Fast Facts

IRS estimates that in 2016 criminals used false identities to try to claim billions in tax refunds. IRS kept $10.5 billion out of their hands, but criminals got at least $1.6 billion. To help address this high risk issue, IRS works to verify the identities of millions of taxpayers each year.

We reviewed IRS’s taxpayer authentication efforts and made 11 recommendations to help IRS stay ahead of fraudsters, including:

prioritizing its authentication initiatives,

estimating the funding and other resources it will need to implement these initiatives, and

developing a process to evaluate potential authentication technologies.

 

Photo of a person at a computer screen looking at a page on IRS.gov and holding a Social Security card and other forms of ID

Photo of a person at a computer screen looking at a page on IRS.gov and holding a Social Security card and other forms of ID

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Highlights

What GAO Found

The Internal Revenue Service (IRS) has identified over 100 interactions requiring taxpayer authentication based on potential risks to IRS and individuals. IRS authenticates millions of taxpayers each year via telephone, online, in person, and correspondence to ensure that it is interacting with legitimate taxpayers. IRS's estimated costs to authenticate taxpayers vary by channel.

Taxpayers Authenticated for Selected IRS Programs, 2017 Taxpayers Authenticated for Selected IRS Programs, 2017

Notes: Numbers are rounded to the nearest hundred and represent successful authentications. Cost information is rounded to the nearest dollar unless otherwise noted. Data are for IRS's Taxpayer Protection Program, Get Transcript, Identity Protection Personal Identification Number, and taxpayer online accounts.

IRS has made progress on monitoring and improving authentication, including developing an authentication strategy with high-level strategic efforts. However, it has not prioritized the initiatives supporting its strategy nor identified the resources required to complete them, consistent with program management leading practices. Doing so would help IRS clarify relationships between its authentication efforts and articulate resource needs relative to expected benefits. Further, while IRS regularly assesses risks to and monitors its online authentication applications, it has not established equally rigorous internal controls for its telephone, in-person, and correspondence channels, including mechanisms to collect reliable, useful data to monitor authentication outcomes. As a result, IRS may not identify current or emerging threats to the tax system.

IRS can further strengthen authentication to stay ahead of fraudsters. While IRS has taken preliminary steps to implement National Institute of Standards and Technology's (NIST) new guidance for secure digital authentication, it does not have clear plans and timelines to fully implement it by June 2018, as required by the Office of Management and Budget. As a result, IRS may not be positioned to address its most vulnerable authentication areas in a timely manner. Further, IRS lacks a comprehensive process to evaluate potential new authentication technologies. Industry representatives, financial institutions, and government officials told GAO that the best authentication approach relies on multiple strategies and sources of information, while giving taxpayers options for actively protecting their identity. Evaluating alternatives for taxpayer authentication will help IRS avoid missing opportunities for improving authentication.

Why GAO Did This Study

Strong preventive controls can help IRS defend itself against identity theft refund fraud. These controls include taxpayer authentication—the process by which IRS verifies identities before allowing people access to a resource; sensitive data; or, in some cases, a tax refund. The risk of fraud has increased as more personally identifiable information has become available as a result of, for example, large-scale cyberattacks on various entities. IRS's ability to continuously monitor and improve taxpayer authentication is a critical step in protecting billions of dollars from fraudsters.

GAO was asked to examine IRS's efforts to authenticate taxpayers. This report (1) describes the taxpayer interactions that require authentication and IRS's methods; (2) assesses what IRS is doing to monitor and improve taxpayer authentication; and (3) determines what else, if anything, IRS can do to strengthen taxpayer authentication in the future.

To meet these objectives, GAO reviewed IRS documents and data, evaluated IRS processes against relevant federal internal control standards and guidance, and interviewed IRS officials and state and industry representatives.

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Recommendations

GAO is making 11 recommendations to IRS to estimate resources for and prioritize its authentication initiatives, address internal control issues to better monitor authentication, develop a plan to fully implement new NIST guidance, and develop a process to evaluate potential authentication technologies. IRS agreed with GAO's recommendations.

