After an already trying and tragic year, millions of Americans are running out of patience as they wait for the IRS (Internal Revenue Service) to issue tax refunds, which—due to the lengthy authentication screenings necessitated by an unprecedented spike in identity fraud—have been delayed. As many taxpayers struggle to rebuild their lives after the harrowing losses of homes, jobs, and loved ones, this year’s delay in receiving federal refunds feels like an insult added to injury courtesy of a government believed by many to have mismanaged the COVID-19 crisis from the very beginning.
The primary cause of the historic delay in issuing tax refunds this year is not a logistical hiccup caused by the COVID-19 pandemic but rather a rapid influx in identity fraud. Between 2019 and 2020, there was a 50% increase in tax returns flagged as potentially fraudulent. While tax season is a time of confusion and anxiety for most US residents, it’s a profitable bonanza for criminals skilled at separating innocent victims from their hard-earned money through identity theft. According to the IRS, “tax-related identity theft occurs when someone uses your stolen personal information, including your Social Security number, to file a tax return claiming a fraudulent refund.” Fraudsters will often obtain personal information stolen via phishing attacks and data breaches and use it to inaccurately file the victim’s taxes and then divert the inflated tax refunds to their own accounts. Tax-related identity theft wreaks havoc on the financial lives of the victims, many of whom are elderly, and makes filing taxes in the future even more difficult.
To cut down on tax-related identity theft, the IRS relies on an algorithm to flag tax returns suspected to be fraudulent before sending them via direct deposit or check. In 2019, for example, the IRS prevented a whopping $3.5 billion in taxpayer money from being deposited into the bank account of fraudsters who rely on stolen identities to pilfer funds. When the algorithm flags a tax return as potentially fraudulent, the individual who filed it is required to undergo an additional identity authentication process. Unfortunately, the algorithm has a very high false-positive rate which means that many legitimate taxpayers must undergo this time-consuming process before receiving the IRS refunds they are entitled to. Last year, for instance, the IRS flagged 1.9 million individuals for identity screening. According to the Taxpayer Advocate Service, however, “most flagged returns aren’t fraudulent. In 2019, 63% of the refunds vetted for identity theft turned out to be legitimate.” In addition to undergoing additional screening processes, folks flagged as potentially fraudulent can expect long wait times. Last year, for example, “about 18% of refunds flagged for identity verification took longer than 120 days to arrive.”
In addition to tweaking the algorithm to reduce the rate of false positives, the IRS must streamline and accelerate the digital authentication process to reduce wait times and ensure that hard-working taxpayers depending on their refunds to pay their bills receive their refunds on time.
Given that 97% of Americans currently have a cell phone, phone-centric digital authentication could be an effective tool to speed up the IRS’s authentication process. Phone-centric digital authentication is a powerful tool because it can be completed easily in just three steps:
Improving the IRS’s ability to authenticate individual’s identities quickly and accurately is an issue of national importance. It is critical that the IRS levels up its digital authentication capabilities as soon as possible so taxpayers can receive the refunds they’ve been waiting for.
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