    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

    IDENTITY THEFT AND TAX FRAUD: GROWING PROBLEMS FOR THE INTERNAL REVENUE
                                    SERVICE

    =======================================================================

                                    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

                                   __________

                                NOVEMBER 4, 2011

                                   __________

                               Serial No. 112-96

                                   __________

    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
    72-798 PDF                WASHINGTON : 2012
    -----------------------------------------------------------------------
    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 November 4, 2011.................................     1
    Statement of:
        George, J. Russell, Treasury Inspector General for Tax
          Administration; Steven T. Miller, Deputy Commissioner for
          Services and Enforcement, Internal Revenue Service; and
          Ronald A. Cimino, Deputy Assistant Attorney General for
          Criminal Matters, Tax Division, U.S. Department of Justice.    12
            Cimino, Ronald A.........................................    29
            George, J. Russell.......................................    12
            Miller, Steven T.........................................    41
        Nugent, Hon. Richard B., a Representative in Congress from
          the State of Florida.......................................     5
    Letters, statements, etc., submitted for the record by:
        Cimino, Ronald A., Deputy Assistant Attorney General for
          Criminal Matters, Tax Division, U.S. Department of Justice,
          prepared statement of......................................    31
        George, J. Russell, Treasury Inspector General for Tax
          Administration, prepared statement of......................    15
        Miller, Steven T., Deputy Commissioner for Services and
          Enforcement, Internal Revenue Service, prepared statement
          of.........................................................    43
        Nugent, Hon. Richard B., a Representative in Congress from
          the State of Florida, prepared statement of................     8
        Towns, Hon. Edolphus, a Representative in Congress from the
          State of New York, prepared statement of...................     4

    IDENTITY THEFT AND TAX FRAUD: GROWING PROBLEMS FOR THE INTERNAL REVENUE
                                    SERVICE

                                  ----------

                            FRIDAY, NOVEMBER 4, 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 9:30 a.m., in
    room 2154, Rayburn House Office Building, Hon. Todd Platts
    (chairman of the subcommittee) presiding.
        Present: Representatives Platts, Towns, and Connolly.
        Also present: Representative Nugent.
        Staff present: Michael R. Bebeau, assistant clerk; Molly
    Boyl, parliamentarian; Mark D. Marin, director of oversight;
    Tegan Millspaw, research analyst; James Robertson, professional
    staff member; Beverly Britton Fraser, minority counsel; Ashley
    Etienne, minority director of communications; Jennifer Hoffman,
    minority press secretary; and Adam Koshkin, minority staff
    assistant.
        Mr. Platts. The committee will come to order.
        I appreciate everyone's attendance here today. I do
    apologize with--I know I'm going to be challenged with
    scheduling conflicts. I know on our side of the aisle a House
    Republican Conference that was scheduled unfortunately for the
    exact same time on the balanced budget amendment at the last
    minute. But we are glad to have everyone's participation with
    all of our witnesses.
        Today's hearing is a continuation of the subcommittee's
    examination of the serious problem of tax fraud across the
    country. In June, this subcommittee held a hearing on tax fraud
    perpetrated by identify theft. We heard testimony from three
    witnesses who had their identities and tax returns stolen. This
    hearing will address recent developments in tax fraud and
    evaluate the government's efforts to identify and prevent
    fraud.
        Tax fraud is a rapidly growing problem, and identity theft
    related fraud is particularly concerning. In order to steal
    someone's tax return, all the perpetrator of this type of fraud
    needs is a name and a Social Security number. This information
    is then used to submit a fraudulent claim. If a victim has not
    filed taxes yet, the criminal is even able to steal the
    victim's tax return.
        In 2008, the Internal Revenue Service identified over
    50,000 cases of identity theft related fraud. In 2010, that
    number had increased to approximately 248,000. Many cases go
    undetected, and the actual number of identity theft tax fraud
    could be much higher.
        Identity thieves obtain personal information from many
    sources, including doctors' offices, school systems, and human
    resources departments. Some thieves get information from the
    Social Security death index and file fraudulent claims under
    the names of deceased individuals. In 2010, IRS paid over $12
    million to people who were listed as deceased. Service members
    who were killed in action defending this great Nation are often
    targets of identity thieves who use their information to steal
    tax returns from their families.
        Tax credit fraud is another growing problem. The Treasury
    Inspector General for Tax Administration found that in 2010 IRS
    issued $4.2 billion in tax credits to individuals who were
    unauthorized to work in the United States. IRS has not
    recovered that money.
        Additionally, TIGTA discovered that IRS improperly issued
    approximately $3.2 billion in educational tax credits. Some of
    those educational credits went to prisoners.
        Although tax fraud is a serious crime, it is difficult to
    investigate or prosecute the perpetrators of these crimes. All
    potential cases are reviewed by the Department of Justice and
    must be approved before IRS can investigate. IRS also has
    limited resources to investigate criminal activity and rarely
    investigates tax return fraud because the average amount per
    return is $3,400.
        While this is a small number, it can be devastating to the
    victims who had their identities and tax returns stolen. It
    also quickly adds up to millions of dollars of improper
    payments each year that go to criminals.
        IRS has been working to address the increasingly serious
    problem of tax fraud, and it deserves credit for its efforts.
    However, more must be done to address this issue.
        Today, we will hear from our witnesses about the process of
    investigating tax fraud and IRS's work with the Department of
    Justice to prosecute the perpetrators of this fraud. We will
    also learn about the work IRS and TIGTA are doing to better
    identify and prevent fraud before it occurs.
        I certainly thank our witnesses in advance for their
    testimony here today and the written testimony they have
    supplied, and I would emphasize that a lot of our focus here
    today is going to be about protecting taxpayers' money so that
    we don't lose money to this type of fraud.
        But a very important aspect of our June hearing and again
    today is the fact that this is how--we want to focus on how the
    Federal Government is protecting American taxpayers against
    these crimes and how we then assist the victims of these crimes
    when they occur and that we not lose sight of the fact, you
    know, that this is the real lives of American citizens, law-
    abiding citizens, that are tremendously impacted when tax
    identity fraud occurs.
        With that, I'll yield to my distinguished colleague, the
    ranking member of the subcommittee from New York, Mr. Towns.
        Mr. Towns. Thank you very much, Mr. Chairman, for holding
    this hearing on identity theft and tax fraud, growing problems,
    of course, which we have been dealing with now for--this is the
    second time, the second hearing.
        In 2011 alone, the IRS has already identified over 582,000
    taxpayers that were the subject of identity theft, and this is
    more than double the incidence from only 3 years ago. Clearly,
    we have to do a better job protecting the taxpayer and the
    Treasury from criminals. Our witnesses today will help us
    understand how this can be done.
        One of the first priorities we must address is the quality
    of assistance given to taxpayers victimized by employment or
    tax refund fraud. The testimony does not paint a pretty picture
    of how the IRS is handling this aspect of its responsibilities.
    It is unacceptable to have innocent taxpayers waiting 12 to 18
    months to verify their identity before a replacement refund
    check is issued. We can and should do better.
        Another obvious problem is what is being done to prevent
    criminals from filing fraudulent tax returns using stolen
    identification? I fully understand that identities are stolen,
    traded, and misused in places far away from the IRS. It is also
    clear that neither the IRS nor law enforcement nor anyone else
    can predict when criminal behavior will occur or stopping
    criminals bent on breaking the law. However, if there are
    resources, both human and technological, to prevent criminals
    from filing fraudulent returns, every effort should be made to
    do so.
        If the IRS, the Inspector General, or the Department of
    Justice does not enforce the law against those who defraud the
    Treasury and victimize taxpayers to identity theft, there will
    be no deterrent or punishment for criminals.
        I hear of budgetary limitations, staff limitations, a lack
    of training programs, and legal limitations that prevent more
    investigations and prosecution of these crimes. We cannot sit
    back and do nothing because of limitations. The criminals are
    becoming more sophisticated in defrauding the government. We
    have to become more creative in our solutions. Because if they
    find out that we cannot do anything about it, that means that
    the numbers that we just talked about earlier will continue to
    increase.
        I look forward to the testimony today. I hope our witnesses
    will guide us through the present limitations to working
    solutions against the problem of identity theft and tax fraud.
    And let me just say to all the witnesses that, you know, this
    committee is not an ``I got you'' committee. You know, some of
    the committees around here are the ``I got you'' committee, and
    they want to get you.
        But we're not here to do that. We want to be the ``help
    you'' committee, to be able to make certain that people who are
    having problems, that there is a solution to the problem within
    a quick period of time and to prevent the problem from
    continuing to grow.
        So thank you very much.
        Representative Nugent, good to see you here as well.
        [The prepared statement of Hon. Edolphus Towns follows:]

        Mr. Platts. The gentleman yields back.
        And certainly I fully agree with the ranking member that
    our purpose and assignment here is to partner with our
    colleagues in the House, our colleagues throughout the Federal
    Government on how we can well serve our fellow constituents,
    our joint constituents, all Americans, and to get a good
    result, not to play gotcha but to just work with you to get
    good results.
        We are honored to join with--not a member of our committee
    but another colleague--a distinguished Member of our freshman
    class here in Congress, Congressman Rich Nugent of Florida's
    Fifth District.
        Congressman, we're honored to have your testimony as one
    who's seen the challenge of tax fraud firsthand in your
    district. I know you're going to share that story with all of
    our guests here today.
        Mr. Nugent was sheriff of Hernando County, Florida, prior
    to joining Congress so brings perspective not just as a Member
    of the House but also as a long-time dedicated law enforcement
    official.
        So, Rich, we're delighted to have you here with us; and
    you're recognized for a statement.

