[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
IRS E-FILE AND IDENTITY THEFT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,
EFFICIENCY AND FINANCIAL MANAGEMENT
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
JUNE 2, 2011
__________
Serial No. 112-58
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
70-679 WASHINGTON : 2011
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland,
JOHN L. MICA, Florida Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee PETER WELCH, Vermont
JOE WALSH, Illinois JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Robert Borden, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Government Organization, Efficiency and Financial
Management
TODD RUSSELL PLATTS, Pennsylvania, Chairman
CONNIE MACK, Florida, Vice Chairman EDOLPHUS TOWNS, New York, Ranking
JAMES LANKFORD, Oklahoma Minority Member
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona GERALD E. CONNOLLY, Virginia
FRANK C. GUINTA, New Hampshire ELEANOR HOLMES NORTON, District of
BLAKE FARENTHOLD, Texas Columbia
C O N T E N T S
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Page
Hearing held on June 2, 2011..................................... 1
Statement of:
Shulman, Douglas H., Commissioner, Internal Revenue Service.. 13
White, Jim, Director of Strategic Issues, Government
Accountability Office; Sharon Hawa, identity theft victim;
Lori Petraco, identity theft victim; and Lavonda Thompson,
identity theft victim...................................... 41
Hawa, Sharon............................................. 60
Petraco, Lori............................................ 67
Thompson, Lavonda........................................ 73
White, Jim............................................... 41
Letters, statements, etc., submitted for the record by:
Diaz-Balart, Hon. Mario, a Representative in Congress from
the State of Florida, prepared statement of Ms. Vas Dagins. 10
Hawa, Sharon, identity theft victim, prepared statement of... 62
Petraco, Lori, identity theft victim, prepared statement of.. 70
Platts, Hon. Todd Russell, a Representative in Congress from
the State of Pennsylvania:
Prepared statement of.................................... 3
Prepared statement of Ms. Lee............................ 30
Shulman, Douglas H., Commissioner, Internal Revenue Service,
prepared statement of...................................... 15
Thompson, Lavonda, identity theft victim, prepared statement
of......................................................... 75
Towns, Hon. Edolphus, a Representative in Congress from the
State of New York, prepared statement of................... 5
White, Jim, Director of Strategic Issues, Government
Accountability Office, prepared statement of............... 43
IRS E-FILE AND IDENTITY THEFT
----------
THURSDAY, JUNE 2, 2011
House of Representatives,
Subcommittee on Government Organization, Efficiency
and Financial Management,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:01 p.m., in
room 2247, Rayburn House Office Building, Hon. Todd Russell
Platts (chairman of the subcommittee) presiding.
Present: Representatives Platts, Lankford, Amash, Gosar,
Guinta, and Towns.
Also present: Representative Diaz-Balart.
Staff present: Ali Ahmad, deputy press secretary; Michael
R. Bebeau, assistant clerk; Molly Boyl, parliamentarian; Mark
D. Marin, senior professional staff member; Tegan Millspaw,
research analyst; Beverly Britton Fraser, minority counsel; and
Cecelia Thomas, minority counsel/deputy clerk.
Mr. Platts. This hearing of the Subcommittee on Government
Organization, Efficiency and Financial Management will come to
order. Again, appreciate everyone's patience and flexibility
here as we are juggling both the floor schedule and waiting for
the full committee's hearing to conclude.
The purpose of today's hearing is to shed light on the
growing problem of identity theft-related tax return fraud.
Each year, thousands of American taxpayers fall victim to
criminals who steal their identities and then use their
personal information to claim fraudulent tax refunds.
I am going to submit my full statement for the record, but
I would summarize that the three kinds of primary areas of
focus that we are going to have today in this hearing is,
first, the issue of internal controls at the Internal Revenue
Service and the need for those controls to be dramatically
improved to prevent fraudulent conduct from taking place, to
prevent American taxpayers from being defrauded of millions and
millions of dollars each and every year; to focus on the
prosecution of these criminals who engage in this fraudulent
conduct to make sure that the message is sent that if you
defraud the American taxpayer, the American people, you are
going to be held accountable; and, third and very importantly,
that we do a better job of assisting the hardworking law-
abiding American citizens who are victimized by these criminals
and then not afforded the level of care and assistance that
needs to be provided them by the Federal Government, especially
in the case of the Internal Revenue Service, to ensure that
these law-abiding citizens are not victimized a second time by
the poor assistance or treatment by the Internal Revenue
Service.
I will submit my full statement for the record and, with
that, I will yield to the ranking member, the gentleman from
New York, Mr. Towns.
[The prepared statement of Hon. Todd Russell Platts
follows:]
[GRAPHIC] [TIFF OMITTED] 70679.047
Mr. Towns. Thank you very much, and let me say that I will
follow that, I will make certain that I do likewise by
submitting my full statement to the record and just indicate
that I am really, really proud that the witnesses are coming
forth. I think that through this kind of dialog maybe we can
get to the bottom of this.
But at the same time, Mr. Chairman, I think it is going to
require additional resources to be able to fix this and to make
certain that people are not inconvenienced in this fashion. We
can do better, and I know we can do better. But the point is
that in order to get to where we need to go, we might have to
spend some resources to get there to be able to protect people,
because I think that we have an obligation and responsibility
to do that.
I know that a solution is on the way, but it is going to
really require some resources, and I think that members of the
committee here might have to recognize that. But at the same
time these kind of discussions are very, very important, and on
that note I yield back.
[The prepared statement of Hon. Edolphus Towns follows:]
[GRAPHIC] [TIFF OMITTED] 70679.001
[GRAPHIC] [TIFF OMITTED] 70679.002
[GRAPHIC] [TIFF OMITTED] 70679.003
Mr. Platts. I thank the gentleman and certainly look
forward to working with him and his staff as we have always
done so in a bipartisan way, not just today in this hearing,
but as we go forward to continue the dialog with the IRS and
all interested parties to make sure we do much better in
protecting the American taxpayers, protecting our citizens
against this type of fraudulent conduct.
I ask unanimous consent to recognize a member of our
Appropriations Committee, including one who serves on the
committee with oversight over funding regarding the Internal
Revenue Service, a gentleman who has had a good number of
constituents also defrauded by criminals in this regard, the
gentleman from Florida, Mr. Diaz-Balart, for an opening
statement and submission for the record.
Mr. Diaz-Balart. Mr. Chairman, thank you so very much. I
want to thank you for, first, your leadership and for indulging
me for some minutes this morning. I want to thank you and I
want to thank the ranking member and the committee again for
your leadership.
Some of you are probably wondering why I am here. Well,
some of you may know that South Florida has been one of the
most affected areas really in the country when it comes to IRS
identity theft issue. What you don't know, I am sure, is that
I, years ago, was also a victim of identity theft. Now, I was
one of the lucky ones and it wasn't the IRS issue that we are
dealing with, but I can tell you what a nightmare it is to deal
with if it does happen to you.
It is bad enough going through this traumatic event of
having your identity stolen, but then to find out that even a
Federal agency cannot protect you against identity theft,
frankly, is just beyond disheartening. The fact that so many
people who this happens to is, frankly, intolerable and
unacceptable, and I think we can all agree that the IRS has
been slow, frankly, very slow to respond not only to the
individual identity theft issue, but also just overall.
Mr. Chairman, you mentioned that I am on the subcommittee
that deals with the funding issue. It is obviously something
that we are going to be also looking at there, but before the
committee started, Mr. Chairman, if I may kind of say what you
and I were talking about. The chairman and I were talking about
how, if you use your credit card and you go to a gas station
that you don't go to a lot, or you travel or you use it twice
in a gas station, like I have done when I will fill up my tank
and then I will fill up my wife's tank on one credit card, you
will get a call from the credit card company. A red flag goes
up.
And this happens kind of regularly. And obviously we don't
expect the IRS to be perfect, but clearly there must be a
better detailed plan to prevent further fraud issues from
taking place and also a plan, as the chairman said, to make
sure that taxpayers who have fallen victim to this issue are
dealt with in a quicker and more fair fashion.
I will point to you, Mr. Chairman and members of this
committee, that a journalist from South Florida, the Sun
Sentinel in South Florida, her name is Sally Kestin, has
written several really, really good articles on the issue, and
I am going to have my staff, if that is all right with you,
give it to the members of the committee. I think they would
show you just how bad it is.
I would also like to recognize, as the chairman said, a
constituent from south Florida. Her name is Sheila Vas Dagins.
She had fallen victim to this crime with the IRS not once, but
twice. So imagine that. It is hard enough to go through it
once, but imagine having to go through it again. So the IRS was
aware of it and somehow, the next year, it happened to her
again. So, again, it tells you that the protocols that are
there are not effective; a lot needs to be done.
And I again, once again, thank you, Mr. Chairman, for your
leadership and this committee. She was not able to be here
today to testify, but she has supplied us with her story in a
very compelling written testimony, and I would very
respectfully, Mr. Chairman, ask to allow me to submit her
testimony for the record, if that is possible.
Mr. Platts. Without objection, so ordered.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] 70679.004
[GRAPHIC] [TIFF OMITTED] 70679.005
Mr. Diaz-Balart. Thank you, Mr. Chairman. With that, I just
want to thank the committee for your leadership. Thank you, Mr.
Chairman, for making this a priority issue. It is a big problem
in South Florida, it is a big problem nationally, and as bad as
identity theft is, when it happens with the IRS and when people
who work hard, pay their taxes, play by the rules, and all of a
sudden their refund checks go to some crook, it makes a
horrible crime even worse. I cannot thank you enough for your
leadership and I thank you for the opportunity to be here this
morning. Thank you, Mr. Chairman. I yield back.
Mr. Platts. The gentleman yields back.
Just housekeeping for everyone. We are going to recess now
because we have about 40 seconds left on the floor vote, the
first of seven, so the rest of the Members and I will head to
the floor, returning with an estimated start time again at
1:45. And with the agreement of our first panel of witnesses,
we are actually going to flip-flop the panels and we will have
the IRS Commissioner, Mr. Shulman, when we come back testifying
first, then followed by our witness panel with GAO and our
citizens.
So we appreciate everyone's flexibility in willing to work
with us, your patience, and, thankfully, when we come back we
should have a long break before the next series of floor votes,
which will allow us then to get into this issue in substance
and, as the gentleman from Florida said, really make sure that
we do better by all of our constituents and all of our citizens
to protect them.
So, with that, the hearing stands recessed until
approximately 1:45.
[Recess.]
Mr. Platts. This hearing of the Subcommittee on Government
Organization, Efficiency and Financial Management will be
reconvened.
I know our ranking member, Mr. Towns, does plan on
rejoining us coming back from the floor fairly quickly as well.
I do want to express regrets for a number of my Democratic
colleagues who were planning on being here, but are now on
their way to the White House for a Democratic Caucus meeting
with President Obama, and they asked me to extend their regrets
in not being able to hear the verbal testimony here today, but
are glad to receive the written testimony from all of our
witnesses.
Again, we appreciate everyone's patience and flexibility as
we juggle the schedule.
We are delighted to have with us the 47th Commissioner of
Internal Revenue, the Honorable Douglas H. Shulman.
Commissioner Shulman, we appreciate your work and the work of
your department, and your working with this committee, members
and staff, as we try to address this very important issue of
how better to protect American taxpayers from being defrauded
collectively by tax identity theft or identify theft as tax
related, and also to protect each and every citizen who is
victimized by these criminals when such fraudulent conduct
occurs.
I am not going to go through your whole bio, in the
interest of time. You have been very patient as we juggle
schedules, as the other witnesses have been, so we will go
right to your testimony.
It is the practice of the Oversight Committee to swear all
their witnesses in, so if I could ask you to stand and raise
your right hand.
[Witness sworn.]
Mr. Platts. Thank you, Commissioner. The record will
reflect that the witness affirmed that oath and, with that, I
will turn it over to you for your statement.
STATEMENT OF DOUGLAS H. SHULMAN, COMMISSIONER, INTERNAL REVENUE
SERVICE
Mr. Shulman. Chairman Platts, thank you for the opportunity
to testify before the committee on the important issue of
identity theft.
