The Internal Revenue Service said Thursday it saw dramatic declines in tax-related identity theft last year, thanks to the effort of the Security Summit, which brings together the IRS with state tax authorities and the tax industry.

The IRS reported some of the main indicators of ID theft fell for the second consecutive year. That included a 40 percent decline in the number of taxpayers who reported they were victims of identity theft in 2016. In 2017, the IRS received 242,000 reports, compared to 401,000 in 2016. Since 2015, when the IRS received 677,000 victim reports, the number of tax-related ID theft victims has plummeted by nearly 65 percent.

The number of tax returns with confirmed identity theft declined 32 percent to 597,000 in 2017, compared to 883,000 in 2016. The amount of refunds protected from those fraudulent returns was $6 billion in 2017, compared to $6.4 billion in 2016. In 2015, there were 1.4 million confirmed identity theft returns totaling $8.7 billion in refunds protected. Overall during the period from 2015 to 2017, the number of confirmed identity theft tax returns fell by 57 percent with more than $20 billion in taxpayer refunds being protected.

“These dramatic declines reflect the continuing success of the Security Summit effort,” said Acting IRS Commissioner David Kautter in a statement. “This partnership between the IRS, states and the tax community is helping protect taxpayers against identity theft. More work remains in this effort, and we look forward to continuing this collaborative effort to fight identity theft and refund fraud.”

The Internal Revenue Service, state tax agencies and the tax industry have begun their third filing season this year working as the Security Summit. The private-public sector partnership formed in 2015 to fight identity theft. The Summit partners have implemented several behind-the-scenes safeguards to protect taxpayers.

The financial industry has been a key partner in the Security Summit in combating identity theft, helping the IRS recover fraudulent refunds that may have been issued. Last year, banks recovered 144,000 refunds compared to 124,000 in 2016, a 16 percent increase. The amount of refunds recovered was $204 million in 2017, compared to $281 million in 2016. In 2015, the financial industry recovered 249,000 refunds totaling $852 million.

In addition to these steep declines, the IRS also is continuing to reduce the year-over-year inventory backlog of taxpayers who file identity theft reports. For fiscal year 2017, the beginning inventory of identity theft reports submitted by taxpayers was around 34,000, under 10 percent of the fiscal year 2013 beginning inventory of 372,000 taxpayer identity theft cases.

Despite the IRS's progress on combating identity theft, a report released Thursday by the Treasury Inspector General for Tax Administration pointed to ways in which the IRS could improve its authentication processes further to prevent identity thieves from gaining access to some of its online services that have experienced data breaches, such as the Get Transcript, Identity Protection PIN and Electronic Filing PIN apps (see IRS falls short on authenticating online users to prevent data breaches).

Acting IRS Commissioner and Assistant Treasury Secretary for Tax Policy David Kautter
Acting IRS Commissioner and Assistant Treasury Secretary for Tax Policy David Kautter

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