In the 2013 filing season, identity thieves attempted to steal almost $30 billion. The IRS paid $5.2 billion in fraudulent returns. The IRS prevented identity thieves from stealing the remaining $24.2 billion. Fraudulent refund requests represent over 9% of total refunds paid. While the IRS paid only 1.6% of the refunds, the total sum is large.
The Department of Treasury recommended some changes in filing procedures. First, the department recommended an earlier filing deadline. Second, the department recommended a lower threshold for mandatory e-filing.
Reconciling Refund Requests
Currently, businesses provide their employees with copies of the W-2 by January 31. Many employees immediately file their taxes to claim a refund. The reports aren’t sent to the Social Security Administration until much later. Last year, the deadline for paper filers was the end of February. The deadline for e-filers was the end of March.
The IRS cannot reconcile refund requests until July, under the current system. This gap creates an opportunity for fraudulent return requests.
Removing this gap would enable the IRS to reconcile amounts earlier. What other consequences would an earlier filing deadline introduce? For one, the IRS would have to alter systems and work processes. Filers would have to adapt to the earlier filing deadline.
Lowering the Mandatory e-Filing Threshold
The Department of Treasury also recommended lowering the mandatory e-filing threshold. The threshold is currently set at 250 forms. Lowering the threshold would make running employee data against the IRS database much simpler. Transitioning to e-filing makes this process easier. As an added benefit, the SSA estimates a $.50 saving per e-filed form. Processing e-filed forms takes less time and resources.
These changes aren’t a fool-proof way to curtail fraud. Still, these changes could have a big impact. E-filing is a good way to decrease the gap between return requests and processing. To get started, visit Tax1099.com.