Presentation on theme: "Protecting the Integrity of the Tax System Against Tax Fraud and ID Theft: What Industry Is Contributing Stephen M. Ryan David Hahn McDermott Will & EmeryIntuit,"— Presentation transcript:
Protecting the Integrity of the Tax System Against Tax Fraud and ID Theft: What Industry Is Contributing Stephen M. Ryan David Hahn McDermott Will & EmeryIntuit, Inc. (202) 756-8333(650) 944-3522 firstname.lastname@example.org@intuit.com AMERICAN COALITION FOR TAXPAYER RIGHTS (“ACTR”)
2 WHO IS THE AMERICAN COALITION FOR TAXPAYER RIGHTS (“ACTR”)? ACTR is a 501(c)(6) Made up of 2 components: tax preparation companies and financial service settlement companies We help prepare approximately 90 million of the 140+ million individual federal income tax returns We provide approximately 18.6 million of the nearly 20 million RTs ACTR tax preparation companies: – H&R Block – Intuit – Jackson Hewitt – Liberty Tax – Tax Act (2 nd Story) – TaxSlayer – CCH Small Firm Services (UTS)
3 Continued: WHO IS ACTR? The tax companies’ offerings range from: – In person – Do-it-yourself software (DIY) – “Professional” software (used by CPAs, lawyers, other preparers) ACTR financial services companies: – H&R Block – Refund Advantage – Republic Bank and Trust – Santa Barbara Tax Products Group
5 Diverse Tax ecosystem “ Manual” Self-Prepared Category Professional Tax Software Franchised & Independent Preparers IRS e-file Transmitters Consumer Tax Software “Software” Self-Prepared Category “Preparer” Category 140M individual returns – over 80% are electronically filed ~60% ~30% ~10% #’s are approximations based on various sources $$ Refund Delivery: Direct Deposits to Banks & Prepaid Cards + Checks EF Returns Mailed Returns
6 CHARACTERISTICS OF TAX PREPARATION MARKETPLACE In 1999, 1.25 million taxpayers used private sector on-line products. In 13 years the industry (not just ACTR members) has gone from about 1% of taxpayers to 80% of taxpayers using Internet and electronic tax-preparation products The states and federal government did not pay for this change, but have benefited mightily, e.g.: – lower cost of processing returns – reduced errors in returns since software corrects routine taxpayer errors – taxpayers benefit in reduced burden and cost Industry marked by innovation, fierce competition and change Software capabilities continue to increase, but not price Competition is fierce within sectors (e.g., DIY), and between sectors (DIY v. stores v. professionals) Example: A recent market entrant less than 10 years old has become the #3 company in the industry in a decade
7 Understanding the THREAT Our tax system is under attack by very capable criminals Theft (or misuse ) Of Identities (directly or indirectly) Delivery & Use of Fraudulent R efunds Preparation & Filing of Fraudulent Returns enables… resulting in… 1 2 3 As with all types of fraud, criminals constantly change their fraud schemes Examples: Puerto Rican SS# Retirees Nursing Homes Schools Deceased Huge Volumes early in Tax Season First to file prior to real Tax Payer Prepaid Cards used to move money Authentication & Identity Gaps
8 Tax Fraud is fueled by an explosion in identity theft Identity theft is one of the fastest growing crimes in the U.S. – #1 consumer complaint received by FTC for last 11 years Fraud perpetrated against the government in 2010 was the most common form of reported identity theft crime IRS experienced significant increases in tax issues resulting from identity theft for tax years 2009-2011 Sources: Prepared Statement of IRS Commissioner Doug Shulman, during Hearings on Identity Theft before Subcommittee On Government Organization, Efficiency And Financial Management of the House Committee On Oversight And Government Reform, June 2, 2011. GAO Report: Taxes and Identity Theft (GAO11-674T),Testimony before the Subcommittee on Fiscal Responsibility and Economic Growth, Committee on Finance, U.S. Senate, released May 25, 2011. Year# Tax-related ID Theft Incidents 200851,702 2009169,087 2010248,357
9 ACTR Agrees with GAO’s Framework for Fraud Prevention “A well-designed fraud prevention system should consist of three crucial elements: (1) upfront preventive controls, (2) detection and monitoring, and (3) investigations and prosecutions.” GAO Report GAO-06-954T, July 12, 2006, “Individual Disaster Assistance Programs Framework for Fraud Prevention, Detection, and Prosecution.”
10 Overall ACTR Ideas/Concepts Within the GAO framework, ACTR has focused on key taxpayer and fraud prevention outcomes intended to obtain the most “bang for the buck” in the short and long term: – Increasing barriers to potentially fraudulent electronic filings – Companies can help IRS identify suspicious activity for enhanced processing by providing more information at the time of electronic filing, and additional information after electronic filing, but not acting as a law enforcement adjunct against our customer – We could help IRS identify legitimate taxpayers who we recognize as repeat customers for timely return processing and refund issuance by providing more information at the time of electronic filing – Rejecting IRS refund issuance to direct deposit accounts that exhibit suspicious indicators – Preventing or restricting access to previously issued IRS refunds in direct deposit accounts that exhibit suspicious indicators – Further enabling law enforcement to identify and stop fraudulent activity quickly – Identifying and helping legitimate taxpayers who are prevented from filing their returns or receiving their refund in a timely manner
11 Protecting the “Front Door” Websites that only use UserID & Password may be increasingly vulnerable Many breaches like: Many consumers reuse their U/P 6.5 Million LinkedIn Passwords Reportedly Leaked, LinkedIn Is “Looking Into” It Yahoo Confirms 450,000 Accounts Breached, Experts Warn Of Collateral Damage
12 What can IRS and other portions of government do to reduce and mitigate the impact of Identity Based Tax Fraud? – Improve on current Authentication of PIN/AGI – Obtain more data, such as Device ID – Industry and IRS can use better filtering and detection capabilities – Continue to improve coordination and information sharing in LE community is under say IRS/CI, DOJ, FBI, US Postal, Secret Service, State LE – Use expertise of industry groups willing to help CERCA, ACTR, FFA and others
14 Data Elements to Routinely Collect and provide as part of E-FIle Key data elements already collecting: – Filer Identity: Name/Social Security Number/DOB of filer – IP Address from which the efile was submitted – Bank Account: RTN/Account# of the bank account being to which a refund transfer was requested – Email Address for filing status notifications – Street Address provided as the filer – Phone number provided as the filer Potential NEW Element – DeviceID = Globally Unique ID of the device (Computer, SmartPhone, Tablet) used to submit the efile
15 A DeviceID should… Accurately identify a unique device in a way that is resistant to manipulation Recognize a returning device (e.g. Following Tax Year) Allow for association of additional “high risk” returns Once certain user behavior is observed as “high risk”, linking to other returns from the same DeviceID becomes possible. Utilizing DeviceID enables Web Sites to uniquely identify users tied to unique machines and returns. This is a better method of identifying than IP address, PINs, or email/User IDs, which can easily be manipulated.
16 Once Data is Collected, Analytics and Risk Scoring can be performed by Government, identifying possible Fraud Rules based on DeviceID can be used to calculate risk for transaction Negative Lists Device or IP is on “black” list or watch list Velocity Rules High number of filings from same DeviceID Static Rules Device is using proxy server Multi-level rules can be used to hold transaction IF Risky DeviceID and Risky bank account, then hold If Risk DeviceID and compromised Identity, then hold Link Analysis on DeviceID can be used link filings and identify fraud rings
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