The Treasury Inspector General for Tax Administration (TIGTA) recently released a report stating that between August 12, 2023, and April 16, 2024, fraudsters attempted to file 4,828 tax returns in an effort to steal $462 million in refunds. Although the IRS managed to block 4,254 of these fraudulent claims, 574 improper returns claiming over $47 million still made it through.
The fraudsters were able to access taxpayer information through the Practitioner Priority Service (PPS), a hotline established for tax professionals. Tax professionals are required to prove their authorization to speak on behalf of specific taxpayers by submitting forms like Form 2848, signed by both the taxpayer and the tax professional. The IRS offers specialized telephone service for practitioners like PPS, where they can request transcripts or address collection issues.
The fraudulent refund scheme involved fraudsters exploiting compromised Centralized Authorization File (CAF) numbers to obtain tax records and file fraudulent tax returns. The IRS Cybersecurity Fraud and Analytics (CFAM) group discovered this scheme, prompting action from TIGTA and IRS Criminal Investigation (CI). Despite the detection of 85% of the fraudulent claims, approximately $10 million in refunds were still processed and delivered.
The IRS began promoting the Tax Professional Online Account (Tax Pro Account) around the same time, offering verified tax professionals online access to taxpayer information. TIGTA’s report suggested that the IRS needed to act faster to strengthen protocols, as fraudsters managed to claim additional fraudulent refunds between August 2023 and April 2024.
Following the discovery of the fraud scheme, the IRS implemented additional protections and protocols for PPS assistors to report suspicious activities and confirm the status of CAF numbers. TIGTA criticized the IRS for being slow to respond despite early identifications of the fraud, prompting TIGTA to issue an alert in February 2024. The IRS eventually moved to require additional authentication controls in April 2024.
As of April 8, 2024, the IRS had trained all PPS employees on increased protocols to prevent theft and had agreed with most of TIGTA’s recommendations to address the issues. The IRS emphasized the need to balance fraud prevention with the immediate access tax professionals require to assist taxpayers, particularly in time-sensitive matters like collection issues.
The IRS has committed to continue monitoring its systems and taking corrective action as needed to prevent future instances of fraud. The agency remains vigilant in its efforts to protect taxpayer information and prevent fraudulent activities within the tax system.
