Getting Tough on Identity Theft, Tax Refund Fraud


Identity theft and tax refund fraud are problems that the Internal Revenue Service continues to fight. The agency has issued several consumer alerts to employers and other taxpayers warning of various schemes that seem to pop up every week.

Whether it’s phishing e-mails asking for information from employees’ Forms W-2 or unauthorized access of employees' online W-2 portals, the instances of identity theft and tax refund fraud have grown substantially over the past year.

Decreasing Filing Threshold

The chairman’s mark of a Senate bill seeks to prevent identity theft and tax refund fraud by increasing the electronic filing of tax returns and allowing the filing of a specific tax form using the Internet. The bill was marked up and approved April 20 by the Senate Finance Committee.

The chairman’s mark, prepared by the Joint Committee on Taxation, would decrease the threshold that employers would be required to file forms electronically. The threshold, now at  250 Forms W-2, would decrease to 200 for 2019, to 150 for 2020, to 100 for 2021, to 50 for 2022 and to 20 for subsequent years.

The proposed bill would require the use of an Internet website or other electronic

medium similar to the Business Services Online Suite of Services provided by the Social

Security Administration by Jan. 1, 2021. The website would have to be available in partial form by Jan. 1, 2019, to allow taxpayers to prepare, file and distribute Forms 1099-MISC, Miscellaneous Income, the chairman’s mark said.

The BSO suite of services allows employers and third parties to securely exchange information with the SSA over the Internet, the SSA said. Filing of Forms W-2s and verifying employees’ names and Social Security numbers can be done using the BSO, the agency said.

W-2 Verification Program 

The IRS plans to expand the pilot program started that last year added a verification code to Forms W-2 to verify the integrity of the data submitted to the IRS. The program was created because of identity thieves’ “efforts to create counterfeit Forms W-2” that are filed with false returns to make them appear legitimate, IRS Commissioner John Koskinen said in testimony April 19 before the House Ways and Means Subcommittee on Oversight. 

The special number code was added by payroll service providers in a box on the W-2 labeled “Verification Code.” Those whose Form W-2 contained the code and who used tax software to prepare the returns had to enter the code when prompted. 

The number and types of Form W-2 issuers involved in the test would be expanded, Koskinen told the subcommittee.