What's Happening?
The Internal Revenue Service (IRS) has improved its ability to detect tax-related identity theft, according to a report by the Treasury Inspector General for Tax Administration. In 2024 and 2025, the IRS selected approximately 7.5 million tax returns
through its identity theft filters, which have been adjusted to address emerging fraud schemes. The IRS uses systemic filters and manual processes to evaluate tax returns for potential identity theft before issuing refunds. The agency has reduced the selection of legitimate tax returns from 55% in 2023 to 52% in 2024, aiming to minimize the burden on taxpayers. The IRS resolved 955,000 selections from the identity theft filters in 2024 and 2025 without contacting the taxpayers. The IRS also stopped $9.2 million in refunds associated with confirmed identity theft returns and identified another $49.3 million in potential identity theft refunds in fiscal year 2024.
Why It's Important?
The IRS's enhanced detection capabilities are crucial in protecting taxpayers from identity theft, which can prevent individuals from filing tax returns or receiving refunds. By improving its filters, the IRS aims to balance fraud detection with minimizing taxpayer inconvenience. The agency's efforts have contributed to protecting nearly $277.7 million in revenue since 2017. The IRS's collaboration with state tax agencies and financial services companies through the Information Security Analysis Center has been instrumental in identifying fraudulent tax returns. However, the report highlights the need for legislative changes to accelerate the filing deadline for information returns, which could potentially increase protected revenue by $944 million from 2025 to 2034.
What's Next?
The IRS plans to work with the Treasury Department's Office of Tax Policy to request legislation that would accelerate the filing deadline for information returns. This change would provide the IRS with more complete data to evaluate tax refund claims and confirm the authenticity of identities, enhancing its ability to prevent improper claims. The IRS has previously submitted legislative proposals to modify filing dates, but no legislation has been enacted yet. The agency's continued efforts to refine its identity theft filters and collaborate with external partners will be crucial in combating tax-related identity theft and protecting taxpayer interests.