Before I discuss the efforts the IRS has taken to combat
identity theft and to assist its victims, I just want to
personally apologize to the taxpayers sitting behind me. I had
a chance to talk with them and apologize to them personally. I
know that they had a frustrating experience with the IRS. As
the head of the IRS, which serves 140 million individual
taxpayers, I always stress to our employees that we need to
walk in each taxpayer's shoes and understand their specific
situation and needs.
And while most taxpayers have a smooth, seamless experience
with the IRS, we obviously need to do better with the taxpayers
who are here today. On behalf of the agency, I apologize, and I
have asked my staff to followup immediately with each one of
them to make sure all their issues have been resolved.
Let me talk about identity theft for a minute. First, I
want you to know that we take the identity theft issue around
the tax system very seriously. Regrettably, by the time that we
detect and stop a perpetrator from using someone else's
personal information, that victim's data has already been
compromised outside of the tax filing process. I think it is
very important to state for the record that all of the examples
here today, the IRS is not the cause of the identity theft.
Rather, the taxpayer's sensitive information was stolen outside
the tax system and the perpetrator then uses that stolen
identity to try to get a tax refund.
This is a growing problem nationwide, identity theft, and
we have seen a fivefold increase of tax-related issues around
identity theft in the last 5 years. In 2007, because we saw
this as an issue, we created the Office of Information
Protection and Data Security. Let me briefly highlight some of
the actions we take to try to get ahead of this.
First of all, we set up filters and we stopped about $1
billion since 2008 of potentially fraudulent returns coming in
due to identity theft. We have also tried to set up ways to
assist victims of identity theft. We put markers on accounts,
which puts heightened scrutiny on those accounts when they came
through. The key to those markers is setting up the right
filters that block the criminals and don't put too much burden
on the victims.
While not perfect, we have gotten a lot better. Two years
ago 80 percent of the returns that were tripped by our filters
ended up being legitimate taxpayers. This year that is almost
reversed; 75 percent of the tripped returns ended up being the
fraudulent taxpayers. So we are going to keep getting better
every year.
We have also, this year, launched a very promising program,
which is we have given 56,000 taxpayers a PIN. When they file
the return, it will go through if you have the PIN. If a PIN
comes in with that Social Security Number with no PIN, it will
be blocked. I really think this is the future and I commend my
staff for being in front of this and working on it, although it
didn't help the folks who did not have a PIN.
I could go on and on. We do a number of other things. We
have criminal investigations; we coordinate with the Justice
Department, the FBI, the Federal Trade Commission, and I am
happy to talk about it in questions.
Before I conclude, let me just turn to the written
testimony of the witnesses who experienced unprofessional
behavior on the part of some of the phone assisters that they
encountered at the IRS. I must tell you, in all candor, that
all of my personal experience and the data that I review on a
regular basis suggests that our telephone representatives, on a
whole, are extremely professional and courteous. All of our
customer satisfaction measures, those measured both by the IRS
and by external third parties, show that while we run one of
the largest phone centers in the world, the IRS manages to
provide high quality service with a high degree of accuracy.
With that said, I take these taxpayers at face value that
they had a bad experience with the IRS, and I take this very
seriously. I believe the conversations we have with victims of
identity theft present unique challenges to our assisters.
Often it is during the initial conversation with the IRS that
the taxpayer is told that they have been victimized.
As we have heard, these can be very emotional conversations
and they are very unlike the majority of calls that we receive
on a daily basis with specific questions about your account or
the tax law. So for many of our assisters, especially the ones
on our general toll free line, this may be the first time that
they have received a call from a victim of identity theft.
So based on this testimony and what I have heard, I am
initiating a thorough review of the training provided to all of
our phone assisters to ensure that they have the tools and the
sensitivity they need to respond in an appropriate manner to
victims of this heinous crime.
Let me conclude by telling you that I realize that in the
process of increasing our efforts to block attempts by identity
thieves to exploit the tax system, there have been
inconveniences and frustrations created for honest, hardworking
American taxpayers. For that, I am deeply sympathetic. As
identity theft continues to grow as a problem for our country,
we need to do our part in the tax system to assist innocent
victims.
We have dedicated significant resources over the last few
years, streamlining the processes for innocent taxpayers caught
up in identity theft. These efforts are starting to pay off,
but we are going to need to keep working on it, and you have my
commitment that we are going to be focused from this day
forward on continuing to improve our operations in this area.
[The prepared statement of Mr. Shulman follows:]
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Mr. Platts. I thank the Commissioner for your statement and
the commitment you have made as far as going forward. I am
certainly grateful for your apology for those witnesses here
today and all those who have been victimized and perhaps
believe they have not received a level of assistance that they
should have received, whether they are here today or around the
country.
I think what you have said here, as far as going forward,
you all captured in your April 6th address at the National
Press Club, and it was about continuous improvement; that since
you joined the IRS in 2008 and, in your own words, have made it
one of my top priorities to put the IRS on a path of continuous
improvement to evolve, to get better. We should perform the
best we can today while embracing change so we can perform even
better in the future.
I think that is what this is about, especially when we look
at the numbers in this area, where we see identity theft-
related tax issues jumping about 500 percent in roughly 2\1/2\,
3 years, 50,000 or so that we are aware of to over 250,000 in
the most recent year.
And I think that goes to your other statement about
retraining of the staff who are on the 1-800 number that is,
for most constituents, going to be their first point of
contact, that commitment you have made to go back and evaluate
and strengthen that training, because as we get more and more
of these cases, as we are seeing, that is who is going to get
that initial call.
And as you reference the written statements of the citizen
witnesses who will be testifying a little later today, their
description of the treatment they received is pretty
outrageous. And not putting words in their mouth, but quoting
them, as we will hear from LaVonda Thompson, ``I spoke with the
most rude and discourteous person I have ever spoken with in my
life.'' Another witness, after dealing with an IRS agent in
person in a local IRS office, and feeling so frustrated in how
the engagement occurred, I went out to my car and cried; I was
very overwhelmed.
This is a case where we have individuals who were
victimized and then, in essence, feeling victimized a second
time, and your acknowledgment of that and your commitment to go
forward to improve the training of your staff is much
appreciated. And I am one, as we have talked before, yesterday,
who believes in the ideals of public service and am grateful
for the work of all public servants, and that includes all of
the personnel at the IRS who are out there each day trying to
do a good job, and that we not paint with a broad brush in the
misconduct of certain individuals to paint a bad picture of any
and all IRS agents, personnel. We know that is not the case.
So as a committee we certainly will be grateful to be kept
in the loop as you move forward with those training changes or
upgrades so that we can make sure that we are doing better with
the assistance provided to the victims of identity theft.
A number of issues I would like to address with you. You
mentioned about $1 billion in savings that you have prevented
from being fraudulently paid out and that the filter system is
now identifying, of those that are kicked out, about 75 percent
were fraudulent, that would have otherwise been paid out but
for being caught. Do you have a number, roughly, what you think
in, say, the last 3 years, best estimate of what you have
identified what was paid fraudulently and then what, if any, of
those dollars have been recouped since being identified?
Mr. Shulman. Let me just address that. We have the specific
identity theft filters, which are pretty new and evolving. We
also have very sophisticated algorithms and filters that kick
out a whole bunch of fraud. We block over 2 million returns
every year that never go out, and a bunch of those are probably
identity theft, because they can be duplicate PINS but they
just haven't gotten an identity theft marker, so we don't know
what that is. So we don't have a good number as of today around
how much potentially went out that we know was identity theft,
but it is something that we are going to work on going forward.
The other thing I just would mention, there were a bunch of
statements in the testimony that assumed, just because the
innocent taxpayer's refund was blocked, that the perpetrator's
refund went out, and that is not necessarily the case. There is
a bunch of these cases, it happens all the time, where we get a
flag on the first one and we are working that; a second one
comes in and then it gets a flag because it is a duplicate; and
then you have to sort out who is who.
And as I mentioned to you yesterday, we get some where
someone has a purse stolen, someone gets their identity, they
sell it to 20 people, so we could get multiple filings with the
same--it doesn't mean that any of those necessarily go out; a
lot of times we are holding them all, trying to sort out
exactly who is who and who deserves the refund.
Mr. Platts. I understand you don't have an exact amount
perhaps that is identity theft related in the rent year or
years. Is there a number that you have at this point of how
many returns were filed that are identity theft related,
whether you know the exact amount or not, that----
Mr. Shulman. Our cumulative number is a little over 400,000
since we started tracking those, but those are the ones we have
put the marker on. So, for instance, the ones that are coming
in this year until the case is resolved the marker is not on
it, because sometimes--the most common mistake in tax filing is
someone not transcribing their Social Security Number right, so
sometimes it is literally somebody misses a number, it goes in.
That is not necessarily identity theft, it is what we call a
dupe Social Security filing.
But the cumulative number over 3 years has been 400,000
that we have marked as having some identity theft related. Some
there has never been a return, but we have found through other
criminal investigation a cache of information that has a bunch
of Social Security Numbers, so we will mark that. Some the
taxpayer identifies; some we find the way that most of the
people who testified found out, which is when they file they
realize somebody else had filed.
Mr. Platts. I know one of the issues you kind of touched on
that comes through in the testimony of where a fraudulent
return was paid out and then the law-abiding citizen submits
and then is told it is going to be 4, 6 months or longer. Can
you address that? We have cases that have been brought to our
attention where a fraudulent return was paid out within 2 weeks
of an E-file being submitted in, say, January or February; then
the law-abiding citizen--and that was based on just a name and
Social Security Number, and no supporting documentation done in
the E-file, and they created an employer ID and income.
But then the law-abiding citizen comes forward with all the
documentation, W-2s, all the proper ID to show that they are
the legitimate taxpayer. Why is it four, six, or I think in the
one witness it was about a year and a half until they got their
legitimate refund? I know there is a manpower issue here, but
that seems pretty extreme that the victim has to go that long,
given how quickly we paid out the fraudulent payment.
Mr. Shulman. So one thing I just really want to clarify,
because I think there was confusion in much of the press
reports and other things. The first return that came in was
received and put into our system. That doesn't mean the refunds
were paid out. So the refunds weren't necessarily paid out in
all those.
But then to address the question of when the real person
comes in, what can take so long, one is there were some
staffing issues and, as I told you recently, we more than
doubled the staff that is working those cases now so that we
can get this addressed. Frankly, we just didn't know there was
going to be this explosive growth and we were trying to balance
budget cuts and potential government shutdowns, and we were
managing lots of things during filing season. So once we found
out there was growth, we threw more resources at it.
Mr. Platts. It that in just this current calendar year?
Mr. Shulman. Yes, this current calendar year.
Mr. Platts. OK.
Mr. Shulman. We are trying to balance resources as we go.
Second is there are cases, and one of I think the witnesses
described the case where the person had their W-2, had their
employer, had their dependent, all those things. When you get
all of that, identity theft has become a very serious organized
crime, and it is one thing you get a Social Security Number,
you file; you probably will trip a filter and get blocked. And
if you don't, when the real person comes in, they are obvious.
But sometimes we write to both people and both people come
back with a driver's license, with a Social Security Number on
it, maybe they have gotten a passport, they know the names of
all the dependents, they know what the AGI last year was. That
usually means it is some sort of a work-related crime or
someone has gotten into some sort of payroll processing system
where they get information. And when that happens it can take a
while to sort through.
Some of the delay was we had some things sitting on the
shelf, waiting for our people to get to it. We think we have
addressed a lot of that by putting more people, but sometimes
when our analysts get there they have to start making calls to
employers, they have to ask for more information. And, again,
this can be 30 people that they are trying to unsort those
cases. So those will always take really long.
Mr. Platts. Understandably.
Mr. Shulman. And I guess the other thing I would say is I
looked into--there were a lot of public accounts about people,
and without getting into any taxpayer, there were lots of
public accounts that I saw where someone said someone told me
it would take 6 months, but we know for a fact they got their
refund within a couple of months and a lot earlier than that.
So I think it depends on circumstances.
