Identity Theft Crimes on the IRS

On April 9, 2008, the Pittsburgh Post-Gazette published an article entitled "IRS not doing enough to stem tax fraud identity theft, internal report finds", by Jim Abrams.

The article highlighted scams perpetrated upon the Internal Revenue Service that steal government money and also confound taxpayers' records.

Fraudulent tax returns filed as a result of identity theft jumped more than sixfold over the past five years, but the Internal Revenue Service rarely pursues or prosecutes such cases, a Treasury Department watchdog said in a report released yesterday.

J. Russell George, the Treasury inspector general for tax administration, said the IRS must do more to combat the growing problem of employment-related and tax-fraud identity theft.

The agency has placed only limited emphasis on these issues, George said. "The IRS' policy is that identity theft will only be investigated if it is committed in conjunction with other criminal offenses having a large tax impact." * * *

A prior article by the same author, entitled "Report Finds IRS Computer Security Flaws", published on April 7, 2008, and posted online by Comcast News, reviewed the internal computer problems at the IRS:

Treasury watchdogs said Monday that poor controls over IRS computers could allow a disgruntled employee, agency contractor or outside hacker to steal taxpayers' confidential information.

Indeed, a hacker might even "gain full control of the IRS network," said a report Monday from the office of the Treasury Inspector General for Tax Administration.

Investigators did not cite any specific cases of wrongdoing within the IRS, which processes some 137 million tax returns. But they suggested a lack of review means someone could get sensitive information and no one would ever know.

The report comes amid increasing scrutiny of the IRS and the problems posed both by security concerns within the system and identity theft threats from outside * * *.

Many of the points in these article derived from a report by he Treasury Inspector General for Tax Administration, entitled "Outreach Has Improved, but More Action Is Needed to Effectively Address Employment-Related and Tax Fraud Identity Theft", Ref. No. 2008-40-086 (PDF, 40 pages), dated March 25, 2008.

See also: "IRS Knocked on Identity Theft", posted April 11, 2008, by WebCPA.

An article that appeared in the Washington Post on April 14, 2008, as reposted online in a bulletin by AARP, entitled "A Call for Action On Tax Scams", by Stephen Barr, then provided a few examples of such "scams" perpetrated upon the IRS or citizens who deal with the IRS:

• A bogus tax return using a stolen Social Security number is submitted to the Internal Revenue Service early in the tax-filing season. Because the IRS does not know the return involved identity theft, it sends a refund. When the real tax return is filed, it gets flagged as a duplicate, freezing any refund. It sometimes takes months for the innocent, legitimate taxpayer to sort it all out with the IRS.

• [Other] cases involve illegal immigrants and undocumented workers who use another person's identity -- name, Social Security number or both -- to obtain employment. The employer files a wage and tax statement, the W-2, under the stolen identification information, and the IRS computers attribute the earnings according to the Social Security number. Then the IRS levies an additional tax on the lawful owner of the Social Security number, creating consequences for the innocent person.

Such examples derived, instead, from testimony offered to the U.S. Senate Finance Committee on April 10, 2008, in a hearing entitled "Identity Theft: Who’s Got Your Number?".

Member Statements:

• Max Baucus, MT
  

• Charles Grassley, IA

Witness Statements:

• The Honorable Douglas H. Shulman, IRS Commissioner, Internal Revenue Service, Washington, DC; accompanied by Linda Stiff, IRS Deputy Commissioner for Services and Enforcement, Internal Revenue Service, Washington, DC

• Nina Olson, IRS National Taxpayer Advocate, Internal Revenue Service, Washington, DC

• The Honorable J. Russell George, Treasury Inspector General for Tax Administration, Department of Treasury, Washington, DC

• Rebecca Spencer, Enrolled Agent, Benedict’s Laser Tax Service, Billings, MT

For years, the IRS has warned consumers and employers about various scams & cons involving federal tax filings. See: "Tax Scams/Consumer Alerts" on the IRS website.

Such scams have expanded, recently, to the federal "stimulus payments" authorized by Congress in 2008. See: "Scam Alert: Stealing Your Rebate, and Your ID - AARP Bulletin Today, by Katharine Greider (April 2008).

Now, it is time that the IRS put measures in place to stop such scams & cons targeting the Service as the victim.