IRS slows down tax return processing to address fraud

The Internal Revenue Process took three times as long to review and process tax returns in fiscal 2015, but a fraud prevention company says the slowdown is geared toward security.

In fiscal 2015, the average tax return took the IRS 21 days to process, compared to only 7 days in previous filing years. But iovation, a fraud-and-abuse company whose clients work with the IRS during tax season, said in a study launched Wednesday that new fraud prevention efforts at the IRS account for the longer processing windows.

“In this case, it’s extending the review time and doing verification and validations of the personal information, verifying the identity of the individual and ensuring that it’s a valid return. So from a federal government perspective, this is a good thing because it will decrease their fraud rates. It won’t eliminate them, but certainly they’re going to be experiencing less fraud,” Scott Olson, iovation’s vice president of product, said in an interview with Federal News Radio.

While iovation commended the IRS for its slow-and-steady approach, Olson said budget and workforce cuts have also led to slower response rates.

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Appearing before a House Appropriations subcommittee, Commissioner John Koskinen on March 18 defended his agency’s $13.2 billion budget proposal for fiscal 2017. The subcommittee’s leadership, however, said the agency’s May 2015 data breach demonstrated that the IRS hasn’t earned the trust of the taxpayers.

“If the IRS wants more solid and sustainable funding, then the IRS needs to show Congress and taxpayers that it can manage funding responsibly and administer the tax code objectively,” said Rep.  Ander Crenshaw (R-Fla.), chairman of the subcommittee on Financial Services and General Government.

The IRS requested $13.9 billion in funding for fiscal 2015, but received $10.9 billion. The agency also has 13,000 fewer full-time employees than it did in fiscal 2010.

With the rise in e-filing, however, Olson said the IRS has been able to operate more efficiently and mitigate the impact of its reduced workforce.

“Filing and processing tax returns electronically is not just a convenience to consumers, it’s also operationally efficient … a lot of these things that are being put in place that have a big consumer convenience impact also have an operational impact. And so the fraud prevention tools that are put in place are enabling people to do more than they could have with the same level of staffing,” he said.

Fraudsters, however, also take advantage of the IRS’ online services, which leads to a constant balancing act between security and convenience.

“As we’re moving to more and more electronic means to do sensitive financial transactions, we’re going to be evolving in countermeasures to attacks,” Olson said. “There’s always this balance of customer experience and customer convenience with security and security measures to keep fraudsters from taking advantage of those new conveniences and mechanisms.”

Olson said compared to the rest of the financial industry, the IRS fares no better or no worse than major banks when it comes to fraud prevention.

“It’s not what I would consider to be negligence,” Olson said. “This is the cost of doing business. Fraud is big business, there are organized groups that are looking to defraud all numbers of businesses, including the IRS. So the federal government is not being singled out, and I wouldn’t characterize the IRS as doing anything worse than a typical bank or a typical retailer that may be dealing with high fraud rates. The IRS represents a good target because you can get thousands of dollars at a time from a fraudulent return.”

When it comes to identifying fraud, iovation said the IRS can cut down on improper payments by flagging multiple claims being filed from a single device.

“Fraudsters can use the same device to file multiple returns, and then we can identify that relationship, and so that as time occurs, if you see those multiple returns associated with the same device, then you can go ahead a create a flag on that, and then that can be passed back and forth for review,” Olson said.

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