    STATEMENT OF HON. RICHARD NUGENT, A REPRESENTATIVE IN CONGRESS
                       FROM THE STATE OF FLORIDA

        Mr. Nugent. Thank you, Mr. Chairman.
        First, I want to take just a moment to thank the
    subcommittee and especially Chairman Platts and Ranking Member
    Towns for the opportunity to speak here today.
        Although tax fraud and identity theft is a nationwide
    problem, I want to make the subcommittee aware of what's
    happening in the Tampa Bay area in my district. Recently, Tampa
    Bay--or Tampa Police Department started noticing that many of
    their most notorious drug dealers were no longer on the street.
    Officers pulled one of their previous dealers over during a
    routine traffic stop and discovered massive amounts of prepared
    debit cards, ledgers containing Social Security numbers, and
    laptop computers in the back of the car.
        Through this and similar routine traffic stops and drug
    busts, Tampa Police Department discovered a scheme known as
    Turbo Tax. One perpetrator had a ledger containing 100 names of
    deceased people, and after the investigation it was discovered
    that this man had made well over 1,000 false returns and
    collected close to $2.4 million.
        The Tampa Police Department worked well with the local IRS
    agents and U.S. attorneys in their investigations. However,
    once they went to the D.C. bureaucrats detailing exactly how
    criminals steal the Social Security numbers, file the
    fraudulent tax returns, and launder resulting money, the Feds
    mostly turned a blind eye to that issue.
        Tampa PD have explained how the criminals got Social
    Security numbers. Initially, they targeted deceased people,
    filing returns, information they found on Web sites, like
    Ancestry.com. Once they ran out of dead folks, they started
    stealing Social Security numbers from living victims. Tampa
    Police Department has had cases where information was stolen
    from nursing homes, schools, and hospitals. Additionally, James
    Haley VA Medical Center sent letters to about 200 veterans
    warning them that their identity had been stolen to file false
    tax returns. The VA Inspector General is investigating this
    case currently.
        Tampa Police Department also knows how the criminals are
    filing the their returns. The actual fraud is not committed by
    an organized group but by individuals. Tampa Police Department
    has busted what the lawbreakers call ``make it rain parties''
    where criminals get together in a hotel room with Internet
    access and file fake return after fake return.
        Police know how the money's being laundered. The criminals
    have worked out deals with unscrupulous business owners who
    cash their checks or debit cards in exchange for a cut of the
    money.
        In Tampa, the most money seems to be laundered by a select
    group of high-cash-flow businesses, including used car dealers
    and clothing shops. One business alone received approximately
    $3.5 million in Treasury money, our money.
        How does Tampa Police Department know all this? The
    criminals are telling them. Even after they have been read
    their Miranda rights, the crooks are laying out their entire
    process to the cops. They are freely admitting their crimes
    because they don't think Federal officials would do anything
    about it; and, unfortunately, it seems the criminals are right.
        As a representative from GAO told the subcommittee in your
    June hearing on this issue, IRS identified 248,357 incidents of
    tax-related identity theft in 2010. However, the IRS Criminal
    Investigative Division only had 4,706 active investigations
    into all types of fraud.
        The IRS and the Justice Department say that these cases
    aren't of sufficient severity for them to look into.
    Experiences in Tampa show the lack of action is not reflective
    of the agents' desire across the ground to prosecute but the
    bureaucracy within the IRS and their administrators.
        Even more infuriating is the Federal agencies are notifying
    the IRS of this fraud, but they continue to send checks. In
    Tampa alone, the U.S. Postal Service stopped delivery of an
    estimated $100 million in fraudulent refunds in a 6-month
    period.
        Media reports also say the company issuing of prepaid debit
    cards notified the IRS of concerns. However, the IRS ignored
    those warnings and just sent Treasury checks to those suspected
    fraudsters.
        I cannot understand how other government offices can be
    telling the IRS that their checks are going to fraudsters and
    yet the IRS continues to pump them out. Given our current
    fiscal situation, it's unconscionable that the Federal
    Government can be aware of billions of dollars in tax dollars
    being stolen right out from under our noses and do very little
    about it.
        I'm here because I want to find a solution to the problem.
    First, the IRS needs better controls to keep the fraudulent
    returns from ever going out the door. Second, when identity
    related fraud does occur, these criminals must be prosecuted,
    and local law enforcement ought to be involved in the process.
        Maybe the IRS doesn't want to increase anti-fraud
    safeguards because it might slow down the return process, but I
    think honest taxpayers would rather get the returns a few days
    later and keep the money out of the hands of criminals and get
    their tax return.
        In closing, thank you again, Chairman Platts, for the
    opportunity to testify this morning. I look forward to working
    with both Federal and local officials, as well as my colleagues
    in Congress, including the subcommittee, to bring an end to
    this needless waste of taxpayer dollars.
        [The prepared statement of Hon. Richard Nugent follows:]

        Mr. Platts. Congressman Nugent, we certainly thank you for
    your testimony and especially your personal insights into this
    challenge that we're trying to deal with with the IRS both in
    your district as well as your background in law enforcement.
    You bring a great level of expertise to assist this
    subcommittee in our efforts.
        We're not just glad to have your testimony but ask
    unanimous consent that Mr. Nugent will join us on the dais and
    be part of the hearing for Q&A is as well.
        Mr. Nugent. Thank you very much.
        Mr. Platts. We will reset for our second panel and
    certainly honored to have three distinguished witnesses with us
    here today.
        First, the Honorable J. Russell George, Treasury Inspector
    General for Tax Administration. This is a little bit of a
    homecoming for Mr. George as former staff director under a
    distinguished, now passed on, chairman, Steve Horn of this very
    subcommittee from, I think, the mid-'90's to about 2002.
        Mr. George, we're delighted to have you back and have you
    both as an alumnus of the subcommittee staff and also your
    current work as Treasury Inspector General for Tax
    Administration.
        Also delighted to have Mr. Ron Cimino--I will try to make
    sure I get that correct for you--Deputy Assistant Attorney
    General for the Tax Division at the U.S. Department of Justice;
    and the distinguished Steven Miller, Deputy Commissioner for
    Enforcement at the Internal Revenue Service.
        Now that you're all three seated, if I could ask you to
    rise. The practice of the full and all of our subcommittees
    here is to swear in our witnesses.
        If you would raise your right hands.
        [Witnesses sworn.]
        Mr. Platts. Let the clerk reflect that the witnesses all
    answered in the affirmative.
        We are going to do our best to be efficient with your time.
    It's our understanding that we're going to have votes on the
    floor somewhere in the next half hour to 45 minutes, hopefully
    closer to an hour; and our hope is we can get your oral
    testimony here today. We have your written testimony and then
    get to Q&A with members of the committee and not have you wait
    too long, if at all, based on floor votes.
        So if you can try to limit your testimony, written--your
    oral testimony to 5 minutes and then allow us to get into a
    good exchange as part of the Q&A.
        So, Mr. George, if you would like to begin.

    STATEMENTS OF J. RUSSELL GEORGE, TREASURY INSPECTOR GENERAL FOR
     TAX ADMINISTRATION; STEVEN T. MILLER, DEPUTY COMMISSIONER FOR
    SERVICES AND ENFORCEMENT, INTERNAL REVENUE SERVICE; AND RONALD
       A. CIMINO, DEPUTY ASSISTANT ATTORNEY GENERAL FOR CRIMINAL
           MATTERS, TAX DIVISION, U.S. DEPARTMENT OF JUSTICE

                     STATEMENT OF J. RUSSELL GEORGE

        Mr. George. Thank you, Mr. Chairman--Chairman Platts,
    Ranking Member Towns, Mr. Nugent. Thank you for the invitation
    to testify on the issue of identity theft and tax refund and
    tax fraud.
        There are two primary types of identity theft that relate
    to tax administration. The first involves an individual using
    another person's name and/or Social Security number to file a
    fraudulent tax return to generate a tax refund, which I will
    refer to as a tax fraud identity theft. The second involves
    using another person's identity, for example, the names, Social
    Security number, or both, to obtain employment, which I will
    refer to as employment-related identity theft.
        In 2008, TIGTA recommended that the IRS develop and
    implement a strategy to address both of these types of identity
    theft. Since then, the number of tax-related identity theft
    incidents has grown significantly.
        Although the IRS acknowledges that it does not know the
    exact number of open or closed identity theft cases, as of
    August 31st of this year IRS incident tracking reports
    indicated that the number of taxpayers affected by identity
    theft has more than doubled since 2008 to over 580,000
    taxpayers this year alone.
        TIGTA is currently evaluating whether the IRS has
    effectively provided assistance to victims of identity theft.
    Our preliminary observations are that the IRS' processes are
    not adequate to communicate identity theft procedures to
    taxpayers. This results in increased burden for these victims.
        We have analyzed recent identity theft cases and found that
    the IRS' process for assisting victims is very lengthy. As was
    pointed out earlier, a typical path for an identity theft
    refund case that is not complex may take as long as 18 months
    to resolve.
        Standard IRS processes and organizational structure hinder
    timely and effective case resolution. High telephone call
    demand, limited resources, and a growing identity theft
    inventory make it difficult for customer service assisters to
    prioritize identity theft cases. The assisters who work the
    majority of identity theft cases also work the IRS' toll-free
    telephone number responding to telephone taxpayer inquiries.
        Identity theft cases are not always a priority even though
    an untimely case resolution could result in significant
    taxpayer burden as well as an improper payment. Identity theft
    case processing is highly decentralized, and coordination among
    the IRS functions is limited.
        Procedures pertaining to identity theft are not arranged
    for efficient access. They are inconsistent and are scattered
    throughout the Internal Revenue manual.
        The different systems used by the various functions prevent
    accurate tracking and reporting of identity theft workloads and
    their effect on tax administration. There is no mechanism or
    system in place to track cases in process or time spent working
    cases.
        Total time spent on a case can vary significantly, and
    sometimes cases can stay open for months with little or no
    activity as the assisters answer calls or work other types of
    cases.
        In fiscal year 2011, the IRS began issuing identity
    protection Personal Identification Numbers, referred to as
    PINs, to tax payers who have been previously identified by the
    IRS as victims of identity theft. The PIN will indicate the
    taxpayer provided the IRS with information that validates their
    identity and that the IRS is satisfied the taxpayer is the
    valid holder of the Social Security number.
        Currently, the IRS provides the identity protection PINs
    only to taxpayers who have been a victim of identity theft that
    has affected the filing or processing of their Federal tax
    return. The PIN is not available to taxpayers who claim to have
    been a victim of identity theft but who have not had problems
    filing their tax returns.
        While the financial sector offers customers the option of
    providing additional protection on their accounts, the IRS
    should consider adopting such practices. Providing protection
    only after the taxpayer has been victimized does not serve the
    American taxpayer well.
        A substantial number of unscrupulous taxpayers submit
    fraudulent tax returns to the IRS for the sole purpose of
    receiving a tax refund. From January 1st through September 10th
    of this year, the IRS reported that it received over 1.6
    million tax returns with more than $12 billion claimed in
    fraudulent tax refunds, and yet it prevented the issuance of
    $11.5 billion of that money.
        Tax-related identity theft is a growing concern despite the
    IRS' efforts to address this serious problem. It is critical
    for the IRS to deter and detect identity theft before it occurs
    within the tax return process. The IRS needs a better process
    to identify and respond whenever identity theft fraud occurs.
        While the IRS has undertaken important steps and
    initiatives to prevent the occurrence of identity theft,
    additional controls could minimize and prevent future
    incidences.
        Thank you, Mr. Chairman for the opportunity to present
    testimony.
        [The prepared statement of Mr. George follows:]

        Mr. Platts. Thank you, Mr. George. Mr. Cimino.
        Mr. Cimino. Mr. Chairman.

