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In anti-fraud drive, some taxpayers face a few extra questions

Piles of 2012 paper tax returns to be sorted through are seen in the Data Integration Bureau of the Department of Revenue in Chelsea. Kayana Szymczak for the Boston Globe/for the Boston Globe/file

If tax season wasn’t aggravating enough, tens of thousands of Massachusetts residents also received unnerving notices from the state Department of Revenue this spring, warning that their refunds might be in jeopardy.

Because of a new computer system and the state’s beefed-up efforts to catch fraudulent returns, Massachusetts revenue officials sent out more letters this year to tax filers demanding detailed information to verify their identities. The letters said tax refunds could be forfeited if the information wasn’t provided.

The strongly worded notices sounded like mini-audits and alarmed tax preparers and filers throughout the state, lighting up industry message boards and dominating the annual post-tax season meeting last week among accountants and state officials.

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“There was frustration from some clients, who were asking, ‘Why?’ ” said Chris Pulick, with the Danvers tax consulting firm Kevin P. Martin & Associates. “I told them, ‘Don’t freak out.’ ”

Pulick said each tax season the state DOR will usually flag one of the firm’s more than 500 clients for more scrutiny and verification. But this year, four clients received “notices of intent to assess,” he said.

Taxpayers who thought they were done with their taxes and were waiting for a refund were instead being asked to provide their W-2 forms, dig out their final pay stub of 2016, and provide a copy of their Social Security card and driver’s license.

Even elderly taxpayers with limited incomes, college students who worked part time, and taxpayers due small refunds were tagged for additional scrutiny, according to tax preparers.

Every year, the IRS publishes a list of a “dirty dozen” tax scams, everything from criminals sending fake e-mails that purport to be from government agencies seeking private information to the use of stolen Social Security numbers.

State and federal tax authorities have tightened their fraud-detection systems and are catching more fake returns. As of March, the IRS had identified 30,674 fraudulent federal returns for 2016 and stopped payment on $918.6 million in falsely claimed refunds. But the agency wasn’t able to prevent the issuance of about $42 million in fraudulent refunds.

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Massachusetts tax officials stopped $25 million in fraudulent refunds last tax filing season, but don’t have data yet for this year.

The Massachusetts Department of Revenue said only a small percentage of the state’s 3.2 million taxpayers received notices seeking more information, although it declined to provide specifics, citing its antifraud strategy.

Historically, about 160,000 taxpayers annually have been flagged and asked to provide additional information.

The state’s upgraded tax-processing system probably played a role in flagging more taxpayers, as officials fine-tune filters to catch potential wrongdoers while quickly processing valid returns, state officials said.

The notices aren’t being sent randomly. Various issues could trigger one, including discrepancies between taxpayer-provided income data and employer payroll data, a lack of documentation to support a credit that the taxpayer is claiming, and changes in addresses and bank accounts.

“Fraud prevention is always a top priority,” said Nicole St. Peter Mac Dermott, a spokeswoman for the DOR.

Each year, the department changes its fraud screenings and verification questions to keep up with new tactics used by criminals to file false tax returns. These notices are a key tool in helping the agency verify taxpayers and ensure that returns go to the right people, she said.

Depending on the degree of scrutiny, the agency uses different tools.

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Those flagged for less-intensive screening are asked to take an online personalized quiz to verify their identity. The quiz asks taxpayers multiple-choice questions, such as which car model they have driven in recent years, or their addresses over the last 25 years.

But this year, the department flagged more taxpayers for more rigorous screening through the letters seeking further documentation, state officials said.

The state’s upgraded tax-processing system, which cost more than $50 million, brings together several old programs used to process taxes. The filters being used to dig out potential fraud may be more sensitive, state officials said.

While the kinks are worked out, for now it requires taxpayers to provide more information, said Zach Donah, director of government affairs, Massachusetts Society of CPAs Inc.

“All of these measures are taken to protect the taxpayer and the Commonwealth from fraudulent activity,” said St. Peter Mac Dermott.

Donah said tax preparers plan to work with the state in coming months to clarify the wording of the letter to ensure that filers know it’s an identity-fraud protection measure.

“You don’t want to overburden taxpayers who are trying to do the right thing, and you don’t want money walking out the door,” he said. “It’s pretty hard to thread the needle.”


Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.