IRS’s efforts at combating individual tax identity theft are paying off…

Thanks in large part to antifraud measures IRS uses to filter out returns. For the 2023 filing season, the agency has been using 236 computer software filters to identify potential identity theft returns and prevent payment of fraudulent refunds. Compare this with 168 filters used for the 2022 filing season. As of March of this year, IRS computers flagged 1.1 million individual returns with refunds totaling $6.3 billion for additional review as a result of those identity theft filters. Not all those returns will be confirmed as fraudulent after verifying the filer’s identity, but some will.

The Service continues to fall behind on policing the tax rules on alimony.

Taxpayers who deduct alimony must include the recipient’s Social Security number and the original date of the divorce or separation agreement on Schedule 1 of the 1040. Treasury inspectors found that the agency isn’t reviewing cases with invalid SSNs. And IRS is allowing some alimony deductions on returns showing an agreement date after 2018. Remember, alimony paid under post-2018 divorce or separation agreements isn’t deductible, and ex-spouses aren’t taxed on alimony they get under these pacts. (Older divorce agreements can be modified to follow these rules if both parties agree.) IRS says it will update its internal guidance but won’t reject noncompliant returns.

Returns claiming improper dependent care credits also vex IRS.

This break, taken by families who are working or looking for a job, helps to offset some expenses of paying for the care of children under age 13 and qualifying relatives. Taxpayers use Form 2441 to calculate the credit and must report the provider’s tax ID number on the 2441. Treasury inspectors had previously recommended several ways that IRS could improve its filters to screen erroneous credits taken on 1040 returns. In response, the Service made some changes, but it hasn’t yet gone far enough. Returns with patently invalid care-provider tax ID numbers on the 2441 sneak through.