The IRS has joined forces with states and the tax preparation industry to identify and implement additional taxpayer safeguards as part of its continuing effort to improve fraud detection and prevention measures. These measures include enhanced authentication procedures through various filters, improved information sharing, heightened cyber security, new tax software log-in standards, and greater education and outreach to the public. Some states have also taken measures by requesting information from a taxpayer’s driver’s license or state-issued identification (ID) card before the returns can be electronically filed, while other states require this information.
One of the prevention measures the IRS has taken is partnering with payroll and software companies to add verification codes to W-2 forms. These codes consist of 16-digit alphanumeric characters that must be entered into tax software products to aid in verifying the filer’s identity and prevent ID thieves from using fake W-2 forms.
In order to allow electronic filing, Alabama, Ohio, and New York are among the states requiring a taxpayer’s driver’s license or state-issued ID card information. Requirements associated with reporting this information differ between states. For instance, in the case of married taxpayers filing jointly, New York requires information from either the primary taxpayer or the spouse, while Alabama and Ohio require information on both taxpayer and spouse. New York requires the inclusion of the taxpayer’s driver’s license or state-issued ID number, issuing state, issuance date, and expiration date when electronically filing a tax return. However, New York will not prevent the electronic filing of a return if a taxpayer has never been issued a New York driver’s license or state ID number.
California has its own fraud detection and prevention procedures in place, such as cross-referencing the information it receives from taxpayers with other state agencies and verifying W-2 information with records available through the Employment Development Department. Tax returns are also manually reviewed for authentication purposes. Although California does not require the taxpayer’s driver’s license or state-issued ID card information for electronic filing, the Franchise Tax Board has indicated that providing such data may potentially lead to faster processing times.
Some states have joined forces with the financial industry to help them identify state tax refunds that appear to be fraudulent and return them to the applicable state for validation and further review before accepting the deposit. As part of the anti-fraud movement, “ID quizzes,” “validation key letters,” and other governmental notices relating to taxpayers’ identity verification have become routine.
Although some of these procedures may be burdensome for taxpayers, implementing safeguards is crucial to protect taxpayers’ personal and financial information from fraud.
If you have questions or would like more information, please contact Freshta Ali at fali@windes.com or 844.4WINDES (844.494.6337).