The IRS Integrity and Verification Operations (IVO) group is
delaying a number of taxpayer refunds to screen for identity theft
and refund fraud.
Taxpayers identified by the program may receive a
"4464C" letter from IVO stating that their tax return is
being thoroughly reviewed so that the IRS can "ensure the
accuracy of return information." The letter states that the
IRS may contact the taxpayer or third parties for further
information and that if the taxpayer does not hear from the IRS or
receive his or her refund within 60 days from the date of the
letter, the taxpayer may contact the IRS directly. Once the IRS has
completed its review, it may send a full or partial refund or no
refund. Whatever the decision, the taxpayer can appeal it.
The IRS has indicated that the letters are part of the screening
program to combat stolen identity refund fraud and do not mean the
taxpayer has been selected for audit. The IRS uses algorithms
similar to a discriminate function system score to detect potential
refund fraud. Certain characteristics — like whether the
taxpayer is a first-time filer, is receiving a refund unusually
larger than the one from a prior year or is receiving W-2 income
unexpectedly — can trigger an alert to IVO to further
investigate the taxpayer's return.
Both the IRS and the Department of Justice (DOJ) Tax Division
have increased their efforts to combat stolen identity refund
fraud. During an April hearing before Congress, IRS Acting
Commissioner Steven Miller said the IRS had stopped 350,000 returns
with a total $2.5 billion in fraudulent refunds. In September 2012,
the DOJ issued Tax Division Directive 144, which is aimed at
increasing cooperation between federal and state governments, and
flexibility for U.S. attorneys' offices, to combat stolen
identity refund fraud
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Information returns and payee statements subject to these penalties include Forms 1099, 1098, W-2, 1042-S, as well as the new Forms 1094-B, 1095-B, 1094-C, and 1095-C required under the Affordable Care Act.
Form 8938 (Statement of Foreign Financial Assets), introduced in 2011 as part of the Foreign Account Tax Compliance Act (FATCA), requires taxpayers to report their foreign assets, subject to minimum values, and indicate where the related income is picked up on their tax return.