By John D. McKinnon
WASHINGTON--Tax officials and lawmakers on Thursday urged more
and faster information sharing between the government, tax-filing
services and employers to help address the growing problem of tax
refund fraud using stolen identity information.
The federal government lost at least $5.8 billion to refund
scams in 2013, according to the latest official estimates. The
problem has continued this year with a wave of fraudulent state tax
filings that rely on information from taxpayers' prior-year
returns.
"Though early in the 2015 filing season, we are already seeing a
dramatic increase in the use of valid identities which have been
stolen, " Mike Alley, Indiana's revenue commissioner, said at a
Senate Finance Committee hearing. That is "particularly concerning
because stopping fraud with valid identity information is much more
difficult" than prior versions of the scam, he added.
Intuit Inc.'s TurboTax suspended filing of state returns for
about 24 hours in February after the company and state tax
officials saw a spate of fraudulent filings. The company doesn't
believe its system was breached. The Federal Bureau of
Investigation and the Internal Revenue Service have been probing
what happened.
State tax officials said the problems aren't unique to TurboTax.
Crooks have been using hacked identity information to exploit other
commercial tax-filing systems too, they said.
Utah Tax Commission Chairman John Valentine said tax-filing
firms should be required to tighten their security to better secure
their data from unauthorized disclosure.
Sen. Ron Wyden (D., Ore.), the committee's top Democrat, said
solving the ever-shifting problem also will require better
cooperation and information-sharing by all the major players,
including federal and state tax agencies, as well as private-sector
tax-filing services and others. "Part of the challenge is getting
states, Internet tax services and the IRS on the same wavelength,"
Mr. Wyden said. "Everybody's got to communicate and work together
to make sure criminals can't just nimbly slide from one
jurisdiction to the next."
Hearing witnesses said the IRS and many states have gotten more
adept at blocking fraudulent returns in recent years, leading the
crooks to become more sophisticated.
Lawmakers and state officials urged specific changes in law and
policy to help block fraudulent returns. For example, several
officials said employers should be required to send in official
wage data to tax agencies sooner, so the agency can check it
against claims on returns. Currently, tax agencies often don't get
wage data until after returns are filed and refunds are paid.
The Obama administration already has requested legislation
requiring wage information to be filed earlier, although some
payroll firms have warned it would cause disruptions. The
administration also has sought several other measures to fight
refund fraud, including about $82 million for additional staff and
technology.
Write to John D. McKinnon at john.mckinnon@wsj.com
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