                     STATEMENT OF RONALD A. CIMINO

        Mr. Cimino. Mr. Platts, Ranking Member Towns and members of
    the subcommittee. Thank you for the opportunity to appear
    before you this morning to discuss the Department of Justice's
    efforts to combat tax refund fraud arising from identity theft.
    The Department greatly appreciates the commitment that the
    chairman, the subcommittee----
        Mr. Platts. Please put your microphone on.
        Mr. Cimino [continuing]. And staff have made to highlight
    the serious crimes of identity theft and fraud.
        The Department recognizes the critical need to address this
    ever-growing problem of identity theft. Combating computer
    theft, including identity theft, is one of the Department's top
    priorities as set forth in the current strategic plan.
        As the Attorney General has said, our core mission is to
    pursue justice for criminal acts, and that pursuit includes
    justice for victims of crime. In criminal matters involving
    identity theft and Federal tax crimes, the IRS investigates
    these matters and refers them to the Department.
        Thereafter, the Tax Division supervises and directly
    prosecutes some of these matters. The Tax Division prosecutors
    work closely with assistant U.S. attorneys across the country
    to develop and prosecute these tax refund crimes.
        As part of that process, Federal prosecutors also ensure
    that victims' rights are respected. These cases are prosecuted
    by both the Tax Division prosecutors and assistant U.S.
    attorneys, either separately or jointly.
        This close working relationship enables the Department to
    share knowledge and leverage our resources in order to combat
    refund fraud across the country. While each prosecution may
    only involve the single defendant or small group of defendants,
    in the majority of cases the number of incidents and victims is
    significantly greater.
        Regardless of the number of victims or the amount of the
    refund involved, the Department evaluates the merits of each
    case to determine whether the crime can be proven beyond a
    reasonable doubt. There are cases in various stages in which
    the Department is investigating and prosecuting perpetrators of
    identity theft and tax fraud. As described in my testimony, my
    written testimony, there are statutory restrictions on my
    ability to comment on the specific facts of these cases.
        However, I can assure the subcommittee that the Department
    continues to vigorously prosecute these cases to the fullest
    extent of the law. While prevention and early detection are
    always the first and best line of defense, the Department
    recognizes that prosecution is also a critical tool when it
    comes to combating identity theft and tax fraud.
        As Deputy Commissioner Miller has stated in his testimony,
    the IRS is committed to continuing to look for new and
    innovative ways to detect and stop identity theft. The
    Department is also committed to stopping identity theft. Our
    mission to pursue justice can only be attained if victims
    receive justice as well. While the Department will never be
    able to fully eradicate crimes such as identity theft and tax
    fraud, our persistence, dedication, and success in prosecuting
    these cases sends a clear message to those who would engage in
    such conduct that they will be found accountable for their
    actions.
        I would like to thank you, Mr. Chairman, for the
    opportunity to appear this morning and I'm happy to take any
    questions.
        Mr. Platts. Thanks for your testimony.
        [The prepared statement of Mr. Cimino follows:]

        Mr. Platts. Commissioner Miller.

                     STATEMENT OF STEVEN T. MILLER

        Mr. Miller. Good morning, Chairman Platts, Ranking Member
    Towns, Mr. Nugent, I appreciate the opportunity to speak today.
        Over the past few years, the IRS has seen a significant
    increase in identity theft. Identity theft and the harm that it
    inflicts is a problem that we are taking very seriously. At the
    start, let me say quite plainly that the IRS is confronted with
    the same challenges as every major financial institution in
    preventing and detecting identity theft.
        We cannot stop all identity theft. However, we are better
    than we were, and we will get better still. We have to balance
    the need to make payments in a timely manner with the need to
    ensure that claims are proper and taxpayer rights are
    protected.
        Let me describe our current efforts in terms of fraud
    prevention first and victim assistance after that. First, up-
    front protection of fraud. In 2011, the IRS to date has
    protected $1.3 billion in refunds from being erroneously sent
    to identity thieves. And for 2012, the following is in place.
    Despite a very tight budget, we are adding staff in this area.
        New for 2012 is up-front screening filters that will
    improve our ability to spot false returns before a refund is
    issued. This includes a series of improvements for decedent
    identity information.
        For returns caught in these screens, new procedures are in
    place. Before any refund, we will correspond with the sender.
    We are issuing special identification numbers, the PINs, to
    expedite filing for those taxpayers whose identities have been
    stolen, and we are accelerating the matching of information
    returns in order to have a better shot at stopping the fraud up
    front.
        There are new procedures to allow us to match returns to
    lists of taxpayer information that law enforcement officials
    believe may have been stolen. We will be doing that up front,
    and we have improved collaboration with the software developers
    and others to determine how we can better partner to prevent
    theft.
        In addition, the investigative work done by our Criminal
    Investigation Division continues, and we will increase the
    resources available and redouble our efforts to work with other
    law enforcement in this area. That's our work on prevention.
        We are also taking a number of actions to help victims of
    identity theft. We are implementing new procedures and adding
    staff to resolve cases faster and minimize the disruption to
    innocent taxpayers. Newly formed special units will do this
    work.
        The PINs I spoke about earlier will assist the identity
    theft victims in filing future returns. Next week we begin the
    process of issuing more than 250,000 such PINs. We have also
    updated training for our telephone representatives and
    developed training for all other public-facing employees.
    Outreach to the public will continue as well.
        Let me conclude, our work here is critical. We see identity
    theft as affecting the way people view our agency and, as
    importantly, as eroding people's view of their obligation to
    pay taxes. We cannot be lax in stopping fraud and we must
    improve our treatment of victims.
        I can't tell you that we're going to beat this problem 1
    year, but I can say that our work in 2012 is a solid start and
    not the end of our efforts. And obviously I'll be happy to
    answer any questions.
        Mr. Platts. Thank you, Commissioner Miller.
        [The prepared statement of Mr. Miller follows:]