Recommendations for Executive Action

Agency Affected Recommendation Status
Internal Revenue Service
Priority Rec.
Priority recommendations are those that GAO believes warrant priority attention from heads of key departments or agencies.
The Commissioner of Internal Revenue should direct the Identity Assurance Office, in collaboration with other IRS business partners, to estimate the resources (i.e., financial and human) required for the foundational initiatives and supporting activities identified in its Identity Assurance Strategy and Roadmap. (Recommendation 1)
Closed - Implemented
As of January 2020, IRS had estimated the resources required for the foundational initiatives and supporting activities in its Identity Assurance Strategy and Roadmap (Roadmap), as GAO recommended in June 2018. IRS documentation states that as a first step in updating the original Roadmap, the Identity Assurance office worked with stakeholders to verify the progress made and current status of its 14 foundational initiatives. In addition, the Identity Assurance office collected existing information on high-level financial and human resource estimates for the 14 foundational initiatives and supporting activities that are currently underway or planned. Further, IRS documentation shows that it has completed five of the 14 foundational initiatives in its Roadmap; the remaining nine foundational initiatives are shown as "in progress" or "near complete." IRS stated that it intends to update its Roadmap annually to reflect changes in IRS priorities. IRS's continued monitoring of its foundational initiatives-and the resources required to complete them-will help ensure continued progress on its authentication efforts.
Internal Revenue Service
Priority Rec.
Priority recommendations are those that GAO believes warrant priority attention from heads of key departments or agencies.
Based on the estimates developed in Recommendation 1, the Commissioner of Internal Revenue should direct the Identity Assurance Office to prioritize foundational initiatives in its Identity Assurance Strategy and Roadmap. (Recommendation 2)
Closed - Implemented
As of December 2020, the Internal Revenue Service (IRS) had prioritized its foundational initiatives in its Identity Assurance Strategy and Roadmap (Roadmap), as GAO recommended in June 2018. IRS's November 2020 update to its Roadmap shows that IRS prioritized its 14 foundational initiatives (now called capabilities) based on benefits to taxpayers and potential for operational efficiencies; level of complexity and known risks; and the extent to which implementing one capability is dependent on other capabilities. For example, IRS determined that developing consistent authentication policies for identity proofing and authentication across channels was a top priority because these policies will impact the types of tools IRS uses to authenticate taxpayers. Further, IRS's documentation stated that this prioritization can be used to advocate for project funding. IRS's continued monitoring of its authentication capabilities and new or emerging priorities will help ensure continued progress in improving taxpayer authentication.
Internal Revenue Service The Commissioner of Internal Revenue should establish a policy for conducting risk assessments for telephone, in-person, and correspondence channels for authentication. This policy should include, for example, the frequency of assessments to be performed and timeframes for addressing deficiencies. (Recommendation 3)
Open
As of August 2021, IRS had taken steps to address this recommendation by issuing guidance on the purpose of risk assessments for telephone, in-person, and correspondence channels for authentication. Specifically, in February 2020, IRS issued interim guidance to help staff understand the concepts behind the authentication risk assessment process, while IRS develops more detailed policies and procedures for completing risk assessments for telephone, in-person, and correspondence authentication. The interim guidance states that risk assessments for these authentication channels should be conducted every one to three years and that identified risks should be addressed "within a reasonable timeframe, commensurate with the risk," which is consistent with leading practices. The interim guidance is in effect through February 2022, the timeframe for when IRS plans to complete updates to its Internal Revenue Manual with the new authentication risk management policies and procedures. In August 2021, we requested additional information from IRS on its finalized policy and procedures for performing these risk assessments. Upon receiving this information, we will determine whether IRS's actions are sufficient to fully address this recommendation.
Internal Revenue Service Consistent with the policy developed in Recommendation 3, the Commissioner of Internal Revenue should direct the Identity Assurance Office and IRS business owners to develop a plan for performing risk assessments for telephone, in-person, and correspondence channels for authentication. (Recommendation 4)
Open
As of August 2021, IRS had taken steps to address this recommendation. Specifically, in December 2020, IRS provided us a copy of an online template that IRS staff are to use when performing risk assessments for telephone, in-person, and correspondence channels for authentication. In August 2021 , we requested additional information from IRS on its finalized policy and procedures for performing these risk assessments and other supporting documentation. Upon receiving this information, we will determine whether IRS's actions are sufficient to fully address this recommendation.
Internal Revenue Service The Commissioner of Internal Revenue should establish a mechanism to collect data on outcomes for telephone, in-person, and correspondence authentication, consistent with federal standards for internal control. (Recommendation 5)
Open
As of August 2021, IRS had taken steps to address this recommendation. Specifically, in January 2021, IRS officials provided information showing that IRS had added functionality to the system that IRS customer service representatives use to authenticate taxpayers identities and released the updated system to users. However, the information IRS provided shows that this system is only used for telephone and in-person authentication, and IRS has not provided additional information to show how it is collecting data on outcomes of correspondence authentication. Further, based on the information IRS provided, it is unclear whether customer service representatives are required to collect telephone and in-person authentication outcomes using the new functionality. In August 2021, we requested additional information from IRS on these issues. Until IRS fully addresses this recommendation, it will have limited insight into the number of taxpayers who fail authentication across all channels, and the reason for failure.
Internal Revenue Service The Commissioner of Internal Revenue should revise or establish, as appropriate, procedures to ensure data quality in the Account Management Services (AMS) consistent with federal standards for internal control. (Recommendation 6)