With that said, it shouldn't take 9 months, it shouldn't
take a year and a half, and we should get better at sorting
this through. I think the PIN I mentioned is going to be one of
the real solutions. Everyone who testified here today we would
like to make sure they get a PIN next year, assuming the pilot
works as it goes. Their refund will fly through. Anyone else
who tries to use their Social Security will just be blocked. It
is much better than the flag and the filter, which is a step in
the right direction, but the PIN could be the real solution
here.
Mr. Platts. And I certainly understand where you have a
fraudulent claim where they didn't just get a name and Social
Security Number, but they got access to all that information,
so they are filing correct status, everything is good other
than where the money is going, I understand those are going to
take a lot longer. Those where it is just a name and Social
Security Number--and this kind of comes back to the issue of
the training of your staff and how they handle it.
I think maybe as you look at how you improve your training
program, is that initial saying we are going to do this as
quickly as possible; hopefully, it will be a month or whatever
you are going to think is the best case scenario, but it could
be 6 months, but please know that we are going to be giving you
regular updates. That is part of what I would call an internal
control on the training side and the follow-through.
My wife, Leslie, served on the Victims Assistance Board in
your county in our home community a number of years back and
when you are dealing with victims of crime, it should be one of
our highest priorities in how we handle them because it is not
just what they lost. Here it is the taxpayer loses the money
ultimately, collectively the American taxpayers, but it is a
financial impact on the law-abiding citizen who has been
victimized, and for those especially who are really looking to
that refund to pay whatever pressing bill they have, whatever
it may be, there is going to be a financial impact.
But there is really a mental health aspect to it as well,
and I think that is what came through to me, not just, again,
the witnesses we are going to have here today, but the other
cases. I think we have 12 cases that we are currently working
in my office, and having talked to my colleagues, Mario Diaz-
Balart in Florida and around the country, is that we really
look at these individuals appropriately. They have been
victimized by criminals, so we really have to prioritize how we
go about.
And I think one of those is that regular contact between
your agency and those individuals once they have been
identified, so they are not sitting out there waiting for
knowledge, but kind of get those regular updates.
I am going to touch on one other area that you just
mentioned before I turn to the ranking member, and that is in
trying to prevent it. And I appreciate that preventive
approach.
In fact, in your April 6th statement at the National Press
Club, I appreciate that you were looking at how to be proactive
and not just catch them after the fact and do something, but to
prevent fraud and other misconduct, and I think one of the
things you mentioned is about trying to have the employer
identification number and information up-front, those W-2 data
up-front, rather than getting it, in a sense, after the fact
and then trying to play catch-up.
And I realize that is a substantial engagement to pursue,
and I think maybe it was good that Congressman Diaz-Balart
being here as an appropriator on the subcommittee that directly
oversees IRS, as you are looking to make those type of
improvements that will prevent fraud up front, that we engage
him in what those financial aspects may be as far as making
those improvements.
But you mentioned the PIN, the thorough system and putting
flags on, and I think one of our witnesses in the next panel
will testify that they were supposed to have been flagged and
apparently were not properly flagged, so they were a victim of
identity theft a second time regarding their refund; whereas
the PIN approach seems like it would more likely prevent that.
Where do we stand in that pilot program? I think it was 50-
some thousand individuals in the current year. And how quickly
do you envision anybody identified as even a possible victim of
identity theft being able to get that PIN to try to make
certain that only they will be receiving their refund?
Mr. Shulman. We have all the data now, although people
still file after April 15th, they have gotten themselves an
extension. But we have most of the data in. We are looking at
it and are parsing it. Like I said, I think it is very
positive. My desire would be to expand it dramatically and
potentially give it to anyone who has been a victim. For next
year we have to balance that against all of the demands, but I
think unless we see something that we are not expecting to see
by next year, we are going to try to dramatically increase
that.
Mr. Platts. My hope is that we can move in that direction.
In fact, not a witness here today, but one of the victims that
has submitted a written statement, Pamela S. Lee, from York,
and, without objection, I am going to submit her statement for
the record. And in the name of full disclosure, as I have
shared with you before, this is a family member, my, I will
say, big sister. Although she is in the audience, she stands
about 4 feet 10 inches, maybe if that.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] 70679.016
[GRAPHIC] [TIFF OMITTED] 70679.017
Mr. Platts. But she is one of these victims, and because of
it being a family member, I am most familiar with how her case
played out, and the filter system is what really worries me,
that if we rely on that, while I am glad it is getting 75
percent of those that are kicked out are ones you want to
catch, is how many we are not catching with the filter system,
because as in this case, my understanding is it was a different
filing status, different employer, different address, different
dependents.
I mean, there was one, what I would call that Mario
referenced earlier, one red flag after another that I would
have thought that filter system would have caught and kicked it
out to say, hey, something is askew here. Unfortunately, it
didn't. And then when the written returns were received by the
IRS, about a month after the fraudulent returns, nothing
happened for another 2 months, until the taxpayer, Ms. Lee,
then contacted the IRS saying where is my refund.
So now it is 3 months after the fraudulent return was
submitted and paid out in January, 2 months after the IRS has
received paper documentation that there is something wrong
here, yet even then nothing had been done. So that is why I do
worry about the filter approach versus getting to the PIN as a
way to better protect.
And this may be too broad a sentiment or thought, is there
the possibility of getting beyond just the Social Security
Number for each and eery taxpayer? What would be the cost of
the PIN being sent annually, here is your PIN, not just the
half million or so that have been possible identity theft? Is
that something you are even considering or is that, because of
the additional cost, whether it would be effective or not?
Mr. Shulman. If you don't mind, if I could just address the
two things that you had mentioned. One is that series of
filters, you said why didn't it stop someone?
Mr. Platts. Right.
Mr. Shulman. I just learned of the taxpayers'--and
obviously I can't discuss individual taxpayers publicly----
Mr. Platts. Understood.
Mr. Shulman [continuing]. But there is nothing to say that
it didn't trip a filter or that refund didn't get stopped. So
we are going to look into all of these. But I will tell you,
like I said, there are 2 million refunds that get stopped, and
it is just those kinds of things, if there is enough indicia
there. We change these every year; we are very sophisticated.
The crooks keep testing all our tolerance levels, but we are
very serious about stopping refund fraud.
Mr. Platts. And I don't want to imply otherwise. As I have
said to you, I know you want to prevent every fraudulent filing
and payment as much as I do, and I know that your department,
across the board, shares that, and that why the purpose of this
hearing is how do we partner with you to help you do just that.
Mr. Shulman. On the PIN, it is an interesting idea. As you
know, everybody is in very tough fiscal times. My guess is it
would be very expensive. We are looking first to expand the
PIN. First make sure it works; second, expand it to the group
of people most likely to have one of these problems. Right now
the Social Security Number is what is used. I think it has been
an overstatement in some of the testimony submitted today that
all you know is a name and a Social Security Number, and you
automatically get that refund. There are a lot of things that
go into looking at that.
With that said, I am very open. As you quoted from a speech
earlier this year, we should always be looking at how we do it
better, and it is certainly something, as identity fraud goes,
we are going to have to figure out how to stay on top of it.
Mr. Platts. I do appreciate that it is not necessarily that
simple. That is a statement from a conference call with an IRS
employee stating that to committee staff, that Social Security
Number and name is all you need to E-file and that it is that
simple. So that is not just citizens, witnesses making that
statement, that is one of your employees saying that to my
committee staff.
Mr. Shulman. Well, I will look into both the employees who
were rude to people on the phone and that employee, then,
because there is a lot more that goes into issuing a refund
than just a name and Social Security Number.
Mr. Platts. I won't identify the individual here.
Mr. Shulman. No, I take it at face value what you said.
Mr. Platts. But I would be glad to share that information
with you. I am not finding the exact one, but we will get it to
you, because that seemed to be what was being conveyed to us.
A final question, then I am going to yield to Mr. Towns. Is
there any consideration, again, we are looking at ways of how
to prevent this wrongdoing, to stop the criminals, protect the
innocent. I know in some of these cases, and I don't know if it
is consistent or something that you have identified as a
consistency in the fraudulent claims. They were filed in
January electronically, before most Americans, I know I never
get a W-2 until the end of January, the last minute, from the
current Federal Government as my employer or from previous
employers.
Is there any consideration that is a specific red flag,
that anybody who is filing electronically in January, that we
look at with extra scrutiny because of the propensity that they
are trying to beat the law-abiding citizen who hasn't yet got
their W-2s? I am generalizing here, and I may be wrong, but
most Americans are not able to file until at least the end of
January or into February, until they get their employer
information, and then go forward and submit everything. that
would be a specific red flag, that anybody filing
electronically that early would get extra scrutiny? Is that
something that you would consider?
Mr. Shulman. I guess there are two things about that. One
is a lot of the common perception is that April is when
everyone files. The reality is our peak starts January,
February, and there are a lot of people who file, as you
discussed earlier, people who are really counting on that
money, and they will go get from their employer, because most
employers, especially large employers who employ large chunks
of lower income workers, can make the W-2 available earlier. So
there are a lot of people who file who are some of the neediest
taxpayers, who really need that money.
Second of all, as we talked about yesterday, I just want to
be clear, we have seen no nexus between electronic filing and
this identity theft tax-related fraud, because you can get your
return in just as quickly by sending overnight mail to us. And
the speed issue, a lot of times it is about whether you get a
check or direct deposit and we have to send something to FMS.
So, again, everything is on the table, and I certainly
would look at anything, but usually the time is not the issue,
because the thing that nobody wrote about, and obviously there
wouldn't be a hearing and a lot of interest in it, but we stop
lots of people who the legitimate taxpayer filed, got their
refund, never knew anything happened, and then the crook comes
in later; and we block those too. Obviously, those ones aren't
devastating to the victim; the victim--
Mr. Platts. Good news doesn't sell, right?
Mr. Shulman. But it is certainly something we look at. What
I will tell you is we have technologists, statisticians,
economists who continually are looking at our screens, refining
them year after year, looking at patterns, working with our
criminal investigators and other people, and I get briefed on
them all through December to make sure we test them; we test
them against last year's data, we test them throughout the
year.
So we are looking at these filters very carefully and we
are trying to get, as Jim White from GAO testifies, the key to
these things is stop the bad returns and don't burden the
honest taxpayers.
Mr. Platts. Am I mistaken though, if you file a paper
return, then you do have to have your W-2s? I thought when you
file an electronic return, you don't send any W-2s in with that
because you are doing it electronically. But if you file by
paper, I thought you then did have to file your W-2s with the
return.
Mr. Shulman. The electronic return usually has, you can do
it electronically. We have been working on our E-file. Next
year we will be able to actually PDF any attachment to an
electronic return.
Mr. Platts. But I meant as far as that identity theft is
paper or electronic, isn't it harder to do it with paper
because you have to have those W-2s attached?
Mr. Shulman. A lot of people get them late. What I can tell
you is we look, we screen with the same material on paper and
electronic.
Mr. Platts. Because I am looking for that nexus that you
referenced. And I would encourage you, if you see anything with
that 75 percent of those that you did kick out and were
fraudulent, you know, that analysis, was a large percentage of
them in January and what percentage of them was electronic? If
your staff could followup with the committee on those two
specific issues, that would be great.
Mr. Shulman. Sure.
Mr. Platts. And my ranking member has been very tolerant of
me going very long here. I yield to the former chairman of the
full committee and the ranking member of the subcommittee, the
gentleman from New York, Mr. Towns.
Mr. Towns. Thank you very much. No, I think that your
questioning I think is just so important to try to get to the
bottom of it and not get involved in terms of a blame game,
because we are all in this together. So your questioning I
thought was really right on point and to the point.
I am always concerned about if people do things and get
away with it, then they will almost encourage them to do it
again, because if nothing really happens--and then, of course,
others hear that they did it and nothing really happened. So I
guess the point that I want to ask you, since 2008 how many
prosecutions have there been?
Mr. Shulman. So I actually don't have--I will have to come
back to you. I don't have a cumulative number, but I put in my
testimony and mentioned earlier--
Mr. Towns. Mr. Chairman, can we keep the record open so we
can receive that?