        Mr. Platts. I yield myself 5 minutes to begin the
    questioning and again thank each of you for your testimony as
    we work jointly to try to address this growing problem and
    better protect American taxpayers and to prevent American
    citizens from being victimized.
        And I want to start with the issue of how we are assisting
    victims. And, Commissioner Miller, you and I have spoken about
    this issue prior to this hearing as we did with the
    Commissioner back in June, that we recognize we're talking
    about criminal acts here and the victims of crime.
        And I'd be interested I guess first, your response both
    here today and in the written testimony of the Inspector
    General, when they look at a typical way that a victim of
    identity theft within IRS has been handled, where they first
    learn of it in February, report it, and then work their way
    through the Inspector General kind of references, what they see
    based on their findings, a typical case where you know they--
    the law-abiding citizen, when they go to file their return in
    February and finds out somebody has already filed a return
    under their name and Social Security number--that they work
    through February, April, July, September, October November,
    December and January as a typical response till that person's
    case is resolved.
        And my understanding of the standard procedure is that when
    one of these cases come to light in February or March, that is
    basically put into what's called a duplicate case filing system
    and basically set aside until, at the earliest, sometime after
    April 15th when the filing deadline hits.
        That's not giving much priority to the victims of crime,
    which is what we're talking about here.
        So I guess, Mr. Miller, your response of how you assess the
    Inspector General's review and, you know, what we are doing to
    change that, because that's not an acceptable level of
    response.
        Mr. Miller. And I agree with the presentation that you have
    just given. Let me break this up into about three pieces.
    First, as to Mr. Russell's report, we have not seen his actual
    report. The first we saw it was Wednesday night so it's hard
    for us to exactly judge and deal with point by point.
        But I will say, not our understanding, and we don't think
    it's correct that the typical case--whereas as he used in his
    written testimony, the best case is 18 months, we don't think
    that's right. We're going to go back and we'll take a look.
    But, you know, I am also going to say I'm quite sure it has
    happened, right? I don't think it's typical. I know it's
    happened.
        Mr. Platts. When you take that look, if you could submit to
    the committee for the record what you find is the typical
    average response from the time that person says I've been that
    victim and their case is resolved.
        Mr. Miller. Be more than happy to do that.
        [The information referred to follows:]
        [Note.--The information referred to was not provided.]
        Mr. Miller. The second piece that you talked about is is
    this a priority for the service, and it's a tough answer. The
    answer is that when it happens early in the year, that's when
    the same people who are doing this work are doing phone work.
        Is it a priority, is it a first priority? Yes. But the
    question is, are we going to do phone work or are we going to
    do these cases? We need to do a better job going forward of
    doing both. That's a resource issue for us, to be blunt.
        I think, I think probably in 2011 we did more phone and
    less paper. I believe for 2012 with the resources that I've
    made available we'll do more paper. There's still going to be
    resource shortages. And while we will try to get to this work,
    there's an awful lot of work that goes on during that
    timeframe. We need to process returns.
        We need to, you know, deposit checks. We need to answer the
    phones. And our phone level of service is not something to wave
    the flag about either at this point due to resources. We're
    down to, you know, 7 out of 10 people getting through. And next
    year, you know--this year, rather, in 2012, it's likely to go
    down from that. So we have some tough choices to make up front.
    But I will tell you we're going to do better this year. We've
    made more resources available to work both of these things.
        The final piece, and that really is the final piece, the
    final piece is we are going to get better at this. And we are
    putting in place units, specialized units in accounts
    management, in submission processing, in the other places where
    identity theft presents itself, in order to work these cases
    quicker, to work them with folks that understand the processes
    better. They will be trained; we will do a better job this
    year.
        Mr. Platts. And you reference in your testimony the
    training that you're doing, which clearly is necessary.
        Mr. Miller. Right, it is.
        Mr. Platts. But it's also an organizational challenge
    because I think you identified, what the Inspector General
    identified, is that you have the individuals that are on the
    front lines of the phones also being the one charged with
    assisting victims. And so to meet the needs of the phone calls,
    you're in essence setting the victims assistance aside--as the
    Inspector General referenced, the duplicate function--so that
    it's treated as just a duplicate case and not given a priority.
        And I guess as I've shared with you previously and again
    today, when it comes to a victim of a crime, we need to make
    that a priority.
        Mr. Miller. I understand.
        Mr. Platts. And I don't think we're adequately doing that.
    I think you understand the importance of that and the training
    that you're doing. I commend you for that approach and--but I
    think it is an organizational structural issue here that you
    need to, you know, have a victims assistance unit that is not
    worried about meeting their other obligations over here but is
    focused specifically.
        These are law-abiding citizens who are trying to comply
    with, as we all know, a very complex code. We bear the blame
    here in Congress for that, but they're trying to do their part,
    and then they get victimized and we need to do a better job of
    assisting them.
        And a quick follow-up, and then I'll yield to the ranking
    member. I know I'm over my time.
        But if you assume that you were even close in the Inspector
    General's findings, it's identified in February and it's the
    following January or so until it's resolved, in this written
    testimony there's also statements that they found that even
    when the victim of the crime is being given notice that your
    case is resolved, you're good, that it's anywhere from 2 or
    more weeks till the payment, the refund, is actually provided.
    So, you know, what's the delay there?
        You've gone through 10, 11 months. They get a letter
    saying, yep, we understand. We've gotten it straightened out,
    but they still wait, you know--you know--in the statement it
    says release of tax refunds can take from 2 to 12 weeks to
    post. That's pretty outrageous, you know, that it's done but it
    still takes us up to 3 months. So I don't know if that's an
    issue that you've looked at yet, but we need to.
        Mr. Miller. So I can come back with more information on
    that, Mr. Chairman. But in my understanding it will take 2
    weeks, probably, because we work in cycles. It might take,
    depending on when it occurs in that 2 weeks, 4 weeks, never
    really should take 12 weeks, and I need to take a look at what
    TIGTA is looking at to work through that.
        Mr. Platts. Right. But in your response there, I would
    emphasize again, we need to prioritize assistance to the
    victims, to not put them in the normal cycle. We're going to
    issue checks in 2 weeks or 4 weeks or 6 weeks. Now these guys
    have waited 11 months after being victimized. So I think we--
    what I hope you'll look at is how do we prioritize these, not
    just put them in the normal routine standard operating
    procedure. But, no, they have already, you know, waited long
    enough to simply get what they are owed, in essence, by us.
        So I appreciate you taking those concerns back and
    understand that you--I do not expect to have all the answers
    here today, but that we--we are on the same page as far as
    trying to do right by the victims.
        With that I yield to the ranking member, Mr. Towns, for the
    purpose of questions.
        Mr. Towns. Thank you very much, Mr. Chairman.
        Let me begin with you, Mr. Cimino. How many attorneys
    currently work on tax fraud issues in the Department of Justice
    across the United States?
        Mr. Cimino. Congressman Towns, I can't--I can't respond the
    number across the country, and I can get back with you with a
    little more detailed information, but I can try to respond to
    your question.
        Within the Tax Division we have 100 or more prosecutors
    solely devoted to tax fraud. Most of those positions are filled
    by line attorneys who have two roles. One is to ensure that the
    investigation that the Internal Revenue Service has conducted
    and submitted to us is adequate for a successful prosecution.
        And the second role is to actually prosecute those cases
    across the country. We do that ourselves. We do that
    cooperatively with the U.S. attorney's offices as co-counsel
    with them, and a great bulk of the cases are actually handled
    by the 94 U.S. attorney's offices' staff across the country.
        Each year there's a certain number of cases forwarded to us
    by the IRS, and we try to process them as quickly as we can to
    move them on.
        I hope that answers your question, sir.
        Mr. Towns. Well, I guess you answered my question but I
    guess what I'm really thinking about is, isn't it time for you
    to start partnering with local law enforcement? Don't you think
    we should do more of that?
        Mr. Cimino. In response to your question, we----
        Mr. Towns. I'm aware of section 6103.
        Mr. Cimino. We do, in fact, have joint task forces with
    local and State law enforcement working with task forces in the
    various U.S. attorneys's offices. The State and local officials
    are deputized under the U.S. Marshals program and work in a
    cooperative spirit. This usually occurs in a grand jury
    setting.
        Mr. Towns. Let me ask you, do you have any information on
    them, the conviction rate--in terms of the actual conviction
    rate?
        Mr. Cimino. In terms of all cases across the country that
    are tax-related historically, and I have been with the
    Department since 1973, it has always been higher than 90
    percent; frequently 95, 96 or 97 percent of a conviction rate
    for the charges of the crime.
        Mr. Towns. You know, if you think that if we partnered more
    with local law enforcement the number would go down--do you
    think that would happen if we partnered more with local law
    enforcement, would the number go down? Do you think that; or
    would it remain basically the same?
        Mr. Cimino. I can't, could not venture. I'm sure that our
    local and State law enforcement are very effective prosecutors.
        The problem, perhaps, Congressman, is that in partnering we
    have to be prosecuting Federal crimes, and in that sense my
    answer to you is no. I think almost every U.S. attorney
    welcomes the assistance of those people who are deputized to
    work in Federal task forces.
        Mr. Towns. Let me just go to you, Mr. Miller. You indicated
    that you think you would be able to do a whole lot better. You
    know, are you getting additional resources?
        Mr. Miller. No, sir. We have had to obviously carve out
    another 400 or so people to make a dent in this work, which is
    almost doubling the footprint that we have in this area for
    identity theft.
        Mr. Towns. You know, I'm concerned that, you know, when you
    take from somewhere else, that something else happens.
        Mr. Miller. Yes, sir.
        Mr. Towns. You know, and that's my concern. So it seems to
    me that we need to take a serious look and evaluate, maybe, and
    listen to the testimony from Representative Nugent. Maybe we
    need to increase the amount, you know, of investigators to be
    able to--and we might be able to close part of the deficit.
    Because I'm certain that if you would analyze, and bringing
    more people on, and then going out and dealing with fraud and
    abuse, I think that, who knows, that we might make a profit. It
    might be an increase.
        So I think that we need to look at the possibility of
    getting more workers to stop what's going on because it seems
    to me that they are under the impression that it's okay.
    Because when you look at the fact that in 2008, 51,000 cases,
    and in 2009, 169,000 cases, and in 2010, 248,000 cases, and
    then in 2011 582,000 cases, and who knows what's going to be in
    1912 and 1913.
