The ongoing efforts of the IRS to cut down on tax refund fraud based on identity theft are one of the recurring threads in this blog.
For years, the agency has struggled not too successfully to fix the problem. In this post, we will discuss a protection procedure that the IRS is seeking to expand to try to prevent identity theft and the tax fraud that is often associated with it. This procedure is called IP PIN.
IP PIN refers to a 6-digit number that the IRS can use for verification purposes. It is a way for the IRS to confirm a taxpayer's identity when a return is received.
The IRS sends out IP PIN numbers through the U.S. mail. But not all taxpayers are eligible to receive them. Only taxpayers who fit into certain categories are eligible.
One of those categories is victims of identity theft in cases that the IRS has resolved.
Taxpayers who filed as residents of Florida, Georgia or the District of Columbia on their federal taxes last year are also eligible. And the IRS is starting a pilot program to allow potential victims of identity theft to "opt in" to IP PIN.
Of course, anytime there is a new procedure like this, it comes with possible complications. For example, taxpayers who get an IP PIN may wonder whether they should share that information with their tax preparer. After all, if the preparer enters IP PIN information into a database for filing purposes, that database could potentially be hacked. This could happen no matter how trustworthy the preparer is.
And so the saga of the IRS's identity-theft protection efforts continues. In our November 26 post last year, we noted the problem of fraudulent refund claims by prison inmates. It is good to know, after such incidents, that the IRS is seeking effective ways to authenticate tax returns and keep more taxpayers from becoming prisoners of identity theft.
Source: IRS.gov, "The Identity Protection PIN (IP PIN)"