[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
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001


              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

                              ----------                              
                                                                   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:]
    [GRAPHIC] [TIFF OMITTED] 70679.006
    
    [GRAPHIC] [TIFF OMITTED] 70679.007
    
    [GRAPHIC] [TIFF OMITTED] 70679.008
    
    [GRAPHIC] [TIFF OMITTED] 70679.009
    
    [GRAPHIC] [TIFF OMITTED] 70679.010
    
    [GRAPHIC] [TIFF OMITTED] 70679.011
    
    [GRAPHIC] [TIFF OMITTED] 70679.012
    
    [GRAPHIC] [TIFF OMITTED] 70679.013
    
    [GRAPHIC] [TIFF OMITTED] 70679.014
    
    [GRAPHIC] [TIFF OMITTED] 70679.015
    
    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:]
    [GRAPHIC] [TIFF OMITTED] 70679.018
    
    [GRAPHIC] [TIFF OMITTED] 70679.019
    
    [GRAPHIC] [TIFF OMITTED] 70679.020
    
    [GRAPHIC] [TIFF OMITTED] 70679.021
    
    [GRAPHIC] [TIFF OMITTED] 70679.022
    
    [GRAPHIC] [TIFF OMITTED] 70679.023
    
    [GRAPHIC] [TIFF OMITTED] 70679.024
    
    [GRAPHIC] [TIFF OMITTED] 70679.025
    
    [GRAPHIC] [TIFF OMITTED] 70679.026
    
    [GRAPHIC] [TIFF OMITTED] 70679.027
    
    [GRAPHIC] [TIFF OMITTED] 70679.028
    
    [GRAPHIC] [TIFF OMITTED] 70679.029
    
    [GRAPHIC] [TIFF OMITTED] 70679.030
    
    [GRAPHIC] [TIFF OMITTED] 70679.031
    
    [GRAPHIC] [TIFF OMITTED] 70679.032
    
    [GRAPHIC] [TIFF OMITTED] 70679.033
    
    [GRAPHIC] [TIFF OMITTED] 70679.034
    
    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:]
    [GRAPHIC] [TIFF OMITTED] 70679.035
    
    [GRAPHIC] [TIFF OMITTED] 70679.036
    
    [GRAPHIC] [TIFF OMITTED] 70679.037
    
    [GRAPHIC] [TIFF OMITTED] 70679.038
    
    [GRAPHIC] [TIFF OMITTED] 70679.039
    
    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:]
    [GRAPHIC] [TIFF OMITTED] 70679.040
    
    [GRAPHIC] [TIFF OMITTED] 70679.041
    
    [GRAPHIC] [TIFF OMITTED] 70679.042
    
    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:]
    [GRAPHIC] [TIFF OMITTED] 70679.043
    
    [GRAPHIC] [TIFF OMITTED] 70679.044
    
    [GRAPHIC] [TIFF OMITTED] 70679.045
    
    [GRAPHIC] [TIFF OMITTED] 70679.046
    
    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.]

                                 