        Mr. Connolly. Would my colleague yield for an observation?
        Mr. Towns. I would be delighted to.
        Mr. Connolly. I couldn't agree with him more. Sadly, this
    committee is headed in exactly the opposite direction. We
    approved legislation yesterday that would guarantee at least a
    10 percent reduction in this agency and all Federal agencies.
        Mr. Towns. Well, you know what they say in my neighborhood
    back in Brooklyn, New York, ``We'll hustle it backward.''
        Mr. Chairman, you know, I think that--I know my time has
    expired, so I'll yield back.
        Mr. Platts. I thank the gentleman. And before I yield to
    Mr. Nugent, I do appreciate the concern expressed about
    legislation we moved yesterday, but I would emphasize that it's
    a 10 percent reduction overall. And as we kind of just debated
    in committee yesterday, meaning that we as a Congress and the
    Federal Government needs to better prioritize, you know, what
    are our most important responsibilities. So it doesn't mean
    that this agency would go down by 10 percent. Maybe it's other
    agencies that are less important or less important assignments.
        So, overall employment would be 10 percent.
        Mr. Towns. I think----
        Mr. Platts. I would yield.
        Mr. Towns. Mr. Chairman, undoubtedly you yield. Thank you.
    I appreciate it. For a moment I thought I was chairman.
        Mr. Platts. And the distinguished gentleman has been
    chairman in the past, as have I. We keep swapping chairs.
        Mr. Towns. Hold that thought. No, I would just say it seems
    to me that we need to look at the possibility that bringing in
    additional revenue is important, and maybe this is an agency
    that should be increased. I mean, I think that's the point I'm
    making and that if we increased it, who knows, because I think
    that is one other thing that we're not examining here.
        Some folks that are victims do not even report it. Because
    when I look at them taking people from another place, then the
    phone center, I mean people will then--can't get through, they
    can't make--I mean, I'm concerned about that.
        And then there's the other issue of how many people are
    just ripped off and don't even report it, don't even talk about
    it because of the fact that it's difficult to be able to get
    through to the center. So there are those kinds of things.
        I yield back, Mr. Chairman.
        Mr. Platts. Reclaiming my time. And Mr. Towns references a
    very important issue. We know that many of those whose
    identities are stolen are individuals who would not need to
    file a return. And so they, you know, don't know that a fraud's
    been committed against them because they would not have
    otherwise filed one. So the actual number of fraud cases,
    because those individuals don't even know it, are not able to
    help identify it and allow us to then prosecute the wrongdoer.
        We do have votes up on the floor. My intent here is to get
    to Mr. Nugent's questions and then Mr. Connolly, and then we
    will have to take a brief recess, shoot over for votes, come
    back and try not to have you waiting here any longer than you
    have to.
        So, Mr. Nugent, you are recognized for 5 minutes for
    questions.
        Mr. Connolly. Mr. Chairman, just on that, I'm probably
    going to go and vote. So we'll reconvene after votes?
        Mr. Platts. We will.
        Mr. Connolly. Cool.
        Mr. Nugent. Thank you, Mr. Chairman and the members of the
    panel for being here today. You know, as a local law
    enforcement official for so many years, we worked hand in hand
    a lot of times with the U.S. attorney's office in adopting
    cases that we worked, that turned out to be federally
    prosecutable, and we would partner with DEA, FBI, ICE, to bring
    that forward to the U.S. attorney's office.
        And the difference in this scenario, though, is working
    with the IRS. And it seems like we're--you know, when you talk
    about leveraging resources, particularly where everybody,
    everybody is cutting back, I think we're missing the boat as it
    relates to tapping into that local law enforcement.
        Just as in the city of Tampa--you know, not all the crooks
    live in Tampa, and they're accounting for, you know, millions
    and billions of dollars in tax fraud alone. And this is real
    tax dollars, dollars that are already in the Treasury that are
    now flowing back out.
        So my question is, if you understand the code and
    understand the U.S. regulation, is there a way to better
    partner with more eyes on the ground to help you enforce? And I
    would submit that to Mr. Cimino or Mr. George.
        Mr. George. Why don't I start? The IRS has limitations
    placed on it, as you made reference to, under the U.S. Code,
    specifically title 26, section 6103, which severely limits the
    type of information that the IRS can share.
        Now, while it limits it, it doesn't restrict it. There are
    certain circumstances, if someone's life is at threat or there
    are other exigent circumstances, you know, with the permission
    of the Department of Justice, the IRS can get permission to
    work with State and local officials. But sometimes that is a
    very cumbersome process. Sometimes it really, as you
    acknowledge here in the Tampa instance, it just would be so
    cumbersome that it just needs to be looked at closely, I think.
    And that is, again, section 6103 needs to be looked at by
    Congress in terms of whether 25, 30 years after Watergate, when
    most of these restrictions were put up, whether those same
    restrictions are necessary today.
        Mr. Nugent. And particularly with, you know, the advent of
    the Internet, because we're looking at mostly filings that
    police law enforcement has coming across, you know, the e-
    filings and the ability to raid the Treasury.
        Mr. Cimino.
        Mr. Cimino. I agree with you, I think there can be more
    cooperation, Congressman.
        Mr. Towns. Microphone, Mr. Cimino. Will you turn your mike
    on.
        Mr. Cimino. As I mentioned in response to an earlier
    question, there is a procedure in place when there are Federal
    grand juries involving widespread crime that local law
    enforcement are deputized to work in the grand jury under the
    direction and aegis of the U.S. attorney, but that is for
    Federal crimes and we certainly can explore whether that can be
    used more effectively in this area.
        Mr. Nugent. Mr. George, you had mentioned that in looking
    at the legislation to, I guess, to more massage that while
    respecting taxpayer privacy, which is a huge concern for all of
    us, but at the same time protecting the U.S. Treasury from
    being raided. So you asked, or what you're saying is that we
    absolutely need to look at how we can do, through legislation,
    help from a law enforcement perspective to Mr. Cimino and the
    U.S. attorney in the Tax Division.
        Mr. George. Yes. And I should have actually, Mr. Nugent,
    prefaced my earlier response by pointing out that the Secretary
    of the Treasury has delegated tax policy to the Office of Tax
    Policy, so I am not speaking on behalf of the Department in
    terms of advocating, you know, substantive tax policy changes
    in this area.
        But the ironic part about 6103 is that even the alleged
    cheater can be protected, because the IRS is unable to share,
    unless certain circumstances exist, information about that
    person's tax return.
        So if you have two competing taxpayers, in the instance
    we're discussing here, someone who has taken the persona of
    another person, you know, until the IRS figures things out,
    their hands are tied in many respects unless someone consents--
    the taxpayer can always consent to the release of his or her
    information. But there--this is a very cumbersome area, as I
    said before, and it needs to be looked at again.
        Mr. Nugent. And one last, just to follow up. As it relates
    to the front end of this, obviously if you can shut the spigot
    off it would obviously then, you know, reduce the burden on
    investigators, reduce the burden on the U.S. attorney's office
    and the courts. So I would suggest to you that we need to do
    more specifically as it relates to shutting the spigot off in
    regards to trying to--you know, we push out the returns as
    quickly as possible.
        But by the same token as the chair had mentioned, once it's
    identified, the real taxpayer trying to get his return is
    through a laborious process to get there. So I would suggest or
    recommend that the IRS really come back with a plan to Congress
    and particularly to this committee as to how you're going to do
    that.
        Thank you, Mr. Chair. I yield back.
        Mr. Platts. The gentleman yields back. We're going to try
    to get a few more questions in before running over for the
    votes. I think, Mr. Towns, you're going to head over.
        Mr. Towns. Yes.
        Mr. Platts. I'll take another round, and then I know Mr.
    Connolly is coming back and Mr. Towns.
        I want to follow up, Mr. George, when you were just talking
    about the challenges that Mr. Nugent raised, and as you
    referenced, that even the perpetrator of the crime then has to
    give permission for anything related to their conduct in
    committing that crime is still protected.
        Is that a possible amendment to the existing law where, you
    know, we're balancing privacy issues here? But once the IRS is
    able to certify, yes, this person, the lawful citizen who finds
    out in February, hey, somebody already filed. They come in,
    they present all the documentation, Social Security card, other
    ID, whatever they need to do in the affidavit, establishing
    that I am the legitimate John Smith. And that has been
    established and the IRS is able to confirm that and certify
    that yes, you are, that would then trigger within the law that
    the information of the perpetrator of the identity theft is no
    longer protected and does not have to give permission.
        Is that a way of trying to get to the issue, you know,
    where that--the information could be shared to make it easier
    to prosecute?
        Mr. George. The short answer is yes, once this process is
    played out. But it's during the course of it that it's really,
    you know, sometimes really nonsensical or counterintuitive.
        Mr. Platts. And it would need, as we talked earlier,
    Commissioner, to really expedite that process of who is, you
    know, the lawful taxpayer here, the sooner the better as far as
    then trying to go after the wrongdoer.
        Mr. George. But that ties into the overall complexity of
    the process that you made reference to when you were addressing
    Mr. Miller earlier. There's no question that it's very complex
    and cumbersome for the average taxpayer in this predicament to
    get this matter to the point where that determination is made.
    And so the IRS, they literally have about 16 different
    divisions within them that handle these types of cases and
    these types of allegations.
        They need a more unified process in place to do this more
    efficiently and effectively.
        Mr. Platts. And that goes to Commissioner Miller, the
    issue, the structure, the organizational structure that, in
    prioritizing assistance to the victims, that if we do that
    better and centralize that, we also then maybe help centralize
    this whole matter, you know, challenge so that we can better go
    after, you know, the perpetrator of the crimes.
        Mr. Platts. The issue of prosecution--and Mr. Nugent shared
    the amazing story of Tampa and the $100 million plus, you know,
    the dollar amounts, but my understanding is the average tax
    fraud is about $3,400.
        I guess, Mr. Cimino and Mr. George, on your understanding,
    or maybe specifically from Department of Justice in pursuing--
    we understand you are looking at those cases where it is $5
    million, or $10 million or $100 million--what is the likelihood
    of that person who files five cases averaging $3,500 of the
    Department of Justice saying we're going to go after them as
    well?
        Mr. Cimino. Chairman Platts, there's no one factor that
    goes into the prosecutorial decision of whether we will or will
    not prosecute.
        We look to all factors and I can assure you if, even if
    there were a single false return, if the circumstances justify
    it, we would look at it to see if it warranted prosecution.
        Mr. Platts. Mr. George, do the numbers show that, that we
    are prosecuting, you know, those. Because the way, the way I
    read all the testimony in our June hearing that, you know, if
    it's $3,400 or $4,000, $5,000, the reality is we don't go after
    those, and the bad guys know that. So they feel free to
    continue to engage in this unlawful conduct because they know
    we're not going to pursue it.
        Mr. George.
        Mr. George. You know, while I am not the Inspector General
    of the Department of Justice, anecdotally, not only in the text
