Improvements in Identify Theft and Tax Fraud Detection Capabilities for 2017

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The Internal Revenue Service (IRS) has made great strides in detecting tax refund fraud. As of March 4, 2017, the IRS reported that it had identified and confirmed 14,068 fraudulent tax returns involving identity theft and prevented the issuance of $91.9 million in fraudulent tax refunds due to the agency ‘s use of 197 identity theft filters.

While the IRS has made efforts to better identify suspicious tax returns, the agency recognizes that because new identity theft patterns are constantly evolving, it must continuously adapt its detection and prevention processes. In a statement before the Senate Finance Committee on April 6, IRS Commissioner John Koskinen echoed the agency ‘s progress, while also stating that the agency cannot “let up in the fight against identity theft.” Also on April 6, the Honorable J. Russell George, Treasury Inspector General for Tax Administration, provided testimony during a hearing before the Committee on Small Business in the U.S. House of Representatives. Mr. George stated, “The IRS recognizes that new identity-theft patterns are constantly evolving and that, as a result, it needs to continuously adapt its detection and prevention processes.”

In addition to the fraud filters, Mr. Koskinen attributed the agency ‘s progress in part to the collaborative efforts of the Security Summit Group. This public-private partnership facilitated the implementation of safeguards that decreased the number of identity theft victims by 46 percent in FY 2016. Additionally, the IRS obtains leads about potential identity theft tax returns from state tax agencies via the Suspicious Filer Initiative, which allows federal and state tax agencies to exchange suspicious filer, fraudulent refund, identity theft, scheme leads, and other information. Another critical program that improved the efforts against stolen identity refund fraud (SIRF)¬†was the Return Review Program (RRP), which enhances the IRS’ capabilities to detect, resolve and prevent criminal and civil tax non-compliance. However, none of these programs take into consideration external databases, like those used across many states to prevent over¬†$500 million in tax refund fraud.

While these enhancements have allowed the IRS to stop more incidents of identity theft, there are additional solutions available that compliment these safeguards by utilizing external databases. The IRS could find incidents of identity fraud before they happen by accessing billions of public records across city, county, state and federal boundaries. By using these external databases to establish identity-based filters, the IRS can help uncover areas that rules-based filters within tax agencies cannot including: altered Social Security numbers (SSNs), individuals not associated with their given address or SSN, identities not found in public-record searches or synthetic identities. These identity-based filters can give the IRS a comprehensive picture of a taxpayer ‘s identity so the agency can stop even more incidents of fraudulent tax returns from identity theft before they occur.

As the report noted, the IRS must continue to evolve their processes to stay ahead of fraudulent schemes that are becoming more complex. Fraudsters are adept at stealing SSNs or creating synthetic identities by combining real and fabricated information about a non-existent person; falsifying W-2 information or fraudulently applying for a tax refund. The IRS can benefit by using billions of external public records in conjunction with their programs already in place, just as several states have to save over $500 million in tax refund fraud, to further reduce identity theft tax refund fraud across the board. This additional capability could compliment current procedures and significantly increase fraudulent refunds stopped by millions ,if not billions ,of dollars by identifying and addressing cases of identity theft and synthetic identities before any payments are dispersed to criminals.

Source: Scott is the Director of Federal Market Strategy at LexisNexis Risk Solutions and is responsible for developing data-driven solutions for governments in their fraud, waste and abuse prevention processes. Scott has invented several identity -products using the LexisNexis vast public record database and holds patents in these products designed to assist governments in preventing fraud, reducing improper payments and collecting delinquent receivables.

Scott has been a frequent speaker on a variety of topics since joining LexisNexis in 2011, including testifying on government debt collection best practices to the Legislature in the state of Louisiana and participated on a panel discussion regarding government efficiencies at the Democratic Governors Association. Scott is also on the Advisory Council for the International Association of Financial Crimes Investigators and the Data Coalition.

Prior to joining LexisNexis, Scott was employed at the Financial Management Service (FMS), a bureau of the US Treasury where he drafted strategic plans for multiple business unites, implemented industry best practices in the collection processes of delinquent debt owed to the federal government by creating an analytics division to streamline collections strategies through combining internal and external data and was a project manager on an internal control review project, whose outcomes were designed to prevent fraud against the government. Also, while at FMS he coauthored a feasibility study to repurpose a payment center to a debt collection center and worked with the Office of Management and Budget to pass several initiatives through Congress to maximize efficiencies in the debt collection process.

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Scott Straub
Scott is the Director of Federal Market Strategy at LexisNexis Risk Solutions and is responsible for developing data-driven solutions for governments in their fraud, waste and abuse prevention processes. Scott has invented several identity -products using the LexisNexis vast public record database and holds patents in these products designed to assist governments in preventing fraud, reducing improper payments and collecting delinquent receivables.