Tuesday, February 7th, 2017 @ 5:28PM

Results of the 2016 Filing Season

CFEG reports that on February 3, 2017 the Treasury Inspector General For Tax Administration (TIGTA) issued its report on the Results of the 2016 Filing Season dated January 31, 2017. While the objective of TIGTA’s review was to evaluate whether the IRS timely and accurately processed individual paper and electronically filed tax returns during the 2016 Filing Season, TIGTA reported on its findings with respect to the IRS detecting and preventing tax refund fraud over the 2016 filing season at pages 17 – 20 of its report. A copy of the full report is available by clicking the link below.

CFEG reports that based on this most recent TIGTA audit the data reflects that there is an increase in the number of identity theft tax returns that the IRS has identified in 2016 up from 2015. For example, the data for processing year 2015 in figure 7 below shows that 165,199 fraudulent returns were not stopped by the IRS. According to the data in figure 7 below the number of fraudulent returns that the IRS did not stop increased from 2014 to 2015.

Detecting and Preventing Tax Refund Fraud

TIGTA reported that as of May 7, 2016, the IRS reported that it identified 240,260 tax returns with $1.5 billion claimed in fraudulent refunds and prevented the issuance of $1.4 billion (91 percent) of those refunds. Figure 7 below shows the number of fraudulent tax returns identified by the IRS for Processing Years 2013 through 2015 as well as the refund amounts that were claimed and stopped.

Figure 7: Fraudulent Returns and Refunds Identified and Stopped in Processing Years 2013 Through 2015

Processing      Number of                   Number of                Amount of                 Amount of
Year                 Fraudulent                   Fraudulent               Fraudulent               Fraudulent
Refund Returns         Refund Returns             Refunds                   Refunds
Identified                      Stopped                   Identified                   Stopped

2013                2,556,935                     2,360,180              $16,456,632,993       $15,690,434,978
2014                2,180,613                     2,066,394              $15,724,424,102       $15,209,859,119
2015                1,811,354                     1,646,155              $12,369,252,837       $11,439,842,002

Source: IRS fraudulent tax return statistics for Processing Years 2013 through 2015.

TIGTA reported that there is a decreasing trend in the number of fraudulent tax refunds the IRS detects and stops which TIGTA states is attributable to the IRS’s expansion of its processes to prevent fraudulent tax returns from entering the tax processing system (i.e., rejecting e-filed tax returns and preventing paper tax returns from posting). For example, according to TIGTA, as of April 30, 2016, the IRS locked approximately 31 million taxpayer accounts of deceased individuals. The locking of a tax account results in the rejection of an e-filed tax return and prevention of a paper tax return from posting to the Master File if the SSN associated with a locked tax account is used to file a tax return. According to the IRS, as of April 30, 2016, it has rejected approximately 58,820 fraudulent e-filed tax returns and stopped 2,580 paper tax returns from posting to the Master File.

Detection of tax returns involving identity theft

TIGTA reported that for the 2016 Filing Season, the IRS used 183 identity theft filters to identify potentially fraudulent tax returns at processing. Theses identity theft filters incorporate criteria based on characteristics of confirmed identity theft tax returns, including amounts claimed for income and withholding, filing requirements, prisoner status, taxpayer age, and filing history. Tax returns identified by these filters are held during processing until the IRS can verify the taxpayer’s identity. The IRS attempts to contact the individual who filed the tax return and, if the individual’s identity cannot be confirmed, the IRS removes the tax return from processing. As of April 30, 2016, the IRS reported that it had identified and confirmed 170,590 fraudulent tax returns and prevented the issuance of nearly $1.1 billion in fraudulent tax refunds as a result of these filters. Figure 8 below shows the number of identity theft tax returns the IRS identified and confirmed as fraudulent in Processing Years 2014 through 2016.

Figure 8: Identity Theft Tax Returns Confirmed As Fraudulent in Processing Years 2014 Through 2016 (as of April 30, 2016)

Processing Year                 Number of Identity Theft Returns Identified
2014                                     236,313
2015                                     141,214
2016                                     170,590

Source: IRS fraudulent tax return statistics for Processing Years 2014 through 2016 as of April 30, 2016.

TIGTA found that the IRS continues to use clustering filters that group tax returns based on characteristics that include the address, Internet Protocol address, and bank routing numbers. For the tax returns identified, the IRS then applies another set of business rules in an attempt to ensure that legitimate taxpayers are not included.  Identified tax returns are held from processing while the IRS attempts to verify the taxpayer’s identity. As of May 5, 2016, the IRS reported that it identified 120,260 tax returns and prevented the issuance of approximately $567.7 million in potentially fraudulent tax refunds. 34

Computer processing errors continue to result in direct deposits not being converted to a paper check when required

TIGTA’s analysis of direct deposit requests made as of May 5, 2016, found that IRS processes still do not always convert direct deposits to a paper check when required. The IRS received approximately 86 million requests for direct deposits as of May 5, 2016. TIGTA’s analysis of the 86 million deposit requests identified 24,644 unique bank accounts with a total of 66,727 direct deposit attempts totaling $119.1 million that should have converted to a paper check. Of the 66,727 deposit attempts TIGTA identified, 5,605 (8.4 percent) deposit attempts totaling approximately $9.2 million did not convert to a paper check as required. In an effort to further reduce fraudulent tax refunds, the IRS limits the number of direct deposit refunds that can be sent to one bank account to three refunds. The IRS will convert the fourth and subsequent direct deposit refund requests to a paper check and send it to the taxpayer’s address of record. In August 2015, TIGTA reported that these processes did not convert to paper checks 9,166 deposits requested on Form 8888, Allocation of Refund (Including Savings Bond Purchases), totaling $2.3 million. 35 In December 2015, TIGTA reported that an additional 5,447 direct deposits requested on Form 1040 totaling more than $13.4 million also did not convert to a paper check. 36 IRS management stated that computer programming errors resulted in the IRS not properly identifying all direct deposit accounts with multiple deposit requests. According to IRS management, the IRS corrected two of the three issues and planned to implement computer programming changes to correct the third issue in Calendar Year 2016. IRS management informed TIGTA that additional programming changes were implemented in July 2016 to address the remaining condition which TIGTA identified during the 2015 Filing Season.

34 In March 2016, TIGTA reported that the IRS identified 328,908 tax returns and prevented the issuance of $1.4 billion in potentially fraudulent refunds using the clustering filter tool as of March 3, 2016. Subsequent to the release of TIGTA’s report, the IRS informed TIGTA that the correct results from the clustering filter tool as of March 3, 2016, are 86,058 identified tax returns and $419.4 million in potentially fraudulent tax refunds.

Read Full Report

Posted by cfegov
Categories: Identity Theft