    context, it's just overall, DOJ has to make choices because of
    the limited resources that they have. And I'm not in a position
    to say what the threshold is for prosecuting particular cases.
    Mr. Cimino may be in a position to respond to that. There's no
    question that the lower the dollar amount, the less likely
    they're going to expend a lot of resources.
        Mr. Platts. And that's my understanding of the data as
    well.
        Mr. Cimino. If I can further respond, Congressman Platts.
    Almost all cases that we see at the Tax Division that the IRS
    has investigated have multiple claims for refund and frequently
    multiple defendants acting in a conspiracy.
        I think the three cases that I included in my testimony,
    those that were Mr. Miller's, and probably across every U.S.
    attorney's Web page reflects that and, you know, there's the
    reality of our work. What I was trying to respond to, is there
    a situation where a small dollar case would be prosecuted? And
    that's what I was trying to refer to.
        Mr. Platts. Yes. And this one really goes to Mr. Nugent,
    about partnering in the law enforcement community and finding a
    way to allow that partnering, and I would say incentivize it
    maybe it's where--I know we do it in some areas of prosecution
    of drug cases where there's a financial incentive, you know,
    for the locals to partner with the Federal officials in the
    recovery of the dollars, and maybe that's the way to do it.
        Commissioner Miller, the cases that go to Justice really
    have to first be identified by IRS saying we want Justice to
    help. Your Criminal Investigation Division really makes that
    first determination. Is that really accurate?
        Mr. Miller. I think it is, I think it is. But there are
    constant conversations going on between the Department of
    Justice and the IRS about what we--what we would do.
        If I could, if I could, Mr. Nugent, we do partner with
    locals. What happened in Tampa is what happened in Tampa.
        But I will say we have more than 20 task forces going on as
    we speak today. We have 32 investigations in Tampa, and we have
    spent in 2011, 225,000-plus hours on identity theft.
        So I don't want, I don't want the committee to think that
    we're doing nothing here. We really are. We might have had a
    foot fault in Tampa, admittedly, and we are doing better in
    Tampa and we are taking steps to get better in Tampa. We're
    also taking steps to get better on the front end. With the type
    of things that we saw in Tampa, I hope won't happen in 2012
    with what we put in place.
        Mr. Platts. That might be a good place to break.
        Mr. Nugent, did you have another comment.
        Mr. Nugent. Well, just to go back to that, and let me set
    the record straight as it relates to the IRS agents, criminal
    investigators in Tampa, nothing but the highest praise for the
    individual investigators.
        The problem came in regards to when Tampa identified
    specific cases, that that's where it broke down. And the
    ability that Mr. George talked about in trying to prosecute
    cases to--particularly when they identify not only those that,
    you know, profit from it, but also where they were money-
    laundering the cards and the T checks directly, and that's
    where they ran into a brick wall.
        And the frustration on the local law enforcement level is
    that while we work really well with the U.S. attorney's office
    and other portions of Justice, that's just not the case as it
    relates to IRS, not the agents in the field but the bureaucracy
    that they're working under. And so as times change, that's why
    I think we're having these hearings, that we've got to get past
    how we used to do it and figure out how we're going to do it,
    particularly with the advent of computers. And we watch the bad
    guys; they morph faster than we can.
        Mr. Miller. Agreed.
        Mr. Nugent. And so I think that's where we need to move
    forward as a committee but also as a Congress.
        Mr. Platts. Certainly, Mr. Nugent, I look forward to
    working with you on the issue of what legislative changes we
    need to look at and giving more authority and power.
        Mr. Nugent. Thank you for allowing me to sit up on the dais
    with you and allowing me to testify in front of you.
        Mr. Platts. Well, we're glad to have you and, again, your
    knowledge as it relates to your district really gives us a good
    working knowledge of how to better protect what happened in
    Tampa not happening again. And, again, we do look forward to
    working with you.
        We are going to recess to the call of the chair. We've got
    two votes, so hopefully we'll be over and back in about 10 to
    15 minutes max. We are going to be limited, you know, when we
    come back again, but we'll try to wrap up in that next session
    because there will be another round, actually several rounds,
    and we don't want you sitting all day waiting for us.
        But I know Mr. Connolly is coming back, Mr. Towns. I know
    when I come back to get to a little bit what we started on,
    which is the preventive efforts up front, so we don't have to
    worry about assisting victims if we can prevent them from being
    victims. And so I think that's where we will pick up when we
    come back.
        So this hearing stands adjourned--I'm sorry, recessed to
    the call of the chair.
        [Recess.]
        Mr. Platts. The hearing stands reconvened. I appreciate our
    witnesses and everyone's patience while we--got my exercise for
    the day running over and back.
        So as I referenced before we recessed, I want to get into
    some of the efforts of prevention. And, Commissioner Miller,
    one of those issues is--regards the issue of e-filing and the
    impact that it's had in a wonderful way as one who does e-file
    myself, that expedited refund process. And I think most
    Americans are glad to get their money back that they're
    entitled to as quickly as possible, but it also seems to
    correlate with the numbers that we see in increased level of
    fraud, if you'll look at the kind of timing of e-file and it's
    has been promoted in greater and greater fashion, and then the
    fraudulent case numbers.
        And in the Inspector General's testimony there's reference
    to what you have to do to be able to e-file and reference to
    the information that has to be provided, and one of those
    issues was your prior year's adjusted gross income.
        And, Commissioner if you could address that issue. What
    actually is required to e-file besides name and Social Security
    number, if anything, and, you know, why don't we require
    additional information to make sure we're guarding against
    fraud?
        Mr. Miller. So we do, as you mentioned, Mr. Chairman, we do
    require sort of an electronic signature, and that requires you
    to have your adjusted gross income from the last year as one of
    the items. And there are a handful of other items. But it is
    name, Social and the AGI is that--is one of the shared secrets,
    along with filing status for last year, I believe. There may be
    one other that I can get back to you on, but those are the
    types of things we use today as the electronic signature for
    the electronic--and a natural question that you raised in our
    prior discussion was why shouldn't we make that more generally
    applicable and why doesn't that work to block much of this?
        And it does work, I'm quite sure, in many areas. Where it
    would not work is where there's been no filing requirement in
    the prior year because there the AGI is zero. And so that is an
    easy way to go through that system and sign and move through.
    And we should work, as we've talked about, we should work to
    see what we can do better in those circumstances.
        Mr. Platts. And you touch on the one issue, which is the
    fraud that's committed against those who don't have to file
    because their AGI is beneath the threshold, and so they only
    know they are victims of identity theft in--regarding tax
    fraud.
        Is the AGI required for every electronic filing?
        Mr. Miller. I believe it's the manner of how to--how to
    sign your return. There is--if you have forgotten it, if you
    don't have it--there's an alternative method to get a different
    PIN. And if I'm wrong on that, Mr. Chairman, I will come back
    to you. But there is an alternative if you don't have your AGI.
    There is a PIN, a way to go online and get a PIN with some
    shared secrets there as well.
        Mr. Platts. And, Mr. George, is that what you're
    referencing in your testimony, because you say, ``which can
    include names, Social Security number, date of birth, prior
    year's adjusted gross income.''
        Mr. George. That's correct. Mr. Miller is correct. There is
    that alternative way in the event you don't have your AGI.
        Mr. Platts. So can you walk me through the specifics of
    what the alternative is, because to me if you have to have your
    adjusted gross income from the prior year, that's a reasonable
    requirement to file. And if we're going to make, you know, an
    alternative to that, I guess I'm not aware of what that
    alternative process is.
        Mr. Miller. So my understanding, Mr. Chairman, is that you
    can go online and you would basically have many of those same
    things, which is name, address, Social Security number, I
    believe filing status and, again, date of birth as well. And
    you can get a PIN mailed to you, and that's the process right
    now. And we ought to look at it to see whether it's everything
    it ought to be.
        Mr. Platts. I'd be concerned, if you can follow up with the
    committee, what the specific requirements are for that
    alternative electronic signature. Because if it is basically
    the same information that you have to provide anyways--name,
    Social Security, date of birth, not something additional--it's
    adding a step that you go through something.
        But, you know, hopefully there is additional information
    and I'm not sure if it's, you know, logical that we want to
    allow to file electronically if you can't document--and if it's
    zero--zero because you didn't file the previous year, but as a
    way--what I'm looking for is what are some filters up front to
    knock out the ability, you know, for these individuals to file
    electronically.
        And a follow-on to this is my understanding is well over
    half the ID theft, fraud cases, are in January in a typical
    year; am I correct in that understanding?
        Mr. Miller. I would have to go back and verify that. I
    think it's front-loaded but I don't know that it's half. It is
    occurring throughout the year at this point.
        I was just informed by staff that your statement is
    accurate, Mr. Platts, mostly January.
        Mr. Platts. And, again, my review of the data--and I don't
    have all the information that the IRS itself has, but is that
    more than half are in January. And I think there's a reason for
    that. The perpetrators of the crime know they won't get their
    W-2s until the end of the month, or even the first week of
    February, so they're getting their return in first before the
    lawful citizen.
        So that gets to kind of the follow-on, in addition to the
    adjusted gross income, that my hope is that the IRS is looking
    at how to further or enhance your scrutiny the earlier return
    is submitted.
        Mr. Miller. We are trying to move up our review of
    information returns we're getting, including the W-2. And we're
    putting in place some filters to try to drop out more returns
    that look like they are identity theft.
        Mr. Platts. And I appreciate the sensitivity of what your
    filters are. We don't want to talk about that here in open--if
    that can be provided to the committee.
        Mr. Miller. Happy to do that.
        [The information referred to follows:]
        [Note.--The information referred to was not provided.]
        Mr. Platts. Because looking at the W-2s, if it's
    fraudulent, you're not going to get any. So expediting that
    review is not going to help because the criminal is not going
    to send you any W-2s because they don't have them. So the
    more--the tighter your filters are and the more kind of flags
    that go up, new address, new bank account, those types of
    things.
        Can we also talk about, then, the IG's testimony. There was
    the issue about Social Security death index and a better use of
    that. And is there additional statutory authority that the IRS
    needs to better access that information, or it's just how
    you're currently accessing it to guard against deceased
    individuals being used, names and IDs of deceased individuals
    being used to file current returns?
        Mr. Miller. So we have a new sort of approach to deceased
    identities, and we have locked a bunch of accounts at this
    point and, again, we'll go into much more detail. But in
    general we have locked a great number of accounts that don't
    have a filing status, we believe.