Mr. Platts. Yes.
Mr. Shulman [continuing]. Just last year we took to full
investigation and recommended to prosecution--and we don't do
that if we haven't coordinated with the Justice Department--
prosecutions of people who had stolen 50,000 identities that
had been used in tax crimes.
So when we prosecute we obviously, like every other agency,
we have a very small part of our operation as a criminal
investigation division, we have to spread it across terrorist
financing, offshore tax evasion, any number of things. As this
problem has grown, we have put more resources and plan to
continue to put my resources into it, and we try to find
prosecutions, A, where we can get the proof but, importantly,
ones that impact large numbers of taxpayers is, frankly, the
ones that U.S. attorneys will take and work with us on, etc.
So if you look at 50,000, I think the number was actually
56,000 taxpayers who were affected with the prosecutions that
we took all the way through our criminal investigation chain,
that represented more than a quarter of all the identity theft
that was identified, which is a pretty high number for any
Federal or, frankly, State or local investigator to be able to
followup on that percent.
Mr. Towns. Would you know the rate of conviction?
Mr. Shulman. What is that?
Mr. Towns. Would you know the rate of conviction, have any
idea?
Mr. Shulman. Very high rate of conviction. I believe it is
95 percent, but let me get back to you for sure on the record.
Mr. Towns. How much of the fraudulent paid money has been
recovered from thieves?
Mr. Shulman. So every year we block billions of dollars of
fraudulent refunds. We blocked about $1 billion over 3 years
with identity theft. I mentioned to the chairman we haven't
tracked specifically identity theft numbers related that has
gone out and what we have gotten back, we haven't started
tracking that; we plan to as this problem grows. So I don't
have a number for you, Mr. Towns.
Mr. Towns. You know, my concern is that sometimes we don't
have the resources. We know there are things that should be
done, but we don't do them because we don't have the resources
to do it. And, of course, sometimes in that process the wrong
kind of message gets out. So I know that as the Commissioner,
that you just can't come up here and bang, bang, bang, saying
that you want money, money, money, but the point is that I
think that when you see a problem that I think it becomes our
responsibility here to give you additional resources to be able
to go out and fix the problem, because if a person is expecting
his or her return, and then they don't get it, and then all of
a sudden they can't get an answer because, really, somebody
else has gotten it, and the frustration around that and the
problem, to me, is something that we need to really take very
seriously; and I am talking about Members of the Congress as
well.
And I agree with the chairman. I was so happy that we had
one of the appropriators here today, and I think that if you
feel that you need additional resources, don't hesitate to make
that case because I think at the end we are going to save money
by you doing that, at the end of the day, based on what I am
hearing and what has been said here, that if we spend it to fix
it, then, in the long run, we will be much better off.
And I know how difficult it is to make the case for
resources, especially in this atmosphere and climate, but
sometimes we have to do that in order to be able to correct the
situation that we now find ourselves in and to make certain
that people have the confidence and not to be worried about
whether somebody is going to get my return because of my
identity.
Let me ask you what department really covers this in your
shop? What department, the name of the department that handles
this?
Mr. Shulman. Handles? I am sorry.
Mr. Towns. Handles the claims in terms of the identity. You
must have a department that takes a look and handles the
identity theft. What is that called?
Mr. Shulman. Oh. Well, we have this centralized office of
Information Protection, Privacy and Security that sets all
policies and coordinates the fraudulent--most of it is in our
Waging Investment Division, which deals with individual
taxpayers. That is where all the service issues are that we
have talked about with the victims' testimony. And then our
criminal investigation is the arm, obviously, that follows up
on fraudulent schemes that we see.
Mr. Towns. Right. Now, was that the department--I know
there were some cutbacks. Was that the department that was cut
back?
Mr. Shulman. Well, we had some cutbacks in every part of
the IRS this year.
Mr. Towns. Because I am really concerned about making
certain that you have the resources to do the job that needs to
be done, and that is really where--I think sometimes, you know,
we are involved in situations where we have a problem and we
know that resources are actually needed to correct the problem,
but we do not deal with it.
And we are guilty of that here in the Congress, so I want
to let you know that I stand ready to push, to be able to
assist you to get what you need to be able to correct this
situation, because it is going to grow if you don't, and that
is the problem. You see, when people do something and get away
with it, they tell others, and then it gets bigger and it gets
bigger and bigger, and then the problem becomes one that
becomes a lot more costly to be able to handle.
So I think that if we can sort of move forward now and
correct some of the things that are going on and send a message
forward that this is not something you do. If you do this, you
are going to spend time in jail. I think that point has to be
made, because if people do it and they get away with it, they
are being encouraged.
Mr. Shulman. I couldn't agree with you more. What I will
say, and I am obviously biased because I am the Commissioner of
the Internal Revenue Service and responsible for this agency,
but this problem is a good illustration of why I advocate for
the right resources for the IRS, because on one side we need to
have the service resources to quickly process the returns and
the refunds for the victims, and on the other side we need to
get the enforcement resources to pursue this kind of crime.
The service resources I think are fundamental because every
American is expected to pay taxes; this isn't a choice, this
isn't an optional department. And we owe it to the American
citizens to treat them right. The enforcement resources are
just obvious from an economic standpoint, where there is a huge
return on investment. We return, for our enforcement programs,
anywhere from 8 to 1 to 23 to 1, $23 for every $1 we spend, and
that doesn't even count, that is conservative accounting that
OMB and CBO have come up with; that doesn't count the deterrent
effect of people seeing and just never doing it to begin with.
So this is a kind of microcosm of why we always argue this
agency is a little different collecting the money for the
government because it has a huge return on investment and a
real obligation to serve every taxpayer in a way that is
dignified and respects their own individual situation.
Mr. Towns. But the problem, Mr. Shulman, is that people
compare you with other agencies. For instances, talk about in
terms of American Express, and they say, well, this person went
to purchase something with their American Express card and they
called me. But the point is that they can do that because they
have the staff and they have the system in place that they paid
for to be able to raise these kinds of flags. So that is the
point I want to make, because you are going to be compared with
them.
In fact, some of my colleagues have already done that
today. I was on the floor of the House and a guy came over to
me and said he doesn't understand the problem because of the
fact that and he went on to talk about in terms of how the
credit card company woke him up. He was asleep at 2 a.m., and
they called him and said are you making this purchase.
But the point is that in order to do that you have to have
staff, you have to have resources, and that is the difference.
I also told him there is a big interest on that card, whatever
he has, there is a big interest on it, so, therefore, they can
hire staff, they can do things and say things. And we just want
you to know that we sit here. We are not just going to blame;
we want to work with you, and we think that together we can do
better.
That is what I am saying. And I know that in order to do
that we would have to do some things on this side of the aisle,
other than just saying you have to stop it. We have to help you
stop it, and I am prepared to do that.
Mr. Shulman. Appreciate that.
Mr. Towns. On that note, I yield back.
Mr. Platts. I thank the gentleman.
Commissioner, we will wrap up quick for you. Just a couple
quick followups. One is on the issue that the ranking member
raised on the prosecutions. There was a press story in the Sun
Sentinel in Florida, end of April, that identified--I will read
it verbatim: ``Prosecutions for identity theft-related tax
fraud are rare. Agents for the Internal Revenue Service who are
responsible for criminal investigations have pursued just 412
such cases nationwide since 2007.''
Now, they are specifically referencing identity theft-
related tax fraud. I take it that you agree that is an
inaccurate number?
Mr. Shulman. As I told Mr. Towns, I don't have the
cumulative number with me, but I will get back for the record.
Mr. Platts. If you could.
Mr. Shulman. But I think the important thing is a lot of
these people are committing, there is one criminal with
thousands of taxpayers, so that could represent a lot.
Mr. Platts. That may not mean one victim, it might have
been 100 victims.
Mr. Shulman. Yes. That may very well be the number, but
what I am telling you is, as this problem grows, we are going
to devote more resources and our investigations will continue
to grow and our recommendations to Justice for prosecutions
will continue to grow.
Mr. Platts. And that kind of follows up with what Ed just
said. As a committee, we are an authorizing committee, an
oversight committee, we are not appropriators, but we are glad
to work with our friends on appropriations in kind of two areas
that I think you are looking are doing. One is your manpower
commitment to the victims so that, after being victimized by
the criminal, that the government does right by them so it is
not 6 months or 9 months until they get their legitimate, and
that is a manpower issue.
But also a manpower issue of going after the criminals,
because if that number is accurate, 412, when we talk about the
number of identity theft cases, tax-related going from 50-some
thousand to 250-some thousand, obviously that is a very small
percentage of prosecutions, if we are accurate in those
numbers.
A question on the prosecutions. I know that in IRS statute
you are understandably restricted pretty significantly in what
information you can share with anybody because you are
protecting very personal data. Are there statutory restrictions
on you that in some way are preventing your criminal
investigation division in working not just with Justice, but
with local law enforcement? Because I understand that, as with
some of the cases I have heard about or we are going to hear
about here today, where it 3,000 or 4,000, and it is not
multiple, but one person defrauding using one name and Social
Security and information.
When that goes into the Department of Justice and they
prioritize all these criminals they are going after, that is
probably going to go pretty low in that totem pole because of
the amount. But for local law enforcement, they prosecute
shoplifters who maybe stole $100 worth of goods. It is
something that they know how to do. Is there anything that
prohibits the agency from working with local law enforcement so
that we can, when we know who the person is, they don't get the
message, as Mr. Towns expressed concerns that, hey, as long as
I don't ask for too much, each year I can pocket $3,000 or
$4,000 because they are never going to come after me.
And we are sending that message that I am good to go and
just don't get too greedy; as long as you don't get too greedy,
you are safe. I think to combat that we have to engage, I would
contend, local law enforcement. I don't know if, here, today,
you know if there is anything that prohibits or restricts it or
hinders that.
Mr. Shulman. What I will say is I think some of the
articles might have overstated the restrictions, but there are
some restrictions around specific information. We need to give
information that is pertinent to the investigation to know
where the investigation is going, etc. I always tell people I
got sworn in as IRS Commissioner; when I came back to the
office, the people who talk about the laws around taxpayer
privacy were in my office, just as an example of how seriously
this agency takes data protection. And there are very
restrictive laws because we are holding very sensitive
information about taxpayers.
We can, though, do coordination with other law enforcement
agencies; it is not always just come troll our data bases, look
at everything or share everything that comes in, but there are
specific things we can do. I would be happy to have further
conversations about exactly where there could be some
restrictions.
If you don't mind, I also just want to be clear, because I
might not have been clear earlier. When you said 250 cases of
identity theft with only 400 prosecutions--
Mr. Platts. Two hundred fifty thousand.
Mr. Shulman. And that those numbers seem skewed. One is
250,000 was the flags that were put on. We put some of those on
because we haven't defined a data base or someone called and
said my wallet was stolen. So those aren't necessarily
anything; there hasn't been a crime committed, it is just a
flag so that we can put it through more screening.
Mr. Platts. OK.
Mr. Shulman. And, second of all, even though last year it
was 116 investigations, 41 of them ended up with
recommendations for prosecutions, that was still 50,000
taxpayers. So the number was more like 50,000 for 200,000. And
I don't know that I was clear earlier.
Mr. Platts. Right. Again, because of the likely
prosecutions at this point are those more large schemes
involving multiple or significant numbers of taxpayer IDs being
taken. So the number of cases might be small that you are
prosecuting, but the impact is that 50,000 number.
Mr. Shulman. Yes. I just wanted to make sure I was clear in
my explanation earlier.
Mr. Platts. One other item just if you can followup for the
record, my earlier questions about of those identified and
kicked out as being fraudulent, how many were E-file, how many
were in January. Also the issue of how many were asked to be
refunded in the form of a debit card versus a check or a direct
deposit.
Again, I am looking, trying to help personally so I can
better work with you and your agency of what is common issues
here that we need to try to look at, and it comes back
ultimately to the broad issue of internal controls and how do
we ratchet up our controls to address whatever is most common.
