The IRS Is Stopping Fewer Fraudulent Returns. And That’s A Good Thing.

The IRS appears on track to identify and halt fewer fraudulent tax returns this year than it did during the 2017 tax season, according to a preliminary audit report out Monday.

That’s good news, though, according to the auditor, who says it’s evidence the IRS is preventing more fraudulent tax returns from ever being filed, for example by locking dead taxpayers’ accounts so fraudsters can’t use them.

As of Feb. 24, IRS officials had spotted 9,557 phony tax returns seeking $46 million in fraudulent refunds, according to the report from the Treasury Inspector General for Tax Administration.

Officials stopped about half that money, $22 million, from going out the door.

While it’s not an apples-to-apples comparison yet, final fraud figures for the 2018 tax season are likely to come in beneath the roughly 900,000 phony returns and $10 billion in fraudulent refunds during the 2017 filing season or the 1 million phony returns and $8 billion in fraudulent refunds during the 2016 season.

Fraudsters frequently use personally identifiable information, such as addresses and Social Security numbers that are compromised in data breaches, to file fake returns on behalf of other people and collect ill-gotten refunds.

Because the scam depends on the real taxpayer not having filed a return yet, fraudsters tend to submit those phony returns earlier in the filing season rather than later.

The IRS also identified about 2,200 tax returns involving identity theft as of Feb. 28 this year, the audit said.

This year, the IRS is using 200 filters that sift out tax returns with common fraud characteristics, the audit said. Those include unusual amounts listed for income and withholding and whether the tax filer is in prison.

When the filters are triggered, the IRS tries to contact the filer and verify his or her identity before paying out any refund.

As of Feb. 28, the IRS had identified 1.4 million returns claiming about $6.9 billion in refunds that triggered one of those filters, the audit said.

A full audit of the IRS’ refund fraud efforts is due out later this year.