IRS Commissioner John Koskinen
The Internal Revenue Service and its partners in the tax preparation industry are improving their security measures ahead of the January 23 start of tax season.
The IRS assembled representatives from state tax authorities, accountant organizations, tax software developers and tax preparation chains to talk about its Security Summit efforts Thursday.
“We have new safeguards in place for 2017 to help stop identity thieves, and I want to thank all of our Security Summit partners for the critical work that they have done to protect taxpayers and the tax system,” said IRS commissioner John Koskinen during a conference call with reporters Thursday.
Late last year, the Summit leaders expanded their safeguards for taxpayers in the upcoming tax season. The focus will be on “trusted customer” features to help ensure the authenticity of taxpayers and tax returns before, during and after a return is filed. The extra protections will build on the 2016 successes that prevented fraudulent returns and protected tax refunds. Last year saw a 50 percent reduction in the number of affidavits of taxpayer identity theft filed with the IRS, or around 275,000 taxpayers.
“The private sector tax industry is critical to the nation’s filing season and the security of taxpayer data,” said Koskinen.
Among the extra measures are data elements in the tax software to help authenticate taxpayers and fend off identity thieves.
“My members are getting used to their new software programs as we speak,” said National Society of Accountants executive vice president John Ams. “There will be some additional data elements in the background on their programs that they are going to need to get used to. Not that they’ll see them, but the software will operate in the background to make sure that their system is secure.”
The software will include some extra measures of protection. “One of the new features will be that the system will log out if they’re not working on it for a period of 30 minutes, so they will no longer have the opportunity to leave their computer on with client data while they are out of the office doing other things,” said Ams.
He noted that the IRS and its industry partners have been working hard to combat identity theft and fraudulent returns. “The tax professional community is also taking steps to assist in this effort,” said Ams. “The nation’s biggest tax professional organizations have been taking part in the summit, and we have been working together to help tax professionals understand what they need to do to protect the sensitive client data they handle. We are also working with other summit participants and the IRS Electronic Tax Administration Advisory Committee to reach out to those preparers who may not be a member of any organization to encourage them to take steps to keep their taxpayer files safe from theft. We are also reaching out to taxpayers to help them avoid being victimized by unscrupulous tax preparers. During this tax season, more than half of the tax returns filed will be professionally prepared. All of us in the tax community urge every taxpayer to make sure they obtain solid professional and ethical tax assistance. Taking some commonsense steps when choosing a preparer can help. You can check your preparer’s professional credentials. Check their history on the IRS website. Once a return is prepared, review it before signing it. Make sure that any refund is directed to the taxpayer’s address and not someone else’s. And never sign a blank tax return.”
Intuit chairman and CEO Brad Smith said they were working together collectively as an industry. “We’re providing the training to the tax professionals,” he said. “We have online support as well as phone support if they have questions, and they collectively are signed up with us to make sure that we’re making the tax system safe. We’re also trying to help them continue to be productive at a very busy time of year for them.”
Smith said Intuit and its partners are providing some commonsense tools and techniques to tax professionals and is available if they have any questions.
“The fight against tax fraud is a team sport, and we are all committed to playing our part,” said Smith. “This includes educating taxpayers and tax professionals about what they can do to protect their own online identity. The Security Summit process continues to make great strides in reducing the impact of tax refund fraud, but Americans still fall prey to cybercriminals. In many cases, there are some common sense actions that you can take to safeguard your personal and your financial information.”
He suggested installing antivirus software on computers and keeping all software, including web browsers, up to date. Taxpayers and tax professionals should use strong passwords with a combination of upper and lowercase letters, numbers and symbols. Users should create separate passwords for each of their online accounts, Smith recommended. They should also watch out for phishing scams from fraudsters masquerading as legitimate businesses or the IRS. They should protect their mobile devices, using their phone’s auto-lock feature. In addition, they should be careful what they post on social media and avoid sharing too much personal information that could be used by criminals, such as birth dates and birth places.
H&R Block president and CEO Bill Cobb pointed to the continuity of the tax business each year. “One of the things about our industry and the experience of our tax professionals is they come back every tax season knowing things they have to adapt to or train for, and we’re certainly ready on our end,” he said. “I think most professional tax preparers are the same, in that they’re ready. I think the last thing a tax preparer wants is a client who becomes an identity theft victim, so they’re compliant with all the new rules that have come in.”
Since the Security Summit first met over a year and a half ago, it has put in place several new protections for this tax season, among them e-file certification standards and common reporting procedures, Cobb noted. “To bring it all together, the Information Sharing and Analysis Center is now operational, which is a key achievement,” he said. “The sum effect is industry is now sharing more data to help verify the identity and authenticity of who is filing the tax return. This effort means that the tax system is safer for everyone: taxpayers, the government and the private sector. But as we all know, the fraudsters remain adaptive. We must keep our guard up and continue to evolve to meet new threats. Speaking for H&R Block, I know that we have worked hard to ensure our digital product continues to employ stringent industry measures to protect our clients’ information, such as bank-level encryption technology and layers of required authentication. We also have tax identity shields at H&R Block, which assist taxpayers in the prevention and/or recovery from tax identity theft.”