Knowing, as you well stated, that the criminals are always
going to try stay--whatever we do, they are going to try to get
a step ahead of whatever we did, but if we could have that
information about the debit card refunds that are identified,
that they were asking for refunds and you caught them, but they
were looking to get it on a debit card and, again, the belief
that maybe is easier and get away with it, versus if they know
they have to go to a bank, have some kind of contact with a
bank to get that fraudulent refund from that bank.
With that, Mr. Towns, did you have any other questions?
Mr. Towns. No.
Mr. Platts. I am going to thank you for our testimony,
conclude by saying, while I think, as you have referenced in
written testimony and we are about to hear from our other
witnesses, we do have a lot of progress to make, work to do.
Also want to recognize the progress you have made and the
commitment that you are making that your understanding of this
is a growing problem, it isn't because we asked for this
hearing; it is because you are seeing the data as we are
looking at it and are out there trying to lead the effort
forward in a positive way.
And for those hardworking public employees in the
department who are providing great service to hand out, we are
grateful for them, and hopefully those who haven't provided
that level of service that you clearly want to be provided,
that they will learn from their mistakes and do a lot better in
the future with the American public that they interact with.
But thank you again for your testimony. Look forward to
continue working with you and your staff, and our thanks for
being flexible here today with the schedule.
Mr. Shulman. Thank you. And if you wouldn't mind, since I
was up here at 12 and I had hoped to be here when the other
witnesses spoke, I am going to have to step out, but my team is
going to stay to followup. But you all do have my apologies
again for having a frustrating experience with the IRS.
Mr. Platts. And we appreciate your understanding of their
testimony from the written and as we discussed yesterday in
pretty good detail the subject or the message of their
testimony, and your staff's willingness to stay with us is also
appreciated. Thank you, Commissioner.
We will take about a 2-minute recess while we get the next
panel situated and then begin.
[Recess.]
Mr. Platts. We will continue with our second panel. We are
honored to have four individuals with us, first, Mr. Jim White,
Director of Strategic Issues at the Government Accountability
Office. Mr. White, we appreciate not just your presence here
today, but day in and day out, you and your colleagues at GAO
and the important work you do for all of our Nation, but
especially for Congress and the resources that you bring to our
work here on the Hill.
As well as three citizen witnesses, unfortunately who have
been victims of identity theft as it relates to their tax
filings. We have, first, Sharon Hawa from the Bronx; we have
Lori Petraco from York, Pennsylvania; and Ms. LaVonda Thompson
also of York.
We are grateful for all four of you being here and, as I
have said a number of times now, you have been very flexible
with us and very patient as we have tried to figure out the
hearing schedule around the floor schedule and the full
committee, so we are grateful for that.
If I could ask for all four of you to stand so I can swear
you in. If you would raise your right hands.
[Witnesses sworn.]
Mr. Platts. And the record will reflect that all four
witnesses affirmed the oath.
We are going to set the clock at 5 minutes, but if you need
a little more time than that, we want you to be able to give
your testimony as you see fit, and we are glad to hear it.
Mr. White, we will start with you.
STATEMENTS OF JIM WHITE, DIRECTOR OF STRATEGIC ISSUES,
GOVERNMENT ACCOUNTABILITY OFFICE; SHARON HAWA, IDENTITY THEFT
VICTIM; LORI PETRACO, IDENTITY THEFT VICTIM; AND LAVONDA
THOMPSON, IDENTITY THEFT VICTIM
STATEMENT OF JIM WHITE
Mr. White. Chairman Platts, Ranking Member Towns, thank you
for inviting me. As you will hear from the victims, ID theft-
related tax fraud is an insidious crime. To begin, I want to
describe a hypothetical and simplified example of refund fraud,
which is illustrated on page 3 of my statement and I think up
on the screen.
First, a thief steals a taxpayer's identity. This happens
outside of IRS. Second, the thief files a tax return claiming a
refund using the name and Social Security Number of the
innocent taxpayer. After verifying that the name and Social
Security Number match--and this, again, may be simplified--then
the IRS issues a refund to the thief. Later, the legitimate
taxpayer files a return. At that time IRS discovers two returns
have been filed using the same name and Social Security Number.
IRS holds up any refund while it notifies the taxpayer of a
problem and investigates. The notification from IRS may be when
the taxpayer first learns his or her identity has been stolen.
Employment fraud is different, also illustrated on the
screen. With employment fraud, a thief uses a stolen name and
Social Security Number to get a job. The following year, when
taxes are due, the employer reports the income to IRS on a wage
statement and the innocent taxpayer files a tax return. IRS
matches the two and discovers income reported in the name of
the innocent taxpayer that was not included on the taxpayer's
return. IRS sends a notice of underreported income to the
taxpayer, and that is when the taxpayer and IRS may first learn
about the ID theft.
So, to summarize so far, IRS learns about an identity theft
affecting taxpayers long after the theft occurs, and available
evidence suggests the problem is growing.
Now I want to outline what IRS is doing to resolve
taxpayers' ID theft problems, detect fraud, and prevent future
problems. Starting in 2004--and the Commissioner summarized
some of this--IRS created an ID theft strategy, set up an
office to oversee it, put theft indicators on victims'
accounts, screened some returns for fraud, and sets up the
Identity Protection Specialized Unit and an ID theft hotline.
In 2009, we recommended that IRS develop measures and data
for assessing the effectiveness of IRS's efforts. IRS agreed
and has since taken new actions. To help resolve innocent
taxpayers' problems, since identity theft makes it appear they
either claimed two refunds or underreported their wage income,
IRS is placing a temporary ID theft indicator on accounts,
while still investigating. The purpose is to alert all IRS
offices that ID theft may be the explanation for what appears
to be tax evasion.
To detect ID theft-related tax fraud, IRS screens returns
filed in the names of past victims. The screens are not
perfect. If, for example, IRS screens out returns with a change
of address, it will slow refunds to some legitimate taxpayers
who moved. If it screens too loosely, more fraudulent returns
get through. This year, about 200,000 returns failed the
screens; 146,000 were fraudulent; and 50,000 were innocent.
Also, IRS is experimenting with screens for the Social Security
Numbers of deceased taxpayers to try to prevent thieves from
filing using those identities.
Another new step gives past fraud victims special PIN
numbers. IRS screens out returns filed in the names of those
taxpayers unless the PIN is attached.
IRS's ability to address identity theft is constrained by
law, timing, and resources. The laws governing the privacy of
taxpayer data limit to some extent, as the Commissioner also
described, IRS's ability to disclose information about
suspected ID thieves to Federal, State, or local law
enforcement agencies unless certain conditions are met.
Complicating any investigation is the fact that IRS typically
discovers the ID theft long after it occurred.
Finally, criminal investigations require resources. Last
year, IRS initiated about 4,700 criminal investigations of all
types, including ID theft, tax evasion, money laundering, and
other financial crimes, far fewer than the number of ID theft
cases.
Given all of this, can IRS do more? Options exist, but they
come with tradeoffs. IRS could screen tax returns filed in the
names of known identity theft victims more tightly, but that
will increase the number of false positives and delay refunds
to those taxpayers. It could also burden employers who could be
contacted about reported wages.
Looking forward, IRS needs to continue assessing its
efforts, such as PINs and screens, for deceased taxpayers to
learn what is effective. We have not assessed the effectiveness
of these steps. In the long term, IRS should be looking at how
to take more advantage of the new processing systems it is
building. With better processing, IRS might some day be able to
match tax returns to wage statements before refunds are issued
and thus prevent more refund fraud. However, such pre-refund
matching would require employers to file wage statements
earlier in the year.
Mr. Chairman, that completes my statement. I would be happy
to take questions.
[The prepared statement of Mr. White follows:]
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Mr. Platts. Thank you, Mr. White.
Ms. Hawa.
STATEMENT OF SHARON HAWA
Ms. Hawa. Good afternoon, Chairman Platts and Ranking
Member Towns. Thank you for allowing me the opportunity to
provide you with my testimony regarding this atrocious and
rapidly increasing identity theft crime. It not only impacts
individual livelihoods, but it also steals millions of dollars
from the U.S. Treasury year after year, and will continue to do
so until something is done to prevent it.
This unfortunate situation has taken a tremendous emotional
toll on me. The stress, fear, and anxiety are all compounded by
having to deal with terribly unorganized agencies such as the
IRS and the Taxpayer Advocate Service, which only adds to
feeling victimized by their inefficient systems and lack of
communication. Knowing that I and other legitimate taxpayers
like me remain vulnerable tax season after tax season leaves me
both infuriated and it also frustrates me.
In 3 years, thieves managed to steal my tax refunds twice
by filing fraudulent tax returns in my name. The first time was
in 2009, after I filed through my local tax preparation office,
as I had for the previous 5 years. Two days later I received
word that the IRS rejected my return because my Social Security
Number was used more than once.
Scared and in shock, I immediately took measures to secure
all my personal assets, credit reports and accounts; I obtained
a police report, filed with the Federal Trade Commission, and
mailed in hard copies of my returns to various IRS addresses,
as instructed by different units within the IRS. After 12
months of back and forth confusion, the IRS's Identity
Protection Specialized Unit assigned me to an incredibly rude
and hard to reach taxpayer advocate, where I had to explain my
situation, resubmit the documents, and prove my identity all
over again.
It took a painstaking 14 months until I finally received my
$6,604 refund. Meanwhile, I had to take on a second job to
support myself and spend a lot of time, money, and energy
drafting letters and sending in the necessary information.
In 2010 I was unaffected, but I still remained extremely
anxious. When I finally received both my 2009 and 2010 tax
refunds a few weeks apart, I hoped the worst was over. But this
year I learned that I had fallen victim to this crime yet
again, and this time they also stole my State refund, together
totaling $6,335.
Research has shown me just how antiquated the taxpayer
system is. I realize that the IRS has been dealing with this
crime since nearly the start of the millennium. So why do they
seem so inexperienced and incompetent in handling the matter?
And why hasn't anything been done yet to combat it?
The very process designed to accommodate taxpayers has also
become a windfall for thieves. There has been an increased in
tax theft as a result of E-filing and direct deposit, which do
not necessitate validating personal identity when filing. A
digital signature to E-file simply requires a self-select
personal identification number, which is the taxpayer's
adjusted gross income from their previous year's return,
information that is easily obtainable. Furthermore, direct
deposit only requires a bank's routing number in order to
release the funds; no further vetting of personal information
or identity is required.
So on two separate occasions identity thieves E-filed early
in the tax season, before I physically received my W-2 forms,
and used direct deposit accounts to steal my refunds. To make
matters worse, in 2009, they received $1,895 more than I was
due and I received a notice from the IRS stating that I owed
that amount in overpayment.
Electronic filing was created to save the IRS millions of
dollars, since every E-filed return costs the IRS $0.19 versus
a paper return which costs $3.29.
But I urge you, instead, to look at the many millions of
dollars fraudulently paid out to these criminals. Cases jumped
644 percent from 2004 to 2007 and an additional 300 percent
since last year, and many millions of taxpayer dollars
needlessly and disgustingly wasted due to this broken and
exposed system. In an era where technology is so prevalent, one
would hope that priority would be placed on this issue. It is
absolutely absurd that the government pays out twice on a
single stolen refund, multiplied by hundreds of thousands of
stolen refunds each year. Since the country is facing one of
the worst economic situations in its history, this appalling
travesty needs immediate attention and repair.
This entire ordeal is in large part due to the unacceptable
lack of security measures that the IRS and the U.S. Government
have placed on the personal identities of taxpayers, and, as an
upstanding citizen of this country, I demand change. I demand
first that legislation be enacted to force Federal and State
tax offices to put appropriate measures in place that prevent
thieves from taking the people's hard-earned refunds away from
them and forcing them to fight for their identity and their tax
refunds for the rest of their lives.
I, second, demand that Federal Government work more closely
with State and local law enforcement agencies to target and
catch these criminals so that victims like me can rest better
knowing that these criminals are serving time. And I, third,
demand that each State develop and enact the necessary laws to
protect consumers from corporate tax preparation offices that
have few incentives to safeguard their customers' personal
information.
