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IRS Effort to Prevent Identity Theft

It is estimated that the IRS paid $5.2 billion in refunds related to fraudulent identity theft tax returns for the 2013 filing season. The IRS is attempting to mitigate this exposure. The General Accounting Office has recommended that the IRS accelerate the filing deadline for W-2s. Although employers must provide W-2s to their employees by January 31st, they are not required to e-file the forms with the IRS until March 31st. The GAO is recommending that the due date be changed to January 31st.

The GAO notes that identity theft is able to occur because of the IRS’s “look back” model. This model allows the IRS to issue refunds only after completing selected reviews. The IRS does not begin matching employer W-2 data to tax returns until July; much later than the majority of refunds are issued. There is no word at this point on whether the IRS will be adopting this suggested new due date for W-2s.

For the upcoming filing season, the IRS will be testing a new verification code system. They are partnering with certain payroll service providers to include a 16-digit code and a new verification code field on a limited number of W-2 copies B & C. Not all W-2s will have the new 16-digit code. If the field is blank, those taxpayers do not need to enter a code in the tax software product used to e-file their return. However for those taxpayers that do have a verification code, it will need to be entered when requested by the software product they use to e-file their return. The code is not entered on paper filed tax returns.

For purposes of the test, omitted or incorrect verification codes will not delay refunds. The IRS will use and analyze the information gathered to determine if it is useful to verify the integrity of W-2 information.

Contact
  • Christy Zimmerman
  • Senior Manager, Tax & Business Advisory Services
  • (614) 947-5285
  • czimmerman@gbq.com