The IRS is adding more filters to try to catch business tax fraud

The IRS continues to strengthen its filters to catch business identity theft and tax fraud, using 84 selective filters last year to identify business tax returns for fraudulent refunds, but it’s not always successful, according to a new report.

of ReportIn a release Monday by the Treasury Department’s inspector general for tax administration, filters identified 60,296 business returns as potentially fraudulent and selected them for further review. It comes as the IRS ramps up efforts to encourage tax professionals to watch for signs of identity theft by identity thieves (See history).

The federal government has come under pressure from lawmakers in Congress to do more to catch fraudsters who have profited from the Covid-19 pandemic using relief programs like Paycheck Protection Programs.

“In addition to continuing to improve business identity theft detection filters, the IRS continues to take steps to address deficiencies in prior assessments,” the report said. “These actions include establishing procedures for filing business tax returns with higher dollar refunds and implementing a selection filter that identifies differences in estimated tax payment reporting.”

Andrew Harrer/Bloomberg

However, according to a partially redacted version of the report released by TIGTA, the IRS failed to catch many of the criminals. The IRS published its first Business Taxonomy report last December and indicated that it expects to have nearly $3.8 billion in fraudulent tax returns since the 2016 tax year. About $6 million and $3.2 billion. TIGTA’s review identified 3,243 returns filed as of December 31, 2020, totaling approximately $17.2 million in fraudulent tax return features that were not caught by IRS filters.

TIGTA made four recommendations in the report that the IRS could improve detection of business identity theft, including reviewing the cluster expansion in its filters; Continue research to provide businesses with an Identity Protection Personal Identification Number program; and developing a program to detect and verify any altered but potentially falsified material from the report. The IRS agreed with three of the four recommendations, but did not agree to develop a program to identify and verify the changed information. However, TIGTA said it continues to believe a pre-return process is needed to prevent potentially fraudulent refunds.

In response to the report, David Alito of the IRS’s Small Business/Self-Employed Division said, “We’re proud of our work to expand identity theft protections to more business filers. “During the 2021 process, 84 pre-refund identity theft filters were used to identify suspected identity documents. This resulted in $7.3 trillion in revenue protection in calendar year 2020 and $2.3 trillion in revenue protection in calendar year 2021. Those struggling with the economic impact of the COVID-19 pandemic Potentially fraudulent refund claims associated with returns filed by suspected identity thieves to help businesses obtain refund credits.