IRS Fighting Tax Fraud With State, Industry Team-Up

The IRS is joining forces with state tax agencies, software companies, and financial industry firms in a new initiative to address the rise in fraudulent attacks targeting taxpayers and tax systems.

The IRS announced the launch of the Coalition Against Scam and Scheme Threats (CASST) on Aug. 16. The coalition will focus on raising awareness and educating the public about emerging tax scams, developing new methods to detect fraudulent filings early, and enhancing protective infrastructure for Federal, state, and industry tax systems.

The new initiative is set to be implemented by the 2025 tax filing season.

“Across the spectrum of the tax system, we’ve seen a rising tide of scams and schemes that try to exploit taxpayers and find gaps in government and industry defenses,” IRS Commissioner Danny Werfel said of the new CASST effort.

After receiving 294,138 complaints of identity theft and flagging more than one million tax returns for possible identity fraud in 2023, the IRS Security Summit – a group comprised of the IRS, state tax agencies and the country’s tax industry that works to protect against tax-related identity theft – warned in January about increases in fraud schemes.

“New client” email fraud is in line to likely see the largest increase going forward, according to the warning, alongside other new schemes including those assisted by artificial intelligence technologies to generate lifelike images and videos to impersonate taxpayers and steal refunds.

CASST is seeking to implement structural changes to “fundamentally improve the ability to identify and stop scams,” according to the IRS. This includes strengthening the validation processes for electronic filing identification numbers (EFIN) and preparer tax identification numbers (PTIN).

This initiative aims to combat so-called “ghost preparers,” who prepare inflated tax returns for a fee without disclosing their involvement as the preparer.

“This new collaborative approach will allow the private and public sectors to throw our combined weight against this threat,” said Werfel. “We will do more to work closely together, share information faster, respond quickly to threats and quickly alert the public to new and emerging threats.”

“Our goal is to have a mass effect on this expanding problem that’s spread on social media and through bad actors,” he said.

Additional changes and improvements will be made through a collaborative effort between government agencies and the private sector.

“The combined effort is particularly important because the group has seen instances where scammers look for weak points in government systems and the private sector to exploit,” said the IRS. “The combined effort will improve defenses across both the private and public sector with a goal of making it more difficult for scammers to slip improper or false tax returns through the system,” the agency said.

CASST is an extension of the Security Summit initiative, launched in 2015 to curb the rise of tax-related identity fraud. According to the IRS, CASST will not replace the Security Summit but will be closely modeled after it.

Participants in CASST include the IRS, state tax agencies represented by the Federation of Tax Administrators, software and financial services providers, and groups trade including the Council for Electronic Revenue Communication Advancement, the National Association of Computerized Tax Processors, and the American Coalition for Taxpayer Rights.