The IRS plans to use the new “trusted customer” process to help authenticate taxpayers, with the help of tax professionals. “Trusted customer as a general matter is one of the great advantages of the Security Summit,” said Koskinen. “That is, tax professionals and tax preparers obviously have a better line of sight to their clients and in many cases will be able to provide information that they know and are confident this is a trusted taxpayer and a trusted preparer. And our ability to have that information will allow us to speed the review of questionable returns through the process faster, so it is an important data element. It will not require anybody to go out of their way to try to determine who is trusted. A lot of times, they’ll know if the taxpayer is pulling the W-2 information directly from their employer. If you’re able to do that, you’re more likely to be a real employee as opposed to someone in a foreign country.”
Tax Season and Refund Delays
The IRS anticipates more than 153 million tax returns will be filed this year. Taxpayers will have until Tuesday, April 18, 2017, to file their 2016 tax returns and pay any taxes they owe, thanks to the Emancipation Day holiday in Washington, D.C., that Monday.
However, taxpayers and tax practitioners should brace for delays on refunds for tax returns that claim either the Earned Income Tax Credit or the Additional Child Tax Credit. The IRS expects to issue more than nine out of 10 refunds in less than 21 days. But the Protecting Americans from Tax Hikes Act, or PATH Act, requires the IRS hold refunds on tax returns claiming the EITC or the ACTC until mid-February to give the IRS more time to help detect and prevent tax fraud.
The IRS plans to begin releasing EITC and ACTC refunds starting February 15, but cautions taxpayers the refunds probably will not start showing up in bank accounts or on debit cards until the week of February 27. It will take extra time for the refunds to be processed and for financial institutions to accept and deposit the refunds to bank accounts, the IRS cautioned. Many financial institutions do not process payments on weekends or holidays, which can affect when refunds reach taxpayers. For EITC and ACTC filers, the three-day holiday weekend involving President’s Day could also affect the timing of their tax refunds.
Koskinen encouraged taxpayers and tax professionals not to hold back on filing the tax returns, however. The IRS will continue to process the returns, even if it won’t be allowed to issue the refunds until February 15.
“Taxpayers claiming the EITC or ACTC should file as soon as they have all of the necessary documentation together to prepare an accurate return,” he said. “In other words, file as you normally do.”
Cautions for Taxpayers
Koskinen also had a special caution for taxpayers who use Individual Taxpayer Identification Numbers, or ITINs, instead of Social Security numbers on their tax returns. “Beginning this week, any ITIN not used at least once on a tax return in the past three years will no longer be valid for use on a return,” he said. “In addition, ITINs with middle digits 78 or 79 also expired as of January 1st. So if you have an expiring ITIN and need to file a return in 2017, it’s extremely important to renew your ITIN as soon as possible. Here’s why it’s critical not to delay: It can take seven weeks or more from the time you send in Form W-7, the renewal application, for the IRS to process the application and notify you about your status. Those who fail to renew before filing a tax return could face a delayed refund, and they may also be ineligible for some important tax credits. So I would urge people to file that renewal application right away, to avoid any delays. For more information, and to get answers to frequently asked questions, visit our ITIN page on IRS.gov.”
He also had an important reminder for taxpayers who file electronically with their own tax software. “If you’re changing tax software products this filing season, make sure you have a copy of your prior-year return on hand,” he said. “You may be asked to enter your 2015 adjusted gross income. This helps verify your identity before you e-file. We’re no longer offering the Electronic Filing Personal Identification Number, or e-File PIN, as an alternative. So, plan ahead and locate last year’s return.”
Trump Administration Plans
Koskinen was also asked by reporters about his expectations for staying on during the incoming Trump administration. Congressional Republicans are still upset with Koskinen over the IRS’s slow handling of applications for tax-exempt status from conservative groups, although he avoided an effort last year by the House Freedom Caucus to start impeachment proceedings against him. However, Koskinen has had dealings with Trump going back to the mid-1970s, when as an attorney he helped arrange the sale of the Commodore Hotel in New York to the budding real estate magnate.
He told reporters on the call that he has had productive talks with the Trump transition team and urged them to avoid a proposed hiring freeze during tax season.
“We’ve had very positive discussions with the transition team,” said Koskinen. “This week they’ve come back and talked with specific operating divisions to find out more details. They’ve been very straightforward, very factual, very productive discussions, in which there have been no indications that anybody has any axes to grind or any particular focuses, other than trying to determine how the IRS operates across the sweep of its activities and what it takes to keep it operating successfully, so we’ve been very pleased with those discussions. We’ve made it clear to the transition team we’re delighted to provide any information that they think would be helpful to them in making sure that the transition is as smooth as it is. In some ways, as I’ve said both publicly and to the transition team, we’re an easier transition than in some areas because we don’t do tax policy. We are actually tax administration. So to the extent that there’s a lot of discussion about tax reform and various forms of that, we don’t have a stake in that other than—as I’ve said and we’ve made that clear as well—we have a great interest in making sure whatever changes you make in the tax code, are administrable. We’re happy to provide technical assistance, now and into the future, both with the new administration and on the Hill, to look at the technical administration issues around any tax reform. So there’s no pending policy change that I would expect with the IRS. There has been no discussion or indication one way or another as to what the president might do. My term runs out next November, but as I’ve said all along I serve at the pleasure of the president, so at this point my plan as it always has been is to keep paying attention to the business and be here until next November.”
Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.