        There were some decedents who have a filing status there,
    in 2010 and 2011, for example, they would have a filing, a last
    return. And those we've built new filters to take a look at up
    front and intend to take a hard view on.
        The Social Security list of those who have passed, it is an
    issue for us. We are getting it, we are matching it and we'll
    do a better job of that going forward. Ultimately we would, you
    know, we would love if Social Security did not--or had a
    different manner of posting it, but they are constrained by law
    and by lawsuit as to what they can do there.
        Mr. Platts. And related to that, the Social Security Act
    limits your access to the Department of Health and Human
    Services data base or national repository of wage and
    employment information?
        Mr. Miller. That's the--I believe what we are referring to
    there, the new hire date, so-called new hire data base. We
    actually do use it in some of our work today. We are permitted
    by law to use it in some fashion and we would be more than
    willing to walk through that with you as well, and what we
    might need in terms of additional authority or resources.
        Mr. Platts. If we're talking about the same thing, Mr.
    George, correct me if I am wrong, that the use is just related
    to the earned income tax credit.
        Mr. Miller. Right now it is.
        Mr. George. That's correct. They have the ability to do
    that, but you touched on a very important point, Mr. Chairman.
    If they were given expanded access to an HHS data base, this
    would help address whether or not someone had wages that they
    could then cite early to try to prevent a legitimate taxpayer
    later on from claiming their legitimate return. So they do need
    expanded authority in that area.
        Mr. Platts. Commissioner, that's a perfect example of how,
    in reference to Mr. Towns' opening statement, how we want to
    partner with you, with the IRS, with the IG, with Justice, you
    know, in identifying; because I want to emphasize, I know
    there's a very, very good faith effort being made by you, by
    the Commissioner, to combat this challenge and some of its
    resources, some of its authority.
        But, you know, where you need additional resources or a
    reallocation of your resources, additional authority, we need
    to hear that. And so we welcome that feedback of how we can
    partner with you, and this gets us specifically with statutory
    authority to allow you to have that information that allows you
    to better, up front, prevent the fraud from occurring.
        Mr. Miller. And we welcome that discussion.
        Mr. Platts. I yield to the gentleman from Virginia, Mr.
    Connolly, for the purpose of questions.
        Mr. Connolly. I thank the chairman, and welcome. Mr.
    Cimino, by the way, from New England?
        Mr. Cimino. No, I'm from--excuse me, Congressman I'm
    actually from Pittsburgh, sir.
        Mr. Connolly. Okay, fully rounded Os. Good for you.
        We've looked at, as Mr. Towns indicated, an almost
    exponential increase in the number of identity thefts related
    to tax administration: 51,000 in 2008, only 3 years ago; 10
    times that number today, 582,000 in 3 years. That can only be
    described as exponential growth.
        And, Mr. Miller, if I understood you correctly, previously
    you indicated you had to transfer about 400 people to try to
    deal with that; is that right?
        Mr. Miller. We have, yes.
        Mr. Connolly. Pardon me?
        Mr. Miller. We have; yes, sir.
        Mr. Connolly. And those are--have you hired new people to
    handle this problem?
        Mr. Miller. Right now we are going at risk budget-wise for
    those individuals.
        Mr. Connolly. I can't hear you.
        Mr. Miller. I'm sorry. Right now we are going at risk. I'm
    not sure how we're going to pay for those, but we'll find a
    way.
        Mr. Connolly. Okay.
        Let me ask a question maybe to Mr. Cimino, but any of you:
    Is there sort of a back-of-the-envelope rule of thumb that for
    every new IRS person or agent we hire, X amount of revenue goes
    with that person? If we, the Congress, make an investment in
    the IRS in terms of personnel, what kind of return on that
    investment can we expect? I mean, if I--you know, it's not the
    same at HUD. But at IRS there's a certain expectation it
    enhances revenue.
        Mr. Miller. I think, sir, the question is better answered
    by me. But I think that--I don't know the exact number but it's
    a multiple of--it's a positive investment for the Federal----
        Mr. Connolly. Absolutely. Would you get back to the record
    for us?
        Mr. Miller. We will.
        [The information referred to follows:]
        [Note.--The information referred to was not provided.]
        Mr. Connolly. And we understand it's not a hard and fast
    rule but it's a sort of, as I said, back-of-the-envelope
    calculation that every dollar you put in, you reap $1.75 back,
    whatever it is.
        We had a little discussion before and the chairman is right
    that the legislation--not his view, mine--ill-advised
    legislation we adopted yesterday was a novel management
    principle, that by freezing and capping personnel in any
    enterprise, somehow that's a good thing.
        I have yet to find a single corporation in America that
    would agree with that, that just arbitrarily saying we are
    going to cut back 10 percent and stay there.
        And if you want to replace anybody, irrespective of
    criticality of mission, you know, it's going to be on a one-to-
    three ratio. And the disruption to missions, you know, so be
    it. Now it is true, as the chairman indicated, that that's a
    global number, but it's also naive to believe that wouldn't
    affect IRS. IRS is hardly the favorite agency of the majority
    in this Congress.
        So I doubt very much that you're going to get a carveout.
    Yesterday when there were amendments, we refused to have a
    carveout for veterans. We refused to have a carveout for, you
    know, criminal prosecutions and public safety activities. So
    why we would have a carveout for IRS, I don't know.
        But let's just posit theoretically that the impact of that
    legislation were to become law on IRS. So let's say, by
    attrition, over the next 3 years by the way, you lose 10
    percent of your current work force, what would be the impact on
    identity theft if you had to--not only you are looking at, Mr.
    Miller, trying to find 400 people to serve this exponential
    growth problem, but now on top of that, how about a 10 percent
    reduction?
        And it could be worse. What the chairman says is absolutely
    correct but the obverse is also true. You might have to take a
    bigger cut because some other agencies are considered
    priorities, and they don't--there are not sustaining the 10
    percent cut.
        Mr. Miller. I guess it's a difficult--it's a difficult
    question to answer.
        Mr. Connolly. No, you have to answer it. We passed this
    bill yesterday, so you have to start thinking about how would I
    implement such a bill which could have, under worst-case
    scenario, a 10 percent reduction in the work force.
        Mr. Platts. Would the gentleman yield?
        Mr. Connolly. Yes.
        Mr. Platts. I would like to add one clarifying aspect about
    the bill is that it does provide the CEO, the President, the
    waiver authority for the efficient operation of any agency or
    for critical missions of an agency to exceed that cap, so it
    does allow--so if the President thought the IRS needed
    additional, I just wanted to note that that was part of the
    language of the bill.
        Mr. Connolly. And I thank the chairman for that
    clarification, and he is correct.
        However, I would point out that that is an extraordinary
    waiver. In other words, we don't go to the IRS administrator to
    make a judgment; we go all the way to the President of the
    United States in the White House.
        Good luck, Mr. Miller, in getting a waiver from the White
    House for your operation. You know, ``We need 10 extra people,
    Mr. President. Will you sign a waiver so we'll get around this
    provision in this law?''
        I think that's an extraordinarily high level and I think,
    frankly, it doesn't really solve micro-problems like the one
    we're dealing with here, even though they're growing
    exponentially.
        Mr. Chairman, I know my time has expired, but I wonder if
    you would just allow the witness to answer the question and
    then I will be done. Thank you.
        Mr. Miller. So I--obviously a 10 percent cut would be a
    material reduction in our force and that's happening already,
    by the way. Over----
        Mr. Connolly. Mr. Miller, time is limited. Of course,
    that's true. That's self-evidently true.
        My question is: What does this do to your mission given the
    fact that we've had a 10fold increase in 3 years in identity
    theft with respect to tax administration that you are trying to
    deal with? If we have a 10 percent reduction in the work force,
    how would that affect your ability to deal with this
    exponentially growing problem?
        Mr. Miller. We will have to decide where we take those
    cuts, Congressman, and I don't know whether they will be--but
    we will have to take cuts, yes.
        Mr. Connolly. And presumably that would impair your ability
    to respond to this growing theft.
        Mr. Miller. It will force some very tough choices, no
    question about that.
        Mr. Connolly. Thank you very much. Thank you, Mr. Chairman.
        Mr. Platts. The gentleman yields back. And we do have a
    difference of opinion what the bill means. As one that believes
    we--Congress and the President--need to better prioritize where
    we put our resources, and enforcing our tax laws is one of
    those priorities. But I respect the gentleman's opinion.
        But I think the gentleman started to say that you've had a
    reduction.
        Mr. Miller. Right.
        Mr. Platts. And I would hazard a guess that that's related
    to advances in technology in the last, say, 10 years; that
    because of technology and computers, a lot of what we do today,
    and when we are talking about filters, is not manual review but
    electronic review of data.
        Mr. Miller. Well, yes and no, Mr. Chairman, because
    taxpayer rights are such that I can't just look at a return on
    the computer and say it's a bad return. There's always a
    treatment stream after that that involves a person.
        Mr. Platts. Absolutely. But that initial review maybe is
    done electronically as opposed to manpower.
        Mr. Miller. Most of it is electronic at this point, some of
    it is manpower. But certainly the back end of it is, once you
    find you have to do something with it, as we talked about with
    the victims and everyone else, it needs to be worked to ground
    by people.
        Mr. Platts. Absolutely. I appreciate that, especially when
    you get into that type of detail.
        I yield to the ranking member, Mr. Towns.
        Mr. Towns. Mr. Chairman, we have a vote on, so I am going
    to not ask my questions be answered at this point but to ask
    them to respond to us in writing, if that's okay with you.
        IRS can't give information, even to States or local law
    enforcement, that may be investigating or prosecuting identity
    theft crime under a State criminal statute. Each of the offices
    represented today has to deal with this law. So if I could get
    you to respond to these questions in writing for me, I would
    appreciate it.
        My question is: Why is this law that was enacted to deal
    with crime 40 years ago, still preventing the prosecution of
    new escalating criminal schemes?
        Number two, what would be an appropriate legislative
    response to certain sections of 6103 provisions that can enable
    you to do your job of stopping these crimes more effectively?
        Number three, have there been proposals from any of your
    offices on adjusting section 6103 to meet the needs of your
    agencies in combating identity theft crimes?
        And the last one: What consequences, both negative and
    positive, would such a legislative remedy have?
        I would appreciate that. And being my voting record is not
    the strongest, I need to go make this vote, Mr. Chairman.
        Mr. Platts. The gentleman yields back.
        I am going to try to wrap up with three main areas here and
    then we will conclude the hearing, and appreciate the
    additional information that will be provided in in writing.
        The first is on the issue of the reference of $4.2 billion
    in fraudulent child tax credits. And it's my understanding that
    the IG is identifying those as paid to individuals here
    illegally; is that correct, Mr. George?
        Mr. George. Well, I would say paid to people who use I-
    10's, not Social Security numbers, and our research has
    indicated that most people who use the I-10 are not in the
    country legally.
        Mr. Platts. Okay. So a high propensity of these are likely