I hope that, by hearing our testimony today, measures will
be put in place that we will no longer have to deal with this
nightmare any longer. I thank you for your time and your effort
in making these critical changes happen now.
[The prepared statement of Ms. Hawa follows:]
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Mr. Platts. Thank you, Ms. Hawa.
Ms. Petraco.
STATEMENT OF LORI PETRACO
Ms. Petraco. Good afternoon.
My story begins on March 15, 2011, when I retrieved my mail
from my mailbox. I received an envelope from the Internal
Revenue Service. Inside was a window envelope stamped by the
Postal Service ``Return to Sender, Attempted Not Known, Unable
to Forward.'' Inside the window envelope was an IRS change of
address form and, more importantly, a Notice CP-12 for tax year
2010 dated February 14, 2011. My Social Security Number and my
first and last name, which were all accurate, but an address of
45 Ludlow Street, Apartment 3B, Yonkers, New York 10705. I had
never lived at this address, let alone ever lived in Yonkers or
the State of New York.
The form stated that I had a miscalculation on my 2010 form
1040-EZ in the area of tax credits and that my new refund
amount would be $4,552. I read this form several times in
disbelief and called my husband. I knew my joint tax return was
prepared by an accountant, that we used the 1040 long form,
since we have two children in college, and, finally, that we
had just mailed our return within the last 2 weeks.
I wanted to believe an error was made that would explain
this. I immediately called the IRS 1-800 number, but after 20
minutes on hold without being able to speak to anyone, I gave
up. The local IRS office is about a mile from my home, but they
were closed for the day, and so I spent a restless night
wondering what this all means.
March 16th I arrived at our local IRS office early and was
asked to step up to the counter. The clerk was courteous, but
the counter is in no way private. Everyone sitting in the
chairs directly behind me could hear our conversation and the
lobby was full. When I showed the clerk what I had received,
and that this wasn't my return, she blurted out, your identity
has been stolen; I will need to fill out an identity theft
affidavit. The entire waiting room heard this.
Until then I was still hoping this was just a mixup. She
asked for me and for me to recite my Social Security Number.
Just seconds ago this IRS employee proclaimed that I had been a
victim of identity theft and was now asking me to recite, where
others could hear, the same sensitive information she concluded
had been stolen. I said no, that she could take the information
from the form in front of her, and I would be happy to show her
my driver's license. She asked, when did you lose your Social
Security card? I replied, I didn't. She wanted to see it, but I
don't carry it in my wallet because I don't want my identity
stolen.
She completed the affidavit and told me to come back with
my Social Security card so that she could send the license and
Social Security Number with the affidavit. She also told me
because this person filed the return as a single person and got
$4,552 already, my legitimate return would be held up and that
I would not see my refund until perhaps October or November,
roughly 8 or 9 months later.
I asked her, how can a person file a return and, without
validation or proof of anything, receive a refund. She replied,
do you know how many people file electronically? We expedite
the return and match up the information later. Finally, she
said, don't forget to file a report with the Federal Trade
Commission, the Social Security Administration, and the three
credit bureaus.
Again, the clerk was courteous, but her matter-of-fact
manner and abruptness that this happens all the time, in front
of a room full of strangers, was upsetting.
I went out to my car and cried. I was very overwhelmed. I
was so upset that I began to wonder how far the thief would go.
I went home, signed on to all three credit bureaus on the
Internet and reported the identity theft and printed my current
reports. Everything was OK.
I pulled up my bank accounts to see if my balances were OK.
They were. I was late for work that day in order to protect all
that I have worked hard for. I felt the need to report this to
my supervisor, as well as to the chief, as I work in law
enforcement and did not want someone to jeopardize my job or my
good name.
That evening I filed a report with the Federal Trade
Commission, and they requested that I file a police report with
my local municipality. I am not sure why because this is a
cyber crime involving someone in Yonkers, New York, and not
York, Pennsylvania.
March 17th I contacted Springettsbury Township Police
Department and spoke to Detective Raymond E. Craul and
explained what had happened and what the Federal Trade
Commission requested. He was familiar with the Federal Trade
Commission's request and gave me an incident report number, but
stated he had no jurisdiction to investigate. I added the
police department's incident report number to the Federal Trade
Commission's Web site on my incident page.
I again had to leave work early to go out to the Social
Security office in York, Pennsylvania to inform them of the
identity theft. Unfortunately, at that time they still didn't
have my 2010 earnings to verify for accuracy. I was resigned to
the fact that this nightmare would continue indefinitely, that
the IRS would hang on to my tax refund, and that I would have
to be vigilant with the credit bureaus for the rest of my life.
On April 27th I discovered I was not the only local
government employee in York County affected by the identity
theft via the IRS. One of these victims suggested that our
local Congressman, Tom Platts, and his office could help. I
followed through with contacting the York office and filling
out the Constituent Service Form with all related
documentation. On April 28th I told my story to two special
agents from the Department of the Treasury out of Philadelphia,
who were also launching an investigation.
I am here today to tell you that I am a victim of identity
theft. I am forever changed. I will always need to check on my
credit and be vigilant in what information is shared with
others. I am a victim, being victimized by the IRS who is
holding up my refund because they don't have checks and
balances in place to prevent crimes like this from happening,
to timely verify personal and financial information, or to
timely and adequately assist people like me who have fallen
victim to identity theft.
If they did, they would have seen the following things:
that I had filed my taxes with the same man as married, filing
jointly for the last 28 years; that I have lived at the same
location for the last 12 years and never filed any change of
address with any other governmental agency, meaning Social
Security or the Postal Service; and, finally, that we always
complete the 1040 long form and that we always file by mail and
not by using the Internet.
I thank you for the opportunity to tell my story in the
hope that changes occur within the IRS that will prevent this
from happening to others. Hopefully, my tax refund will not be
delayed until October-November, so that this law-abiding
citizen can get back to living her life. Thank you.
[The prepared statement of Ms. Petraco follows:]
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Mr. Platts. Thank you, Ms. Petraco.
Ms. Thompson.
STATEMENT OF LAVONDA THOMPSON
Ms. Thompson. Good afternoon.
My nightmare began on Monday, February 28, 2011. That day,
my accountant was in the process of E-filing my Federal tax
return. He received a message from a software provider alerting
him that a tax return had already been filed for me. He
responded by advising that it could not be filed already
because he was trying to file it now.
He then called the IRS and they in fact confirmed that a
return had been filed in my name. My accountant called me and
told me what happened. He gave me the number to the IRS to call
and find out what the person used to file their return, because
they could not release that information to him. I called and
was told they could not tell me anything.
Once I got home from work, I called the IRS again and spoke
with Mr. Baird. He told me what I had to do as far as filing an
Identity Theft Affidavit with copies of my driver's license and
Social Security card; calling the Federal Trade Commission;
filing a police report; contacting the credit bureau and Social
Security Office.
Once I finished speaking with him, I called the Federal
Trade Commission and spoke with an employee whose name was
Mark. He took a complaint and gave me a confirmation number. I
called Social Security and was informed that I had to call the
Federal Trade Commission, and I informed the representative
that I had just talked to someone. She said, OK, and wished me
good luck. That day she said I was the fifth person that she
had spoken with who had their identity stolen.
On February 28, 2011, I filed an incident report with the
York County, Pennsylvania District Attorney's Office. On March
1, 2011 I filed a police report with the York City Police
Department. A detective found out who did it, but he could not
charge the person because that person is reportedly located in
the State of New Jersey. He was told the IRS would bring
charges against them.
On March 15, 2011 I forwarded a letter to the IRS with the
following documents: Identity Theft Affidavit Form 14039,
Preparer Explanation for Not Filing Electronically Form 8948,
Incident Investigation Information, copies of my Social
Security card and Pennsylvania driver's license.
On March 16, 2011, at approximately 10:25 a.m., I called to
get some information on my case because they would not release
it to the detective, and he wanted me to call and get it. I
spoke with the most rude and discourteous I had ever spoken
with in my life. When I asked her about my case, she proceeded
to yell and scream at me. When I asked for her name and ID
number again because she said it so fast when she answered the
telephone, the phone went silent; she had hung up the
telephone.
I then called the detective and told him what happened. He
told me to calm down and call back, and hopefully I would get
another person. At 10:30 a.m. I called back and Mrs. Bennett
answered. I could not stop crying and told her what had just
happened to me when I had called a few moments earlier. Mrs.
Bennett kept apologizing for the previous person, when she is
not required to do so. She informed me that the person used my
Social Security Number, first and last name, no middle initial
to file that return. Once my return was received, the IRS
considered it to be a duplicate return.
On March 18, 2011 I wrote a letter to the IRS about the
situation on March 16, 2011 and I did not get a response.
Aren't telephone calls monitored by the IRS for the purpose of
hearing what is being said? Is this unhelpful attitude toward
the public a single incident or is it a general attitude?
On March 30, 2011, at 11:10 a.m., I called again to get an
update and spoke with Mrs. Dandridge. She informed me that it
would take 16 weeks to 6 months for me to receive my return
because of the identity theft. I thanked her for her help.
I had to close my checking and savings account and get a
new one and order new checks because of this, an added expense,
albeit a minor one, but one which I did not need. I had to pull
my credit reports and, luckily, so far, there has not been any
activity on the part of the thief. I had to put a 90-day alert
on my Social Security Number.
On May 10, 2011, I wrote a letter to Experion to put a
permanent alert on my Social Security Number. On May 17, 2011 I
wrote letters to TransUnion and Equifax, requesting the same.
You may not be able to know how stressful this has been. I
can't sleep; I wonder what the person will do next as far as
trying to get credit cards or anything in my name. Now, since
this has happened, I am told the IRS will monitor my Social
Security Number for the next 3 years. When I file my return, it
will take them longer to process it because of this.
What, if anything, is the IRS doing to rectify that this
does not happen again to me or another person? In my work
history I have had the occasion to see and work with victims of
crime. I have seen the calming and encouraging effect of
policemen, a prosecutor, or others involved in the criminal
justice system have had on victims of crime. The system I
worked with made every effort to avoid victimizing a victim a
second time. The way I feel, I have been treated by the IRS
system, I have been made a victim a second time. I ask and
wonder how many people have had the same unpleasant experience.
Last, on Tuesday, May 31, 2011, I received correspondence
from the IRS dated May 13, 2011 regarding another individual
filing a tax return using my Social Security Number. This
incident started February 28, 2011 and I am just now receiving
correspondence. Why would it take 3 months for me to receive
this information?
Thank you for your attention.
[The prepared statement of Ms. Thompson follows:]
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Mr. Platts. Thank you, Ms. Thompson.
Again, my thanks to all four of our witnesses. And to our
three citizen witnesses, the victims of identity theft, I want
to add my words of apology to the Commissioner's on behalf of
not specifically the IRS, but on behalf of our Federal
Government for how each of you have been treated as law-abiding
citizens seeking to comply with your obligations as taxpayers
and, instead, becoming victims not just of criminal conduct of
those who sought to defraud you, but also victims of poor
service from us, the Federal Government.
All of us bear responsibility for that, ultimately,
especially as the elected representative of two of you, and I
know for our third witness, on behalf of all my colleagues, we
want to do better on your behalf.
I want to kind of focus a couple questions with you three
and then Mr. White separately. And maybe, Mr. White, actually,
ask you first. In the Commissioner's testimony and also in your
written testimony and your testimony here today, Mr. White, you
talked about the filter, the screening process, and I am not
sure what, if any, detail GAO's reviewed that as far as how
that filter process works and whether you are able to make any
assessment of, it kind of relates to my questions earlier,
where we have these three witnesses or others where it would
seem that while it has worked certainly in the 140,000 or so,
clearly it has let others slip through that seem to have a fair
number of red flags that didn't get caught up. I am not sure if
you can give an opinion on how to assess that process.
Mr. White. We haven't assessed it ourselves. I can say
several things, though. One, the filter process does not work
perfectly, as we have heard. It does stop some fraudulent
returns and some fraudulent refunds from going out the door at
IRS; however, they are both false positives and false
negatives.
