Enhanced Authentication Could Combat Refund Fraud, but IRS Lacks an Estimate of Costs, Benefits and Risks

The Government Accountability Office (GAO) has released its report on the Internal Revenue Service’s (IRS) efforts to combat tax refund fraud. It occurs when an identity thief files a fraudulent tax return using a legitimate taxpayer’s identifying information and claims a refund.

GAO said that IRS has effectively stopped or recovered $24.2 billion in fraudulent returns. However, the agency still paid out $5.8 billion in returns later found to be fraudulent. GAO also said there is an unknown amount number of fraudulent claims that were never identified. GAO was asked to review IRS efforts to combat IDT refund fraud. This report, the second in a series, assesses (1) the quality of IRS IDT refund fraud cost estimates, and (2) IRS progress in developing processes to enhance taxpayer authentication.

GAO compared IRS IDT estimate methodology to GAO Cost Guide best practices (fraud is a cost to taxpayers). To assess IRS progress enhancing authentication, GAO reviewed IRS documentation and interviewed IRS officials, other government officials, and associations representing software companies, return preparers, and financial institutions.

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GAO-15-119: Published: Jan 20, 2015. Publically released: Feb 15, 2015