Over the past several years, tax-related identify and refund fraud has become much more prevalent. Identity thieves file tax returns using stolen social security numbers and claim false refunds. They often file electronically and early in the year before the IRS is able to verify the information being submitted, and before the real taxpayers have a chance to file their returns. Then, when the individual whose social security number has been falsely used attempts to file, their return is rejected because the IRS only allows one return to be filed per social security number. Once this happens, the taxpayer is forced to file their return on paper, completing additional forms and procedures with the IRS to verify their identity, which delays the processing of their return and receipt of any refund.
The IRS is developing techniques to combat this tax-related fraud. One way is by using a pilot program that began during 2015. As part of this program, the IRS has started working with several large payroll companies to develop methods to help verify W-2 information. The IRS developed a program which generates unique codes for the payroll companies to report on the W-2’s they prepare. This unique code will then be entered into tax software when the individuals prepare their tax returns. In order for that return to be accepted by the IRS the codes on the w-2 must match what was generated in the IRS’s system. Since identity thieves will not have access to the w-2 codes when filing their false returns, the codes won’t match, the return will be rejected.
During the first year of implementation, the program was used for 1.5 – 2 million W-2’s. The IRS plans to have it expanded to anywhere between 24 and 50 million W-2’s for the 2016 tax year.
As we all know of someone who has been the victim of some form of identity theft, it is good to see the government taking steps to prevent it.
If you have questions or concerns, contact us or call us at 216.524.8900