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Thursday August 21, 2014

Washington News

Washington Hotline

Identity Theft - Biggest IRS Challenge

On August 2 IRS Principal Deputy Commissioner Daniel Werfel testified before the House Oversight and Government Committee. The topic was identity theft and efforts by criminals to obtain fraudulent tax refunds.

Werfel admitted, "Identity theft is one of the biggest challenges facing the IRS today." It inflicts significant harm on many innocent taxpayers. As a result, the IRS has been focusing the efforts of 3,000 employees to prevent identity theft and fraudulent refunds.

In the past year, there have been an estimated 565,000 cases where taxpayers were victims of identity theft. The IRS has been diligently seeking to resolve these issues.

There are over 1,100 identity theft investigations this year. There have been 765 indictments and over 300 convictions. Those who have been convicted are often sentenced to prison terms of two to five years.

Werfel also pointed out that the budget cuts are causing challenges for the IRS. With sequestration reducing the budget this year, the IRS has 8,000 fewer total staff. This has forced the IRS to become more efficient in its operation.

There are six specific strategies that the IRS has created to prevent identity theft.

1. Screening – There are new identity theft software screening methods that flag the potential returns that are at risk.

2. Information Returns – The IRS has accelerated the use of various information returns to attempt to discover mismatches that could involve identity theft.

3. Deceased Persons – A major problem has been the use of the Social Security numbers of deceased persons by identity thieves to file returns and claims refunds. The IRS is tracking the accounts of deceased persons and locking them to eliminate refunds.

4. Law Enforcement – The IRS and other law enforcement agencies are coordinating to identify links with groups of criminals. This information is facilitating apprehension of identity thieves.

5. Prisoners – A significant number of tax refunds are sent to prisoners who substantially overstate their prison earnings. A more complete list of prisoners enables the IRS to stop these refunds.

6. Software – Software companies and over 80 financial service institutions are working together to help track payments. One identity thief had over 600 payments sent to the same bank account. The software is designed to identify these events.

The Treasury Inspector General for Tax Administration (TIGTA) also testified at that hearing. Acting Deputy Inspector Michael McKenney noted that the IRS had made significant progress. However, McKenney also faulted the IRS because it "is not in compliance with direct-deposit regulations that require tax refunds to be deposited into an account only in the name of the individual listed on the tax return." He noted that the IRS is working with financial services institutions to attempt to correct this failure.

The IRS also has expanded use of identity protection personal identification numbers (IP PIN). Those persons who have been victims of identity theft are given the IP PIN and it is included on their tax return. This enables the IRS to determine that this return has been filed by the actual taxpayer.

Published August 9, 2013

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