The U.S. Government Accountability Office (GAO) has made six recommendations to the Internal Revenue Service (IRS) to help prevent fraudsters from stealing people’s tax refunds.
In 2016, hackers using fake identities managed to steal $1.68 bill in tax refunds. Congress has taken steps to address this problem by moving up the deadline for employers to submit W-2s and requiring the IRS to hold refunds for those claiming certain tax credits. These alterations will give the IRS more time to identify discrepancies before issuing refunds.
But the GAO says more measures are needed. It suggested six things the IRS could do to further reduce the amount of fraud.
One, the GAO says the IRS should track late W-2 filing penalty notices and the extent to which they are associated with fraud and noncompliant returns.
Two, it should consider options for improving enforcement of late W-2 filing penalties.
Three, the IRS should develop a plan to assess the benefits and costs, including taxpayer burden, of modifying the February 15 refund hold. Further, it should determine how this supports the IRS’s compliance strategy for refundable tax credits and fraud risk management.
Four, it should modify the refund to minimize the risk of releasing fraudulent or noncompliant refunds.
Five, the IRS should assess the benefits and costs of additional uses and applications of W-2 data for pre-refund compliance checks.
And finally, the agency should implement changes to improve pre-refund compliance checks.