IRS Is Catching More Phony Tax Refunds Before They Go Out

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The agency is finding fewer fraudulent tax returns but is getting better at stopping payments on the ones it does.

The IRS is catching more fraudulent tax refunds before checks get cut than the 2018 tax season despite a hectic start.

The agency started accepting returns three days after the 35-day government shutdown, which its IT team worked through to bring 128 IT systems, including its fraud detection systems, into compliance with the Tax Cuts and Jobs Act.

The tax reform law changed 119 tax provisions, and in turn, the team made nearly 600 programming changes to e-file rules and error resolution codes.

As of February, the IRS spotted 3,529 fraudulent returns that claimed $15.8 million in bunk refunds, according to a Treasury Inspector General for Tax Administration report. Officials stopped most of that—$12.2 million—from being issued. That’s capturing about 77% of the attempted claims. Last year, the agency found 9,557 fraudulent returns that claimed almost $46 million and stopped about half from being paid.

Though taxpayers are still filing, the agency already ferreted out more returns that used stolen identities than in 2018. Officials confirmed 3,741 phony returns and stopped $16.7 million from being issued. Last year, they found 2,204 returns and blocked $5.6 million from being paid out.

Officials credited the increase in catching returns using stolen identity data to retooled filters that check against various data points, like income, filing requirements, prisoner status and filing history.

The agency also locked down the accounts of 40.1 million deceased filers—a move that will automatically reject anyone who attempts to e-file using that info. As of January, the IRS rejected 1,096 fraudulent e-filed tax returns.

As of March, the IRS received about 59 million tax returns—95% filed electronically—and issued 46 million refunds.

TIGTA will follow up with more information about the tax season in subsequent reports.