Tax Bill to Prevent Tax Refund Theft

The Senate Finance Committee has introduced bipartisan legislation to improve protection for taxpayers against fraudulent tax refund claims made with stolen identities. The refund theft tax bill includes new assistance for taxpayers who have been victims of identity theft and requires the Internal Revenue Service to establish a new security feature that individuals can use to protect their tax return filings. Currently, the only real security feature protecting a taxpayer from tax related identity theft is a person protection pin for a primary or secondary taxpayer. Dependents’ information is still at risk.

Under the bill, businesses would be required to report both employee compensation and certain non-employee compensation to the government earlier in tax season. The change would improve the IRS’s ability to identify and prevent fraudulent refund claims. The assumption is that with additional time, the IRS can prevent tax refund theft by catching schemes early on.

Also, returns that have EITC will have additional scrutiny as many of the fraudulent returns filed falsely claimed this credit to get a larger refund. It is the largest refundable credit available, so this is not necessarily surprising, but the amount of erroneous payouts combine with rising numbers of identity theft must be addressed. 

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