Fighting Tax-Related ID Fraud…with Smartphones

Last year alone the Internal Revenue Service (IRS) received over 1 million fraudulent tax returns and managed to halt nearly $7 billion in fraudulent tax refunds – and that was just the feds.

Both state tax authorities and the IRS have been examining methods of combating tax fraud while ensuring honest taxpayers receive their refunds promptly. The Alabama Department of Revenue, for example, is using cell phone technology to stay ahead of scammers and thieves.

Selfies for Safety

It works like this: taxpayers create an electronic ID, or eID, with a mobile app for either iOS or Android. After filing their returns as usual, taxpayers with an eID will receive a notification from the Department of Revenue when their tax return is received. To verify the taxpayer’s identity, they are asked to take a selfie, which is matched up with your driver’s license photo.

The biggest hurdle is getting taxpayers to utilize the new technology, which is entirely optional.

After downloading it, the app walks taxpayers through the registration process, which can be done any time prior to filing a tax return. In addition to the initial identity verification, the return jumps ahead for processing after the Department of Revenue verifies it.

The process has enabled integration between law enforcement and Alabama Department of Revenue computer systems and it is expected to go live in November.

Beta Stage

Other states are testing similar systems. In North Carolina and Georgia, MorphoTrust USA (Safran) is working with a grant from the National Institute of Standards and Technology (NIST) to introduce an eID pilot program.

The current goal is to register a total of 75,000 taxpayers, with 40,000 in Georgia and 35,000 in North Carolina. These numbers are targets, though, and there is no cap. All residents of North Carolina and Georgia will have the opportunity to opt-in and participate.

The Georgia Department of Revenue blocked a mammoth $312,895,381 in fraudulent returns in 2015, a somewhat misleading number considering a single taxpayer attempted to claim several massive refunds including one for $94 million. It has blocked $49 million thus far in 2016.

The hope is that fewer fraudulent returns will enter the system, leading to quicker processing and reduced slowdowns. The program is still in the programming phase and isn’t available for public testing yet, but Georgia is aiming to have it available for the 2017 tax year.

As federal and local authorities continue to incorporate technology into existing tax filing mechanisms, the frequency of ID fraud should continue to diminish.

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