IRS taxpayer authentication program combats identity theft: A Q&A with Rebecca Chiaramida

The Privacy Advisor

Over the past few years, the IRS has seen an increase in refund fraud schemes in general and those involving identity thefts in particular. Identity theft and the harm that it inflicts on innocent taxpayers is a problem that we take very seriously. In 2011, our Identity Protection Office stopped more than 260,000 fraudulent returns and protected more than $1.4 billion in refunds. We understand that this is a frustrating situation for victims. Identity theft protection is a top priority for the IRS, and we’re taking concrete steps to not only assist taxpayers who have become victims but prevent it before it occurs. It’s important to note that although identity thieves steal the information from sources outside the tax system, the IRS is sometimes the first to inform the individual that identity theft has occurred.

Most professional tax return preparers and the organizations they work for have a strong set of ethics and share our commitment to taxpayers to help them prevent identity theft. So yes, it’s a partnership. The IRS continues to conduct outreach to provide taxpayers, return preparers and other stakeholders with the information they need to prevent tax-related identity theft and when identity theft does occur, to resolve issues as quickly and efficiently as possible. For example, in preparation for the 2012 filing season, we worked closely with software developers on inclusion of the Identity Protection Personal Identification Number, or IP PIN. We’ve also done a great deal of targeted outreach to educate return preparers on the IP PIN’s use. Additionally, we recently launched a section on

dedicated to identity theft matters, including tips for taxpayers and a special guide to assistance ranging from contacting the IRS Identity Protection Specialized Unit to tips to protect against “phishing” schemes.

The supplementary verification process known as the Identity Protection Personal Identification Number, or IP PIN, expands on last year’s pilot program and is geared to protect victims with previously confirmed cases of identity theft. The IP PIN was developed to protect revenue, reduce burden on identity theft victims and increase operational efficiency. The purpose of the IP PIN was to provide an efficient method for processing tax returns that are marked with an identity theft indicator while still protecting the taxpayer’s personal information. There was no preexisting model at the IRS but a clear need for additional security. A taxpayer authenticates directly to the IRS by submitting documentation that validates the legitimate owner of the SSN. The IP PIN initiative will create an additional layer of security on these accounts. It is another tool at our disposal to protect identity theft victims and revenue.

To accommodate the IP PIN program, we revised the 1040 series tax forms to allow for IP PIN entry; met with software developers to ensure their programming accommodated the IP PIN, and developed a communication and outreach strategy for taxpayers, tax preparers and key stakeholders.

Like any other sensitive or personal information, there is always a possibility that the IP PIN may be compromised, but we are taking steps to minimize that risk. The purpose of the IP PIN is to validate the identity of a taxpayer during the filing of the current year tax return. We implemented specific authentication processes for those taxpayers who were issued the IP PIN to minimize the possibility of harm if the IP PIN is compromised. Taxpayers will receive a new IP PIN each December for use in filing their current year tax return.

We have substantially increased our resources devoted to both prevention and assistance. Even in a declining budget environment, we are hiring and training new staff to address the growing challenge of identity theft. The IRS is committed to continuing to improve our programs. We will work to prevent the issuance of fraudulent refunds and work with innocent taxpayers to clear their accounts and get them their money in a courteous and professional manner. The IRS has taken actions to be better prepared in both fraud prevention and victim assistance. On the prevention side, this means implementing new processes for handling returns, new filters to detect fraud, new initiatives to partner with stakeholders and a continued commitment to investigate the criminals who perpetrate these crimes. As for victim assistance, the IRS is working to speed up case resolution, provide more training for our employees who assist victims of identity theft and step up outreach to and education of taxpayers so they can prevent and resolve tax-related identity theft issues quickly. These improvements would not be possible without the additional resources that have been directed toward these programs.

This year’s initiative is an expansion of last year’s pilot program of the IP PIN. It is one tool in our arsenal as we take a comprehensive approach to stopping identity theft and refund fraud. The IRS will analyze the results of this year's IP PIN program to make any necessary enhancements to the program and determine potential expansion for the 2013 filing season.

We understand that resolving the problems associated with identity theft is frustrating for victims, and the IRS is working to resolve cases in which tax records have been affected by identity theft as quickly as possible and have committed significant resources to this effort. The identity theft landscape is constantly changing, as identity thieves continue to create new ways of stealing personal information and using it for their gain. The IRS is firmly committed to working with taxpayers to take care of these problems as quickly as possible.