Outlook: Identity Theft Progress Made, but Work Remains
August 9, 2017
Let’s start with the good news. IRS has recently had a positive trend to share on an issue of concern to all taxpayers: tax-related identity (ID) theft. According to the agency, reports on identity theft have “declined sharply” in 2017 compared to the prior two years. During the first five months of 2015, some 297,000 taxpayers reported they were identity theft victims. That number declined to 204,000 for the same period in 2016 and 107,000 for the same period this year.
That progress is great news, without a doubt. A couple of factors made this possible:
- IRS has invested both in resources to address the plight of those who are identity theft victims—a necessary, if regrettable resource commitment—as well as in a public awareness campaign, focused both on the general public and on the tax professional community. This has helped.
- Further, and more significantly, the private-public efforts of the IRS-led Security Summit resulted in safeguards that have surely stemmed the tide (H&R Block is a Security Summit participant; our former CEO, Bill Cobb, encouraged IRS to unite with the tax preparation industry leaders to address tax fraud). This partnership, which commenced two years ago, allows the broader tax community to leverage joint resources to contain a fundamental threat to the entire tax administration system.
The bad news, however, is that even though (and perhaps probably because) we’ve seen great progress in the battle against individual tax-related ID theft, business identity theft is on the rise. The uptick is significant: IRS has reported 10,000 business returns for the first five months of 2017, which compares to 4,000 for the full calendar year (CY) 2016 and 350 for CY15. Hundreds of millions of dollars are at risk.
What returns are in play? The Kansas City Business Journal reports:
Criminals are targeting corporate returns, estate and trust returns, and partnerships. Historically, they’ve stolen Employer Identification Numbers to create false W-2s or 1099s, or to fraudulently file for benefits such as fuel tax credits. But now they’re upping their game and filing fraudulent Forms 1120 and 1120S, which are corporate income tax returns. They also are using fraudulent Schedule K-1 filings for partnerships to file fraudulent individual returns.
More troubling than the specter of fraudsters upping their game is the following from IRS:
Some of the increase in business and partnership return identity theft is fueled by cybercriminals’ increasing focus on breaching tax professionals systems and stealing client data.
The unfortunate truth when it comes to tax-related identity fraud is that it is a highly lucrative (if illegal) business. Taxpayers – be they individuals or businesses – provide a treasure trove of information to their return preparers. Whether it’s minimum competency or security standards, taxpayers deserve protection and reasonable assurance that those whom they’ve entrusted with their tax returns and sensitive personal information are able and incented to protect them.
(Analysis and insights by Bob Kerr)