time filing season starts in January, unless you’re paying no attention at all to anything, we think that preparers around the country should be aware of the fact that they need themselves to make sure that their systems are as secure as possible, and they need to take advantage of the information and support that we’re going to be providing.”

Other members of the Security Summit included some industry rivals who agreed on the need to work together. H&R Block president and CEO Bill Cobb and Intuit chairman and CEO Brad Smith spoke about how they are cooperating on the effort.

“There are probably no two fiercer competitors than Intuit and H&R Block in the marketplace, but yet Brad Smith and I are completely aligned in terms of the goals of the Summit and the need to protect taxpayers and have a tax preparation and a tax system that has full integrity,” said Cobb. “I do applaud the Commissioner for his commitment for having the ISAC, or Information Sharing and Analysis Center, in place by January 1. I think that will be incredibly important that the states and all of us in industry share information and share reporting.”

Cobb urged the IRS to establish clear metrics and uniform industry standards by which all industry members could measure themselves by next tax season.

Smith agreed on the need to work together. “As Bill said, we are working very collaboratively,” said Smith. “It’s not just our two companies. It’s the entire ecosystem. It is the direct result of Commissioner Koskinen and the IRS leadership. It has been tremendous, in addition to the state commissioners, and the FTA, and the rest of our peers in the industry. As Bill said, we’ve had a lot of hard work and commitment that has gone into this over the last 18-plus months, and we’ve also achieved some great results, but as Commissioner Koskinen said, we’re in the early stages. If this were a baseball game, we’re at the end of the first inning of a nine-inning baseball game, and we have a lot of work ahead of us.”

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