So this past year, so far in 2011, there have been about
50,000 false positives. Those are returns of honest taxpayers
that got stopped by the filters by mistake. So that creates a
burden on those taxpayers. Then, on the other side, you have
false negatives where fraudulent returns slip through the
filters, perhaps because the ID theft stole so much of the
honest taxpayer's identity that they could get through the
filters; they had enough information to get through. So you
have both kinds of problems there. The filters don't work
perfectly.
We have recommended that what IRS needs to be doing, and
they have agreed with our recommendation and started doing
this, they need to be assessing every year the effectiveness of
the actions they are taking. They have taken a number of steps.
They are taking a number of new steps this year. Each year they
need to be assessing those steps and then feeding back.
There needs to be a feedback loop where they learn from
what they have done and then correct and adjust appropriately.
Part of the problem here is the thieves are adjusting as well.
So it needs to be a continuous process by IRS. They have
started that.
Mr. Platts. In essence what I would call annually auditing
their internal control system to prevent this type of fraud
from occurring.
Mr. White. Yes, to learn what is working, what is not
working; do more of what is working. If the PIN numbers, for
example, turn out to work well in their experiment, then that
would be something to think about expanding, obviously.
Mr. Platts. On that specific, I know they are looking at
the results of that pilot. Is that anything at GAO that you are
engaged with IRS in assessing that pilot program?
Mr. White. No, we are not. Our sense, though, based on the
work we did in 2009, is that the PIN seems to be a promising
approach. Now, it depends on taxpayers using it for it to work,
but it ought to be an addition. It seems like it has the
potential to be an addition to the filter system that would
make that system work more effectively than it does right now.
Mr. Platts. OK.
Mr. White. The problem is if an ID theft is stolen, a lot
of a taxpayer's identify, more than just a name and Social
Security Number, they can make up a return that will look
realistic; they may have a copy of last year's tax return. So
they can get through the filters. The PIN is a number that only
the honest taxpayer would have, unless the thief is hacking
into their home computer, for example. There is no perfect
solution here, but that is a solution that seems to have a lot
of potential.
Mr. Platts. And that, from what I have come to learn, seems
to be the more we can expand that effort, if the data plays out
as it seems like it may, that would be one way to really try to
crack down and prevent this fraud from occurring.
Mr. White. Then I do think there are some long-term
solutions here; these are years away. For example, right now
IRS does not match tax returns to the wage statements, the W-2s
that employers file, until months after the filing season ends.
The first match is done in June. Part of the reason for that is
employers don't have to send those information returns to IRS
until either the end of February or the end of March; then the
IRS matches later.
So the refunds go out the door first, then that kind of
matching is done afterwards. If IRS can modernize their
processing systems, and if the due date for those employer wage
statements could be moved earlier in the year, IRS could do
matching before refunds go out and catch more refund fraud. But
this is something that is years away. They are working on their
processing systems, but they are not where they need to be
right now.
Mr. Platts. And that was part of my conversation and the
Commissioner in his April speech referenced that in looking
ahead and him trying to, again, be proactive in the long-term.
And I didn't get the chance to ask him that question because
the fact that we are providing W-2s to the employee by the end
of January, once that employer makes that available to the
employee, why wait another month or more before having it also
shared? So that alone would hopefully allow us to move it up,
just that one change. The earlier the better.
Mr. White. Yes. And we have some work ongoing for the Ways
and Means Committee, where we are looking at this, trying to
see if there are some options to move that up.
Mr. Platts. Great.
Before I go to our other witnesses, I am going to yield to
Mr. Towns for purpose of questions. Then I will come back with
other questions.
Mr. Towns. Thank you, Mr. Chairman. Also, let me say to the
witnesses I really apologize and regret that happened, but we
are happy that you are able to take the time to come in and
share with us in terms of what occurred. I really appreciate
that.
Ms. Petraco, as I understand it, you discovered that your
identity was compromised after receiving an address change
request?
Ms. Petraco. Yes.
Mr. Towns. Was the identity thief attempting to change your
York, Pennsylvania address to a Yonkers, New York address?
Could you explain that?
Ms. Petraco. The letter I received had the change of
address. The envelope that went to Yonkers and was rejected
went back to the IRS. The IRS put it in another envelope and
handwrote my name and address. I guess they got it from their
files. Then that envelope came to me at my legitimate address
in York, Pennsylvania. So, when I opened it up, I saw this
Yonkers, New York address and I knew something was wrong.
Mr. Towns. Right. Have there been any other attempts to use
your information?
Ms. Petraco. No. To the best of my knowledge, this is the
first.
Mr. Towns. No credit cards or anything like that have been
used?
Ms. Petraco. No.
Mr. Towns. So it appears that your ID was simply used to
just commit tax fund fraud, that is what it was used for?
Ms. Petraco. Correct.
Mr. Towns. Do you know anything about the status of the
investigation being conducted by the Treasury Department?
Ms. Petraco. No. Since I have been to the IRS office, I
have heard nothing, except through Mr. Platts' office.
Mr. Towns. In other words, they have not been in touch with
you?
Ms. Petraco. No.
Mr. Towns. Ms. Hawa, has your ID or any of the other two
victims been used for purpose other than tax refund fraud? Have
they used anything else?
Ms. Hawa. Not to my knowledge.
Mr. Towns. How long did it take you to get assigned an
agent while you were waiting for 16 months?
Ms. Hawa. The first year I was dealing with various agents
within the IRS for about 12 months. Then after 12 months they
assigned me to a National Taxpayer Advocate Service agent, who
continued the quest to get my refund.
Mr. Towns. Have you received your refund?
Ms. Hawa. From 2008 it took 14 months, but this year, no,
but I was just contacted saying I was going to get it within 10
days.
Mr. Towns. OK.
Ms. Hawa. And this year I did not get assigned an agent at
all.
Mr. Towns. Do you have any indication that action is being
taken by the IRS to find and prosecute the person that used
your identity?
Ms. Hawa. It is very difficult to get information about the
fraudulent claim. Just getting information about how much the
refund was for, when it was issued is not something that they
freely share, and that is after they use the verifiers to
identify that you are the legitimate taxpayer. So, no, aside
from just the basic information, which I had to plead for, I
have no idea what the status is on the criminal investigation.
Mr. Towns. Let me ask you also do you have any idea as to
where your identity was stolen, in terms of what happened, as
to how they were able to ascertain it? And I will ask all three
of you that.
Ms. Hawa. For me, in 2009, it started when I went to a
local tax preparation office in my neighborhood. I had been
going to this tax preparation office for 5 years, and I
realized that it was the tax preparation office when 20
additional customers of this office came forward and said the
same thing happened to them.
Ms. Petraco. I have no idea. To the best of my knowledge, I
thought everything was secure.
Mr. Towns. Ms. Thompson.
Ms. Thompson. No, I have no idea.
Mr. Towns. Let me just go with you too, Mr. White. You
talked about the appropriate procedures that should be put in
place and you also talked about modernizing the system. That
costs money, doesn't it, to modernize the system?
Mr. White. The IRS has spent a lot of money modernizing
their systems to date. They have made progress. We have been
reporting on this at GAO for a long time now, and after
Congress passed the IRS Restructuring Act in 1998, IRS got much
better at managing systems modernization. It is still not where
it needs to be to do the sort of pre-refund matching we are
talking about; they are probably several years away from that
right now.
Mr. Towns. I am concerned about this money, everybody is
concerned about, and I am just thinking that sometimes we sort
of react to things, and when we should spend and we would save,
we ended up not spending and ending up costing us more. It
happens. I think that we do that a lot, especially in
government. I am just concerned about that. I think we have to
sort of make the point because I really view that this is very,
very serious. If a person is waiting for his or her money and
it is stolen, and they are sitting waiting, that is very
frustrating.
Mr. White. I agree. IRS, as you may know, has a separate
appropriations account for systems modernization, and under the
law at GAO looks at that account before they can spend money
out of it, and the balancing act has always been making sure
that IRS had the management capacity and the controls in place
to be able to spend that money smartly so that they didn't get
more money than they could spend effectively, but enough so
that they continue to make progress modernizing.
Mr. Towns. Let me just say what my real concern here is,
aside from the fact that a person has lost. I am thinking in
reference to credit scores, employment, or other things, all
the negative things that can happen, you can be impacted by
this.
May I ask you how about your credit score? How have you
dealt with this, all of you?
Ms. Hawa. Well, I am cautious to begin with, so even prior
to this incident happening, the first year, I always kept up on
my credit reporting agencies and I always had freezes on my
accounts. So this just exacerbated my need to continue the
freezes and always be on top of my accounts. I mean, this is
going to be a lifelong issue to deal with. Even if my taxes
aren't stolen next year, I am still going to be concerned that
my identity is compromised and I will have to worry about
accounts being opened in my name and whatnot. So this is not
just a one-time thing that we have to deal with; this is a
lifetime issue.
Mr. Towns. Ms. Petraco.
Ms. Petraco. I agree. I don't see this ending for me any
time soon. Currently it is just the IRS, but I will be vigilant
about the credit scores, because I work in law enforcement, so
the bigger impact for me is just the fact that I am the law-
abiding citizen. I am supposed to protecting others in my role.
So it does have an impact because I don't know what way this
person is going to use my identity. And my name is unique, so
that limits the amount of people that have that name out there,
so it is me.
Mr. Towns. Ms. Thompson, it has been approximately, I
think, 3 months since you discovered that your identity was
used to commit tax fraud. You also reported the problem to the
IRS and the FTC, is that correct?
Ms. Thompson. Yes.
Mr. Towns. Have you received any written communications
from either of those agencies?
Ms. Thompson. The Federal Trade Commission wrote me a
letter that had my confirmation number on it. IRS I never got
anything from except the letter that I just got the other day.
Mr. Towns. What did that basically say?
Ms. Thompson. That an individual used my Social Security
Number to file a return, but that was 3 months ago, and it is
telling me what to do as far as the affidavit and contacting
the Federal Trade Commission. But I already did all that, so it
is 3 months late.
Mr. Towns. Right. Did you contact the York PD?
Ms. Thompson. Yes.
Mr. Towns. And what was their response?
Ms. Thompson. They have a police report; so does the
District Attorney's Office.
Mr. Towns. Do they appear to be investigating? Would you
know?
Ms. Thompson. The York City Police Department found an
address and a name in New Jersey, but the IRS, when they came
to talk to us the other month, said he can't arrest her; they
are going to arrest her. He said he can't touch her.
Mr. Towns. When you say they are going to arrest her, you
mean----
Ms. Thompson. The IRS.
Mr. Towns. Have you received either written or verbal
communication from the IRS which gives you an update on the
progress of tax fraud?
Ms. Thompson. No.
Mr. Towns. No progress report, just the one letter?
Ms. Thompson. No.
Mr. Towns. You know, Mr. Chairman, I think that is a real
issue in terms of the amount that is involved, because if a
person discovers that it is $3,000 or $5,000 and nothing is
going to happen, the IRS is not going to pursue it and nobody,
why not do it again next year? That might be the way you make
your living from this point on, until something is done about
it.
So I think that we need to look at the possible legislation
that would encourage local law enforcement to also get
involved, even if it is $1,000, 500. It doesn't matter; it is
not theirs. And I think that until we come up with something of
that nature, I think that this is going to continue. And I must
say that we need to do everything we can to make certain that
it does not continue, and I think that we might need to look at
some legislation here.
I yield back.
Mr. Platts. I thank the gentleman and share the gentleman
from New York's interest in pursuing this further, specifically
on the prosecution standpoint, with our conversation with the
Commissioner and with GAO of what, if any, current statutes
prohibit the sharing of information from the IRS with local law
enforcement. They partner with Justice, but as I kind of
referenced earlier, when we are talking about a $3,000 case
here, $4,000, Justice has limited resources as well, but our
local law enforcement, they are pretty efficient in these type
cases.
