The Ohio Department of Taxation has revamped an anti-fraud program launched last year that led to complaints from refund-seeking taxpayers who had to answer a series of questions about their personal history.
The ID Confirmation Quiz was met with a combination of controversy and confusion, and Ohio Tax Commissioner Joe Testa said it prompted many calls to the Statehouse.
“There was a flurry of activity on that point last year and I understand that,” Testa said. “As a taxpayer I send in my return, I don’t expect to have to answer questions about myself in order to get my own money back.”
Cody Cain, tax manager at Clark Schaefer Hackett, a regional Certified Public Accounting and consulting firm, said the tax quiz presented a lot of challenges for both taxpayers and tax preparers.
“Ten percent failed the quiz, which makes it very challenging for the taxpayers when there are tricky questions about previous marriages, previous homes that they purchased or previous autos that they purchased years and years ago,” Cain said.
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The online version of the quiz gave people seeking a refund 10 minutes to answer four questions to verify their identity. Taxpayers could make multiple attempts to answer correctly or choose to take the quiz over the telephone.
Testa said the quiz was designed to stop fraudulent refund requests that often are computer-generated. The state estimates that the quiz helped prevent 234,336 fraudulent refund requests worth $259.1 million in 2015.
In 2014, the state said it stopped 64,693 requests for $277 million, when fraudsters were requesting larger “refunds.”
In response to taxpayer feedback, the state made changes to the quiz to eliminate confusing questions and those that some people might consider too personal. Testa said the process for selecting the taxpayers who take the quiz also changed.
“The number of people who are going to be asked to take the quiz is going to drop pretty dramatically,” he said. “We think it will drop in half, maybe even better than that.”
The quiz was developed by LexisNexis for use by tax departments nationwide. Indiana, Alabama, Louisiana and at least a half dozen other states make use of similar quizzes to fight fraud. Testa said Ohio’s $250,000-per-month contract with LexisNexis more than pays for itself.
Cain said the state is on the right track when it comes to fighting fraud.
“Tax fraud has grown in both volume and sophistication, as well as in complexity, making it very difficult to detect and prevent tax fraud,” he said.
While the first year of the quiz in Ohio prompted complaints, at least one national survey points to more acceptance of anti-fraud programs, even if they require taxpayers to jump through a few hoops to get their own money back.
The Governing Institute, a Washington-based research organization, surveyed taxpayers on how they feel about taking a tax quiz. The survey found 83 percent of those questioned said they would be willing to answer security questions, while 61 percent said they would be willing to delay their refund payment to help fight fraud.
Cain urged taxpayers to help protect refunds by taking action. For starters, Cain said, people should file early to beat fraudulent filers to the punch.
“Always use up-to-date, anti-virus software. Make sure it’s kept current and make sure you keep it turned on,” he said.
Even with some first-year problems, it appears Ohio’s tax quiz is here to stay. Testa said more government agencies and even some companies in the private sector are requiring ID verification online.
“Software vendors are doing that this year, too,” he said. “That’s good news because it helps build that firewall out there so that it isn’t just on the back of the states.
“States are doing this, the IRS is doing this, software vendors are doing this. All of us working together, we’re gong to block more (fraud) and that’s what we need to do.”