New Law Expands IRS’s Identity Protection Pin Pilot Program

Over two weeks ago, legislation authored by U.S. Senators Susan Collins (R-ME) and Doug Jones (D-AL) to stop identity theft tax refund fraud and prevent taxpayers from falling victim was signed into law by President Donald Trump.  Senators Collins and Jones’ legislation was included as a provision in the Taxpayer First Act.

The IRS has made significant progress in combating identity theft refund fraud, but it continues to be one of its biggest challenges, costing victims a total of $1.7 billion in 2016 alone. Photo Credit: U.S. General Accounting Office

The Taxpayer Identity Protection Act will require the Internal Revenue Service (IRS) over the next five years to expand its Identity Protection PIN (IP PIN) pilot program nationwide.  Over the years, the IRS has made significant progress in combating identity theft refund fraud, but it continues to be one of its biggest challenges, costing victims a total of $1.7 billion in 2016 alone.

In 2017, the Federal Trade Commission received more than 82,000 complaints related to tax-refund fraud.  Those who have been defrauded often wait months—even years—to receive the refunds to which they are legally entitled.

Millions of American families depend on IRS refunds to pay off debts, settle medical bills, or plug gaps in the family budget. Worst of all, seniors are oftentimes the most vulnerable victims.  In 2010, 76,000 low-income seniors were victimized by this scam.  In remarks made on the Senate Floor earlier this year, Senator Collins urged her colleagues to support this bipartisan legislation to protect Americans’ tax refunds.

“Each year, tens of thousands of Americans are victims of tax refund fraud, and seniors are particularly vulnerable,” said Senator Collins, who chairs the Senate Special Committee on Aging.  “Having an IP PIN has proven to protect against identity theft.  This new law is an encouraging, concrete step to help protect taxpayers from being ripped off by criminals and ensure that they receive the refunds to which they are entitled,” she says.

Adds Senator Jones, “This new law will save over a billion dollars in taxpayer money and help protect against identity theft, I am glad the President has signed our bipartisan legislation and that these additional protections will be available to all taxpayers.”

Identity theft refund fraud occurs when a scammer files a false tax return using a stolen Social Security number (SSN) and other personal information and receives a tax refund from the IRS.  These fraudulent tax refund payments waste taxpayer dollars, jeopardize the legitimate refunds of taxpayers, and threaten the integrity of the IRS.

According to a statement from the Senate Aging Committee, an IP PIN is a six-digit number assigned to eligible taxpayers that allows their tax returns and refunds to be processed without delay and helps prevent the misuse of their SSNs on fraudulent income tax returns.  If a tax return is filed with an SSN and an incorrect or missing IP PIN, the IRS’ system automatically rejects the return until the identity of the filer can be confirmed.  According to the IRS, the IP PIN program rejected approximately 7,376 fraudulent e-filed tax returns in just one month during last year’s tax filing season.

Providing an Extra Layer of Protection

While taxpayers would not be required to use an IP PIN, the newly enacted law would allow them to opt-in to the program if they desire an extra layer of identity protection.  The five-year incremental expansion would provide accountability that the IRS is adequately building out the IP PIN program, while at the same time ensuring taxpayers have access to the extra layer of security as soon as possible.

Since 2013, the IRS program has only offered IP PINs to victims of identity theft as well as all residents of Florida, Georgia, California, Delaware, Illinois, Maryland, Michigan, Nevada, Rhode Island, and the District of Columbia.  The IRS issued nearly 3.5 million IP PINs to taxpayers last year, up from 770,000 in 2013.

In addition to the Taxpayer Identity Protection Act, the Taxpayer First Act contains a number of other provisions designed to modernize the IRS in areas such as customer service, taxpayer rights during the enforcement process, information technology, and electronic systems.  For example, the new law exempts low-income people from the IRS’s private debt collection program, establishes an independent appeals office, and provides identity theft victims with a single point of contact at the IRS.