Identity Thieves, Staying One Step Ahead of IRS



Efforts by the Internal Revenue Service to prevent fraud and safeguard personal tax information are improving, but criminals generally are staying one step ahead of the measures, an agency official said March 27.

Tamara Powell, a program manager in the IRS wage and investment group, said payroll departments often are singled out in tax-fraud schemes.

“As we’ve made progress, criminals have redoubled their efforts,” said Powell, who spoke at the American Payroll Association’s annual Capital Summit in Washington. “They need even more personal information to impersonate the taxpayer.”

“This has made you targets for criminals,” Powell said to the payroll professionals attending the summit.

The IRS recently reissued a warning about an email scam that uses a corporate officer's name to request employee Forms W-2, Wage and Tax Statement, from payroll or human resources departments. In such cases, the initial contact was followed by a fake executive email to the payroll department or the comptroller asking that a wire transfer also be made to an account, the agency said Feb. 2 in a news release (IR-2017-20).

To combat identity fraud this tax season, employer W-2 copies were to be filed with the Social Security Administration by Jan. 31. The deadline was moved up from the Feb. 29, 2016, deadline for forms submitted on paper and the March 31 deadline for forms submitted electronically. Identity thieves, in response, posed as corporate officers and sent official-looking emails to payroll departments asking for a list of all company employees and accompanying W-2s, Powell said.

During the 2016 filing season, the IRS found that about 300,000 W-2s were compromised from such a scam, Powell said. This year, the IRS found that 300,000 W-2s were compromised in January alone, she said.

Programs such as an ongoing security summit with state tax agencies and industry partners has led to improved identity-theft protections, Powell said. Leaders of the summit, which was formed in 2015, said new and expanded safeguards for taxpayers in 2017 would help ensure the authenticity of taxpayer and tax returns before, during and after the time when returns are filed.

In 2015, for example, the IRS stopped 1.4 million tax returns identified as identity theft, Powell said. In 2016, the agency stopped 969,000 such returns, she said. 

 Although fewer returns were identified in 2016, stricter requirements for software development and improved identification helped the agency identify and block potentially fraudulent returns from being filed, Powell said.

But employers and payroll-service providers should remain ever vigilant, Powell said. “For every action we take, the criminals take another action,” she said.

Take a free trial of Bloomberg BNA’s Payroll Decision Support Network, your one-stop resource for reliable, up-to-date guidance and analysis in every area of payroll administration and compliance.