So I think, and this is something I have conveyed to our
citizens who are with us, that when this hearing ends this
effort doesn't end, and that we will continue to work in a
nonpartisan way with the committee, with GAO, with the IRS
officials to see how do we strengthen that ability, because I
am one that believes exactly what you said, if we don't start
sending a message that, whether it is $1,000 or $100,000, we
are coming after you. If you steal money from American
taxpayers and you victimize law-abiding citizens, we are not
going to just ignore that; we are going to go after it and try
to hold you accountable. So I look forward to doing that.
Yielding myself time now. I think, first of all, to our
three victims here, one, a sincere thanks for your willing to
tell your stories, because by being here you help raise public
awareness of this issue; you have personalize it, you humanize
it. But this isn't just about improper payments being made by
the Federal Government to criminals; this is one piece of a
huge, huge pie of improper payments.
The official number, most recent, is $125 billion a year of
improper payments being made, and what is going on here one
part of that, millions and millions of dollars going out in
fraudulent tax refunds. So your helping to tell your stories is
very important.
And in each of your statements you capture it in different
ways, from the need for us to work with the Commissioner and
his staff to strengthen the training of IRS agents in how we
assist victims of crime, which is what each of you are. And you
stated it in different ways but I think stated it very well.
Ms. Petraco, ``I am here today to tell you that I am a victim
of identity theft. I am forever changed.'' Ms. Thompson, ``The
way I feel, I have been treated by the IRS system has made me a
victim a second time.'' Ms. Hawa, your statement, ``They
continue to treat me as if I am the one to blame, adding even
more stress to the situation.''
That is not acceptable, and the Commissioner acknowledged
that and I appreciate the Commissioner's colleagues staying to
hear your stories. If you haven't had the chance, Deputy
Commissioner Beth Tucker, who is here with us, she was part of
my meeting with Commissioner Shulman yesterday, understands the
importance of us doing right by you and all victims of this
type of criminal conduct, and I think captures the early
reference that each of you unfortunately dealt with IRS agents
who were not living up to the standard of assistance, as you
well reflected in your statements, in your testimony. Deputy
Commissioner Tucker is a 27-year employee of the IRS, dedicated
to doing right by you, and her presence here today reflects
that, along with her colleagues.
I guess a couple specific questions, and Mr. Towns touched
on a number of them from a prosecution standpoint of what you
have been told or what action you are aware of. On how the
interactions with the IRS went, a couple additional questions.
Ms. Hawa, I want to make sure I understand one part of your
written testimony and what you shared here today. You were
contacted in October 2009, I believe by writing, in writing,
that you owed an amount of $1,895 back to the IRS.
Ms. Hawa. Correct.
Mr. Platts. And that amount was the difference between what
you were lawfully supposed to get and the amount that the
criminal had gotten fraudulently, correct?
Ms. Hawa. That is correct.
Mr. Platts. By this time, though, you were already dealing
with representatives of the IRS, employees to kind of go after
this, the identity theft that occurred, correct?
Ms. Hawa. Yes, but I didn't have one person I was dealing
with; I would just talk to the Identity Protection Specialized
Unit. Every time I called it was a different agent, so I didn't
know how consistent my profile showed that I was a victim.
Mr. Platts. OK. That kind of captures what the Commissioner
and I talked about the training aspect, that there is a
breakdown in the training system, not just in the training, but
the internal tracking system I guess is how I described it;
that you were already in the system working on identity theft,
and I assume probably maybe 7 or 8 months in to dealing with
that, because this was the fall, yet the system kicked out,
hey, we overpaid you. Well, they did overpay, but not you.
Ms. Hawa. Right.
Mr. Platts. They overpaid the other person the full amount.
Also, when you were dealing with not those in the Identity
Protection, the specialized unit, but also understand that two
of the general agents that you dealt with were not aware that
there was a specific unit to deal with victims of identity
theft?
Ms. Hawa. That is correct. This year, when it happened to
me, I had lost the number for the Identity Theft Unit, so I
called the general 800 number, just thinking that they would
transfer me over, and when I asked, they had no idea what unit
I was even referring to, and they were giving me different
instructions on how to deal with filing my paper return,
addresses to send to and what I really needed to file.
Mr. Platts. Right. Not understanding the scope of the issue
you were trying to deal with?
Ms. Hawa. That is correct.
Mr. Platts. Because you had, unfortunately, been through it
before. You knew what was going on and trying to get to the
bottom of it.
Ms. Hawa. Right.
Mr. Platts. I am grateful for the Commissioner's statement
that those agents that don't typically deal with identity
theft, that is part of their review of how they can strengthen
their training, so when someone such as yourself calls in.
One other specific question to you, Ms. Hawa, is that am I
correct in understanding that after 2009 and you were supposed
to be flagged, but were you also given a PIN number, or you
were supposed to be given a PIN?
Ms. Hawa. I had requested a PIN because I had heard
murmurings of people being issued out PINs when this first
happened to me. Even a gentleman that had this happen to him
earlier in 2000 and he said that he received a PIN, or some
sort of verification method so it didn't happen to him again.
So I requested that immediately and they told me that they
were going to look into it, and I never received it. But in
2010 I was not impacted at all, so I thought that the worst was
over, so I wasn't going to bother the IRS for a PIN number. But
then this year, when I found out it happened to me all over
again, when I called the IRS to see why my profile wasn't
flagged, as they had promised, they didn't know why and they
had no explanation.
Mr. Platts. So it was actually back in 2009 where you were
told it would be flagged, you asked for a PIN, that didn't
happen, but you thought you were still flagged, but then in
2011 that didn't work.
Ms. Hawa. That is correct.
Mr. Platts. And that kind of comes to our discussions with
the Commissioner, with Mr. White, that hopefully if we are able
to expand that PIN process, that it will be more exact, and the
three of you being examples. If next year you have to have that
personal identification number, that it is not a question of it
being flagged, but, hey, only you can file and be able to, with
one caveat, and Mr. White hit it, is depending on how you
receive that, if it was electronically, like personal email,
versus mail or even mail, that PIN isn't stolen in some
fashion. But that certainly would be another hurdle to guard
against it.
I think I had one or two other ones. I appreciate
everyone's patience here.
Ms. Thompson, Mr. Towns, I think, pretty well covered this.
When you were dealing with the York City Police Department
detective, understanding that because of the person identified
as being the criminal here was in New Jersey, they weren't
going to be pursuing it, IRS would. Were you told over the
phone that they would be pursuing it or were you told by the
detective that his understanding from the IRS?
Ms. Thompson. When the two IRS agents came a couple months
ago to talk to us, they had told the detective that he could
not arrest her, that the IRS would.
Mr. Platts. OK, and that was kind of when we engaged from a
casework standpoint, they came out to look into your case from
the Philadelphia office?
Ms. Thompson. Yes.
Mr. Platts. But you have not received any feedback about
that since then from either of those agents?
Ms. Thompson. No, nothing at all.
Mr. Platts. OK.
A final question, Ms. Petraco. When you were in the York
Office and understandably rattled, one, because you were just
trying to figure out what is going on here, and then already
being a little concerned and then being told that you were a
victim of identity theft, and then the engagement that happened
in a public setting, I guess just in general, did the agent
that you were dealing with understand, get it when you didn't
want to say the information publicly, with other people sitting
there listening? Was there just an understanding, sorry about
that, or was it just more they didn't realize what they were
doing?
Ms. Petraco. I think my tone of voice when I said no, no,
get the information off the form, she goes, OK, OK. So I just
don't think she really thought about what she was saying or,
you know, just really didn't put it all together.
Mr. Platts. It was more just pro forma, name and Social
Security Number.
Ms. Petraco. Right. Right.
Mr. Platts. And not thinking that wait a minute, I have to
be, I ask that because it is again on the issue of training of
the sensitivity of this information that we are always on
guard, because I am like each of you described your own
approaches. My wife thinks I am the top shredder at home;
anything that has any king of identifying goes into that
shredder. For years I have been trying to be very protective
because of this very concern, and it sounds like each of you
have tried to do that and, unfortunately, it wasn't enough; not
because of lack of effort on your part.
I don't have any further questions.
Mr. Towns, do you?
Mr. Towns. No, I don't. I really don't. As I indicated,
though, I just think that a lot of things could sort of fall
through the crack and not be dealt with. For instance, if the
person is in another State and it is not a lot of money, that
it could very easily almost be ignored because if you have to,
if it is $750, so, therefore, why would you spend $15,000 to
collect the $750? So you just sort of pass it along. And that
is my concern.
So I am not sure that, we need to look at that because if
they are saying that the person in York cannot make the arrest,
and I am not sure that the arrest is going to be made, and I
think the fact that there is no communication, to me, is very
troubling, because the person that is the victim should be
informed as to what is really going on, and I think that is
something that really needs to look at, because also
understand, in terms of the IRS, how much do you want to spend
to collect $500? So I think that we have to look at this and I
think that we have a role to play here, and it is not just the
blame game.
Mr. Platts. No, not at all.
Mr. Towns. I think you do some things legislatively to sort
of make it possible for anybody that takes anybody else's
money, that they should be charged.
Mr. White.
Mr. White. Just following up on that point, I agree
completely with the point, and I think the solution is to take
the profit out of the crime, and you do that with better
filters. So, in the short term, if these PIN numbers can be
made to work, that would reduce the profit from the crooks;
they lose the ability to make money off of IRS. Longer term, if
there could be more pre-refund checking, again, that takes the
profit out of the crime. Because you are absolutely right, IRS
doesn't have the resources, and never will, and probably should
not, to chase $500. It costs them much more than that to
collect it. So it has to be prevented up front.
Mr. Towns. But the person that is the victim feels
differently, and I think that is the way they should feel.
Mr. White. Absolutely. That is why this is such an
insidious crime. For the victims it is a big deal.
Mr. Towns. Right.
On that note, I yield back, Mr. Chairman.
Mr. Platts. Thank you, gentleman. And I would maybe wrap
that discussion you just had where I started in the kind of
three primary issues, is if we do better up front on internal
controls and the PIN being one example of that, and even the
filtering system, and that is why in my questions or comments
earlier about the more flags that go off. I think, Ms. Petraco,
you went through in your testimony all the things that have not
changed in 28 years; your status, your address.
The filtering system itself, if it is a January return
asking for a debit card refund and without any substantiating
documents, that should be a big red flag. If we get into those
who may be likely identity theft victims, we have the PIN. The
more we do up front reduces the number of fraud cases, so that
when they do occur there are fewer to pursue to throw the book
at, to go after Mr. Towns' point that the message is $3,000 or
not, we are coming after you, because otherwise if someone
knows every year I can get an extra $3,000 to $5,000, do it
once a year. So reduce the number so then there are fewer to go
after to really hold accountable.
And then third is in doing that we do better with victims'
assistance, because I am not a law enforcement professional,
but my understanding is where there is criminal conduct and
victims of crime, an important part of the healing process is
the victim being kept fully informed all the way through that
process of pursuing the criminal, the wrongdoing, to know that
ultimately it is not just that they remain whole, as you are
going to be made whole, you are going to get your refunds, but
that justice was served.
And I think that is when we have, no matter what the dollar
amount, that we are not pursuing them, justice isn't served.
That prevents that ultimate healing process for the victims. So
I think prevention, prosecution, victims' assistance, and I
think by his statements the Commissioner understands that and
is committed to that not just today, but has been. But we need
to partner with him and with the Deputy Commissioner and this
committee and Appropriations and make sure that we are well
devoting the necessary time, effort, and resources to this
issue.
So my thanks again for our four witnesses here on this
panel, to our IRS officials who are still here, and
Commissioner Shulman on the first panel. You certainly have
helped raise great awareness of this issue and allowed us as a
committee to be more effective going forward to try to make
sure that you three certainly are never again victimized in
this way, as well as other Americans are not victimized as you
have been, and we do right by you and do right by taxpayers in
better protecting their hard-earned dollars that they send to
the Federal Government.
We will keep the hearing open for 2 weeks for any
additional information that either was requested or that you
want to submit to the committee to supplement the record. With
that, this hearing stands adjourned.
[Whereupon, at 4:05 p.m., the subcommittee was adjourned.]