Some 1.1 million federal tax returns were flagged for potential identity theft by early March, according to a new report from the US Treasury Department, with over $6.3 billion in refunds requiring further scrutiny.

As of March 2, the IRS confirmed 12,617 returns were fraudulent and prevented some $105 million in fraudulent refunds from being issued. That’s a 31% increase from the 9,626 cases of return refund fraud it discovered by the same time last year.

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The IRS said it has increased its surveillance methods, with 236 filters to detect potential fraud using criteria, “including amounts claimed for income and withholding, filing requirements, prisoner status, taxpayer age, and filing history.” 

For the 2022 filing season, its system used only 169 filters. 

The IRS also announced on Tuesday that it is launching a pilot program that will enable select taxpayers to file their taxes online for free starting in the 2024 tax season.

Signed by President Joe Biden in August, the Inflation Reduction Act earmarked $80 billion for the IRS, including $15 million to explore an e-filing program.

“Dozens of other countries have provided free tax-filing options to their citizens, and American taxpayers who want to file their taxes for free online should have an acceptable option,” said Laurel Blatchford, the Treasury official responsible for implementing the Inflation Reduction Act.

Earlier this year, the government began offering IRS Free File, a partnership with seven of the country’s largest online tax-prep companies that allows taxpayers who earn less than $73,000 a year to process and submit simple returns for free.

Close to 70% of taxpayers qualify for Free File, according to the IRS. But less than 2% have taken advantage of the program.

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