Concerns Raised about Potential for Tax Return Fraud

Bipartisan leaders of the Senate Finance Committee have raised concerns about the potential for fraudulent tax returns claiming refunds being filed in the name of federal employees. That is a growing problem nationally, but the senators said they are particularly concerned about the potential for victimizing federal employees because of the way their salary information is reported to the IRS and state tax agencies by the major payroll providers that agencies use. Those providers–most agencies use one of four, operated by Agriculture, DoD, Interior and GSA–in turn depend on employing agencies to report pay and withholding information to them. The senators said that because of a lag time between when tax agencies receive returns claiming refunds and when they receive wage and withholding information, tax agencies may issue refunds without that information. That also leaves employees at increased risk of identity theft and delays legitimate refunds, and the data breaches of federal employee records increase that concern, they said. They have written to the major payroll providers highlighting those concerns and asking them to document how employing agencies report employee-specific information for withholding purposes.