IRS Ramping Up Efforts to Thwart Tax Refund Fraud, Considering Security Standards for Tax Preparers

In an effort to combat one of the fastest-growing crimes in America, identity theft and related tax refund fraud, the IRS launched a number of initiatives, including a W-2 Verification Code pilot program and security standards for tax preparers.

The IRS is planning on expanding its W-2 Verification Code pilot program, which was first launched for the 2016 filing season. The IRS has partnered with certain payroll service providers to include a 16-digit code and a new Verification Code field on a limited number of Form W-2 copies provided to employees. The code will be displayed in four groups of four alphanumeric characters, separated by hyphens, e.g., XXXX-XXXX-XXXX-XXXX. The objective is to verify Form W-2 data submitted by taxpayers on efiled individual tax returns. The IRS plans to add this special protective code on up to 50 million W-2s during the 2017 tax season.

Another major initiative involves development of security standards for tax preparers. While the idea is still in its infancy stage, the standards would be intended to help safeguard tax preparers’ information and that of their clients. It appears this would primarily be an educational campaign aimed at increasing awareness and providing resources to ensure information security. Some industry leaders urged the IRS to establish a clear set of metrics and uniform industry standards to be used as benchmarks for all industry members. However, at this time it’s not clear who would be policing the standards.

IRS Publication 4557 (Rev. 10-2015)—Safeguarding Taxpayer Data (Publication 4557) could be a first glimpse of what the IRS is working on. It provides a list of references to applicable laws, standards and best practices, instructions on reporting incidents and a number of practical checklists for tax-return service providers to assess their data privacy and security needs. While IRS Publications are not law, in the absence of clearly defined security requirements, Publication 4557 could become the “de facto” security standards for tax preparers.

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Michal has more than eight years of experience providing litigation support, forensic accounting, audit and advisory services in a variety of industries, including banking, construction, financial services, governmental, higher education, manufacturing, not-for-profit, real estate, retail, social services and transportation.

Michal Ploskonka – who has written posts on BKD Forensics.


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