IRS reports ID theft complaints are down

The number of Americans reporting tax-related identity theft declined by more than a quarter of a million in 2016, according to the IRS.

The agency called the 275,000 fewer reported thefts in 2016 a "marked improvement in the battle against identity theft" in a Nov. 3 statement announcing plans to expand taxpayer identity protections in the coming 2017 tax season.

In 2015, following an alarming spike in the theft of taxpayer identities and data and an increase in fraudulently filed tax returns, the IRS partnered with state tax administrators, tax preparers, software providers and others to combat the problem under the Security Summit initiative.

IRS Commissioner John Koskinen said the effort is paying off. "We've made remarkable progress this year in our efforts to protect taxpayers following the unprecedented coordination with the states, the tax industry and the financial sector," he said.

The agency also recorded an almost 50 percent decline in the number of fraudulent returns that made it into its tax-processing systems. As of September, the IRS had blocked 787,000 returns that involved identity theft, saving about $4 billion in taxpayer money. Over the same nine-month period in 2015, the IRS had stopped 1.2 million confirmed identity theft returns, totaling about $7.2 billion.

More than 100 financial institutions joined the partnership this year, bringing the total to 620. Additionally, the IRS said banks blocked 108,539 suspect refunds in 2016, compared to 243,361 in 2015. The dollar amount attributed to those refunds dropped to $239 million from $829 million in 2015.

Furthermore, IRS officials said their industry and state partners provided information that helped strengthen the agency's fraud filters and clamp down on bad tax returns, including 57,000 that would otherwise have bypassed IRS processing filters.

Information sharing among summit participants also helped identify new areas of vulnerability and stop more than 74,000 suspicious returns, representing over $372 million in refunds that were prevented from being paid, according to the IRS.

Officials say more improvements are on the way, including the tax industry's addition of 37 new elements to the data it transmits with every personal tax return. The industry will also share 32 more data elements from business tax returns with the IRS and state agencies.

IRS Form W-2's 16-digit verification code initiative will expand from 2 million forms in 2016 to 50 million in 2017. The software used by commercial tax preparers requires the code to validate the W-2, and the IRS said it expects the code to be expanded for all varieties of W-2 forms.

Still, adversaries continue to adapt. The IRS warned on Nov. 4 that phishing scammers are trying to use the agency's security efforts to trick tax professionals into relinquishing IRS information via a bogus website. The agency warned tax professionals not to click on links in email messages purporting to be from the IRS and to only access their accounts via the IRS website.