Open
As of August 2021, IRS had taken steps to address this recommendation. In January 2021, IRS officials provided information showing that IRS had added functionality to the system that IRS customer service representatives use to authenticate taxpayers identities over the phone and in person. IRS officials stated that once all customer service representatives are using the functionality on authentication outcomes, IRS planned by July 2021 to analyze the data to determine the sufficiency of data quality. In August 2021, we requested information from IRS on the status of its efforts to collect and analyze data on authentication outcomes. Upon receiving this information, we will determine whether IRS's actions are sufficient to fully address this recommendation.
Internal Revenue Service The Commissioner of Internal Revenue should ensure that IRS business units have access to complete AMS data to monitor authentication performance and identify potential issues. (Recommendation 7)
Open
As of August 2021, IRS had taken steps to address this recommendation. In January 2021, IRS officials provided information showing that IRS had added functionality to the system that IRS customer service representatives use to authenticate taxpayer identity over the phone and in person. According to IRS officials, the information collected by this tool will be available to and accessible by IRS business units. In August 2021, we requested additional information from IRS to verify that all relevant business units are able to access data on these authentication outcomes. Upon receiving this information, we will determine whether IRS's actions are sufficient to fully address this recommendation.
Internal Revenue Service
Priority Rec.
Priority recommendations are those that GAO believes warrant priority attention from heads of key departments or agencies.
The Commissioner of Internal Revenue should direct the Identity Assurance Office and other appropriate business partners to develop a plan--including a timeline, milestone dates, and resources needed--for implementing changes to its online authentication programs consistent with new NIST guidance. (Recommendation 8)
Closed - Implemented
As of April 2021, IRS has implemented this recommendation by (1) developing a plan that includes a timeline and milestones and (2) estimating the resources needed to implement the new National Institute of Standards and Technology (NIST) standards. Specifically, as of January 2021, IRS developed plans and began testing a new online taxpayer authentication capability, consistent with NIST guidance. IRS officials also told us that these efforts included a usability study to understand user experience. As of April 2021, IRS has also developed a timeline with milestones and has estimated financial and human capital resources for implementing changes to its online authentication programs consistent with new NIST guidance. IRS's timeline also tracks existing performance against the planned baseline. Developing a timeline with milestones and estimating financial and human capital resources will help IRS ensure it has the resources it needs to fully implement planned taxpayer authentication capabilities consistent with NIST guidance.
Internal Revenue Service
Priority Rec.
Priority recommendations are those that GAO believes warrant priority attention from heads of key departments or agencies.
In accordance with the plan developed in Recommendation 8, the Commissioner of Internal Revenue should implement improvements to IRS's systems to fully implement NIST's new guidance. (Recommendation 9)
Open
As of January 2021, IRS has taken steps to develop plans for and test a new authentication capability to authenticate taxpayers' identities online using external partners, consistent with National Institute of Standards and Technology (NIST) guidance. IRS officials stated that they are determining a schedule for fully implementing these NIST-compliant taxpayer authentication capabilities. As noted in our report, IRS's timely implementation of NIST's new guidance is critical, as it can help the agency mitigate potential security weaknesses in its existing online authentication programs.
Internal Revenue Service The Commissioner of Internal Revenue should develop a repeatable, comprehensive process to identify and evaluate alternative options for improving taxpayer authentication, including technologies in use by industry, states, or other trusted partners. (Recommendation 10)
Closed - Implemented
In February 2020, the Internal Revenue Service (IRS) developed a repeatable, comprehensive process to identify and evaluate alternative options for improving taxpayer authentication, as GAO recommended in June 2018. IRS's authentication innovation process includes four steps--idea generation, research and prioritization, approval, and governance. IRS plans to generate ideas to improve authentication through workshops, vendor engagement, use cases, and research. An authentication innovation working group will then research and prioritize ideas and make recommendations for which ideas should be approved. Once IRS's authentication council approves an idea, it will be forwarded to IRS's appropriate governance body for approval and delegation. IRS's authentication governance board approved this process in February 2020. This process will help ensure that IRS has a sound rationale for its investment decisions and the resources it needs to make authentication improvements in a timely manner.
Internal Revenue Service Based on the approach developed in Recommendation 10, the Commissioner of Internal Revenue should include and prioritize these options, as appropriate, in IRS's Identity Assurance Strategy and Roadmap. (Recommendation 11)
Open
As of December 2020, the Internal Revenue Service (IRS) had taken steps to integrate its repeatable, comprehensive process to identify and evaluate alternative options for improving taxpayer authentication into its authentication strategy, as GAO recommended in June 2018. In May 2020, IRS provided documentation of how its new innovation process fits in its overall annual authentication strategies refresh and monitoring. IRS plans to integrate outputs from its innovation process to its review of authentication capabilities, which is intended to help IRS promote a strong identity assurance posture that is in line with industry best practices, standards, and emerging technologies. As of December 2020, IRS documentation stated that its innovation studies would be part of the process for updating the authentication strategy for fiscal year 2021. When IRS updates its authentication strategy for fiscal year 2021, GAO will review the strategy to determine the extent to which IRS has fully addressed this action. IRS's continued attention will help ensure that it has a sound rationale for its investment decisions and the resources it needs to make authentication improvements in a timely manner.

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