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GCN : March 2014
Indiana's Department of Revenue plans to combat tax refund fraud with a new identity management system being rolled out this tax season. The state awarded a contract to LexisNexis Risk Solutions to verify and authenticate taxpayers' identities when they le for income tax refunds. Indiana's focus on identity man- agement comes amid a rise in taxpayer identity theft. According to the Internal Revenue Service, identify theft hit 1.2 million taxpay- ers in 2012. And in just the rst half of calendar 2013, 1.6 million taxpayers were affected, the IRS noted. The revenue department believes identity thieves now recognize that people are "more at risk of providing information in unsecure ways" during the tax season, said Chetrice Mosley, a spokeswoman for the Department of Revenue. Andy Bucholz, LexisNexis vice presi- dent of government solutions, says the problem stems from government agen- cies stepping up the number of initiatives in which citizens apply for bene ts online and receive payments electronically or as a debit card. As those programs have grown over the past three years, so too has fraud. The anonymous nature of electronic bene ts gives identity thieves an edge, Bucholz suggested. Previously, an ap- plicant would need to visit a government of ce and produce ID such as a driver's license or passport. "When you go online, you are missing that connection," Bucholz said. "Gov- ernment agencies have inadvertently opened this back door to fraud. This is the big crime right now." HOW IT WORKS Against this backdrop, Indiana's identity management solution aims to root out fraud without disrupting the ow of tax refunds. Here's how it works: Certain portions of each tax return seeking a refund will travel over a secure exchange to LexisNexis. At LexisNexis, identi- ty-based lters will screen tax refund requests against what the company described as bil- lions of identity records culled from public databases and commercial sources. The Department of Revenue processes some 3.2 million tax returns annually. Only pieces of information from a taxpayer's return are sent to LexisNexis to verify across its database. "We are not sending LexisNexis tax returns," Mosley said, noting the state's strict con dentiality laws. The department anticipates that 90 percent of the returns seeking refunds will go through the LexisNexis system with no problem, Mosley said. The other 10 percent will be asked to take an online quiz to verify their identities. The department will send letters to taxpayers, directing them to an online application where they can take the quiz. Bucholz said the quiz will be populated with questions based on a ler's public records, making it hard for an identity thief to answer them. BROADER MARKET Indiana isn't the rst state tax department to hire LexisNexis for its identity manage- ment offerings. Georgia, Louisiana and Connecticut use the solution or are in the process of installing it. LexisNexis launched a pilot with Georgia in January 2012 and announced in May of that year that the state awarded it a contract to continue its work. The LexisNexis contract is one component of Indiana's broader identity protection program, which also includes an education initiative that aims to help taxpayers protect their identities. Mosley said the Department of Revenue is working with the Of ce of the Indiana Attorney General to "further educate taxpayers to protect themselves against identity theft." • Indiana goes after tax refund fraud with ID verification BY JOHN MOORE [BrieFing] 8 GCN MARCH 2014 • GCN.COM "Government agencies have inadvertently opened this back door to fraud; this is the big crime right now." --- ANDY BUCHOLZ, LEXISNEXIS VICE PRESIDENT OF GOVERNMENT SOLUTIONS Identify theft has a number of rami- fications. The crime hits government coffers: when a thief makes off with a citizen's tax refund, the state still needs to pay the legitimate recipient as well. Time is also an issue. Citizens who have had their identities stolen typically face a lengthy process of affirming their identities with government entities. The Treasury Inspector General for Tax Administration (TIGTA) last fall reported that it takes the IRS an aver- age of 312 days to resolve tax-related identity theft cases. TIGTA reviewed a sample of 100 identity theft cases and found that the IRS correctly identified the proper owner of a Social Secu- rity number in every case. But case processing proved time consuming. Taxpayers, according to TIGTA, "faced delays, with some cases having signifi- cant inactivity during case processing." Taxes, time and money