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New Programs Reduce Tax Fraud

An Article on CPA Practice Advisor talks about the following:

The crackdown on identity theft and tax fraud by federal and state tax authorities appears to be working.

The number of people reporting stolen identities on federal tax returns has fallen by more than 50 percent for the first nine months of 2016 with nearly 275,000 fewer victims, the Internal Revenue Service said Thursday.

Also, IRS statistics show a nearly 50 percent drop in the number of fraudulent returns that have made it into the IRS tax-processing system this year, meaning that filters put in place are stopping the returns before they get that far.

Through September, the IRS stopped 787,000 confirmed identity theft returns this year, totaling more than $4 billion, down from $7 billion for the same period in 2015.

"Add this all up, it means we're seeing fewer bad returns, fewer bad refunds and fewer taxpayers becoming victims," IRS Commissioner John Koskinen said.

The state also is seeing improvement with a 38 percent drop in suspicious attempts to file a return, according to the Ohio Department of Taxation.

"We are improving our systems and blocking as much as we can," said Joe Testa, Ohio's tax commissioner. "We have to stay on our toes. They are pretty sophisticated."

The issue of tax-related identity theft has taken hold in just the past few years. Crooks steal the identity of taxpayers, file false returns in their names and then seize the refunds.

The IRS also announced additional steps for the 2017 filing season meant to cut the level of fraud further for individuals and businesses.

Among them is the expansion of a pilot program that will require 50 million taxpayers to enter a 16-digit code from their W-2 that will verify the W-2. The program is in response to thieves' attempt to create fake W-2s to make fraudulent returns look more genuine.

Other steps being taken won't be as visible to taxpayers. They include more data sharing between tax professionals, states and the IRS to help improve the ability to stop fraud. They also together will launch an improved early warning system meant to identify emerging new schemes and quickly sharing that information so that participants can enact safeguards.

In Ohio, Testa said the state will continue to use the taxpayer-identification quiz to help prevent fraud, but fewer people will have to take the quiz.

"We got it down to about 10 percent of the returns," he said. "That's significantly better than 48 percent" in 2015, the first year the quizzes were used.

Banks, meanwhile, have been working with the IRS to stop refunds from getting to criminals, and the IRS has been urging taxpayers to be vigilant in protecting their information to and avoid being scammed.

"We've heard less incidence of taxpayer fraud than we have in the past," said Ted Johnson, a tax- and litigation-support partner with accounting firm Parms + Co. in Columbus.

Part of that could be due to the firm's effort to protect clients' information, he said.

"Because we work very hard on education and protecting our clients information, we probably see less potential incidents going on," he said.

mawilliams@dispatch.com

@BizMarkWilliams

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