    here illegally.
        Mr. George. That's a reasonable conclusion.
        Mr. Platts. And my understanding from your written
    testimony is that of that $4.2 billion number that you have
    identified, that to your belief, that none of that has been
    recovered?
        Mr. George. Yes, that's correct, sir.
        Mr. Platts. Commissioner Miller, anything you can share on
    efforts--and we're talking about not even millions now, but
    billions of dollars of fraudulent payments, taxpayerfunds, have
    gone out to likely illegals; and obviously, you know, there's
    individuals who intentionally, you know, are violating the law
    to seek that money. But is there an ongoing effort to recover
    it and, if so, what success are we having?
        Mr. Miller. So I think I would--we will get back to you
    more fully in writing.
        I don't think we agree with the number, to start with. We
    don't agree that it's all fraud, and we do have an enforcement
    effort underway. I don't want to say that either. We are
    working on--because some of it is fraud, there's no question.
    Some of it is mismatching.
        And by the way, when you talk about I-10 holders, that
    would be a change of law that you all in Congress would have to
    make because that's not a barrier to getting the credit. So
    it's a more complex sort of answer that I'm more than willing
    to come back in in much more detail on.
        Mr. Platts. And if you can give us--why do you disagree
    with the number, you know? I'm glad if you want to do it in
    writing.
        Mr. Miller. Yes, we'll do that in writing.
        [The information referred to follows:]
        [Note.--The information referred to was not provided.]
        Mr. Platts. But what do you find inaccurate in what the
    IG's finding is? And then, specifically, you referenced
    something that we would have to do to prohibit somebody here
    illegally, if there's something we're missing in the law,
    because it's certainly not the intent of Congress and my belief
    and certainly not what I think should be our intent--should not
    be our intent that--if you're here illegally, that you get the
    benefit of a tax credit from the general Treasury. So if
    there's something that we should look at as far as, again, a
    statutory change, I would welcome that suggestion, that
    recommendation.
        Mr. Miller. Absolutely.
        Mr. Platts. The issue of the number of tax refunds that are
    deposited in the same bank account, again in the IG's testimony
    referenced in 2008, the IG reported that IRS had not yet
    developed a process to ensure that more than 61 million tax
    refunds were deposited to an account in the name of the actual
    filer, as required by Federal direct deposit regulations. And
    an analysis of the direct deposit data for 2007 showed that
    more than 700,000 bank accounts received three or more tax
    refunds totaling $8 billion.
        I can think of times where more than one account, a family,
    and perhaps a teenager working, or somebody doesn't have a bank
    account--although today I would encourage they should; as I
    referenced to you yesterday, both of my sons, 15 and 12, have
    their own bank accounts--but where there could be instances.
        But are we, you know, being dutiful here in identifying if
    one bank account is getting 10 or 20 or 30 accounts a day
    that's, again, to me, a huge red flag that should go up that
    there's something askew here.
        What, if anything, are we doing to better address this
    issue that the IG raises in their testimony?
        Mr. Miller. So, a couple of things. And again this might be
    something, again, that we're going to go to you back in writing
    on, because it's not something I really want to discuss too
    widely, but we're doing a few things.
        I agree with you that bells and whistles ought to be going
    off when many, many refunds are going into an individual bank
    account.
        That said, there's no legal barrier to that, I don't
    believe, but we ought to be doing a better job tracking it and
    we are going to do that going forward.
        We are also working, frankly, with software developers and
    other financial institutions to try to better the flow of
    information between all of those parties and the IRS, and that
    will help as well.
        But in terms of what specifically we're going to do, that's
    something I will be glad to come back to you on.
        [The information referred to follows:]
        [Note.--The information referred to was not provided.]
        Mr. Platts. Yes. This, you know, is about interactions
    between the IG and the IRS 3 years ago, you know, 2008,
    referencing what had happened in 2007. So I realize you were
    not in your position in 2007 or 2008, but you are today and I
    appreciate your taking a serious look at it.
        And this is one of those, what I'll call triggers, you
    know, of how to use technology to better identify, you know,
    intended fraud or attempted fraud. And, you know, that if one
    bank account, the same bank account is going to get three or
    four, I mean, the higher the number, the more scrutiny it
    should get. And I would think that certainly if it's five or
    more, that should get some great scrutiny. Maybe it's three,
    but your data probably is going be able to better identify what
    that threshold should be.
        And if we're not doing that, I guess my question is why
    aren't we? Because you know, again, the best way to protect the
    victim is to prevent the fraud in the first place. And so what
    I really--you know, my focus, as I said in the beginning, is
    when there is a fraud committed, you know, are we doing
    everything in our power to assist the victim of that fraud to
    get back, you know, made whole as quickly as possible? And then
    up front, how are we preventing the fraud?
        And these triggers, I'll call these trip wires that should
    be sending off kind of warning notices that the more of them
    that are tripped, the more scrutiny these returns should be
    getting, and this is yet one more example of the bank account.
        Mr. Miller. One barrier, Mr. Chairman, obviously, is there
    are going to be accounts that are going to be returned, that
    are going to receive an awful lot of refunds, absolutely
    appropriately, some return preparers, some financial providers
    of refinance anticipation loans and other sorts of things. That
    will be improved going forward as we roll out our system of
    actually registering return preparers. We will have a better
    way to track that than we have in the past.
        Mr. Platts. The, again, up-front efforts to prevent the
    fraud, one of the proposals in Senator Nelson's bill that he
    has introduced regarding this issue is that individual
    taxpayers have the ability, the option of opting out of e-
    filing so that somebody can't do it electronically, they have
    to actually provide written W-2s. Is that something that the
    IRS is looking at in any fashion or would be willing to
    consider?
        Mr. Miller. So I think we are just looking at the bill, and
    I don't have a firm reaction from the administration or even
    from the IRS. I would say, you know, there would be costs to
    going back to paper, obviously, and IT costs to having a toggle
    switch for an individual taxpayer. So those are our immediate
    concerns, but we will work that.
        Mr. Platts. Okay. Related to that is instead of going back
    to paper, staying electronic, but that a taxpayer could request
    a PIN as opposed to being offered one by the IRS, so that you
    don't go back to paper, you stay electronic, don't have the
    increased manpower, but someone who hasn't yet been a victim of
    identity theft, but while it was stolen and where they may
    become a victim, and they are trying to be proactive rather
    than after they've been victimized, ``All right, now we will
    get a PIN.''
        Where does that type of consideration stand with the IRS?
        Mr. Miller. So one of the changes in 2012 will be not only
    are we sending out these identity theft PINs to folks that
    we've validated, but if you come in, ``I lost my wallet, and
    I'm worried,'' we will take a look to see what your filing
    requirement is. We will take a look to ensure you are who you
    are, and you may very well be able to get a PIN. That's
    something that's rolling out again in 2012.
        Mr. Platts. So that is going to be an option, or you are
    looking at making it an option?
        Mr. Miller. I think it's going to be an option. I will have
    to come back to you, whether it's everyone or whether it's a
    certain subsection of those folks, but we're moving in that
    direction.
        Mr. Platts. Yes. If you can, again, give us a definitive
    answer for the record; is it an option and, if so, and if not,
    when will a decision be made as to when it becomes------
        Mr. Miller. I believe it is. But let me verify.
        [The information referred to follows:]
        [Note.--The information referred to was not provided.]
        Mr. Platts. Thank you. A final question. My understanding--
    well, back in January you began looking at how to better
    address the issue of identity theft and the fraud related to
    it, and that you plan on issuing two reports, one on the
    assessment of the current state of your identity theft program
    and one on the future state, where you're going to go.
        Are those reports near completion?
        Mr. Miller. So I had seen that in a prior testimony, and I
    will have to take a look and figure out what's going on with
    those. There are obvious--we have a couple of teams. One has
    worked and focused on the front-end prevention. One has worked
    on making the victims less victim-like as they go through our
    system. Whether they have actual reports--while I have seen
    many decks, whether there's actual reports we will have to come
    back beyond.
        Mr. Platts. If you could give us the status of those
    reports, because it sounds like internally you're seeking to
    do, based on my understanding, what we're after; which is, to
    get a better handle on your efforts, you know, in the big
    picture, of what you're doing proactively, how you're
    responding to fraud, how you're handling and assisting victims.
    So we welcome that information.
        Mr. Miller. Absolutely.
        [The information referred to follows:]
        [Note.--The information referred to was not provided.]
        Mr. Platts. I will give each of you, if you have any final
    comments you want to make sure are part of the record, there's
    something that I did not address or the other members of the
    panel did not address.
        Mr. George. Mr. Chairman, I would just simply note that
    TIGTA is in the process of taking a review of the IRS' action
    as it relates to identity theft forward, and we anticipate two
    reports in the early spring and late summer, or late spring and
    early summer.
        Mr. Platts. We would look forward to receiving those as
    well. I think the more information we all have of the current
    situation and where we're heading and how to do better by the
    American people, the better off the country is going to be
    financially, and taxpayers are going to be from being prevented
    from being victimized.
        Mr. Cimino.
        Mr. Cimino. Mr. Chairman, on behalf of the Department,
    we're pleased to be here and try to deal with some of these
    really critical issues that the subcommittee has focused on,
    and I will respond on behalf of the Department to the questions
    of the ranking.
        Mr. Platts. Thank you, Commissioner Miller.
        Mr. Miller. I am happy to be here and will look forward to
    working with you and the staff.
        Mr. Platts. Generous of you to say ``happy to be here''
    when you are being put on the hot seat. And I know that it's
    probably less fun to be in those seats versus up here asking
    the questions. My hope is that each of you understand that it's
    not to put you on the spot, but really to just generate a
    dialog and, you know, that we really, you know, get everything
    on the radar that we think needs to be addressed.
        As an oversight committee, our role is to raise questions
    and to get answers to those questions of how we can make
    government in total--in this case the IRS--more efficient,
    better serving the American people.
        I certainly understand that all three of you and your
    colleagues seek to do that every day and in no way want to
    suggest that you're not.
        Sometimes it helps when you have an outside set of eyes or
    input, you know, kind of get you to look at things outside of
    maybe that typical box, and that's part of the intent of this
    of hearing.
        As I said earlier, our hope is that we will be better
    successful--more successful on preventing fraud, protecting tax
    dollars, but when it does occur, better assist the victims. And
    in our June hearing it came through that we had not done a very
    good job of aiding those who had been victimized. And, you
    know, we clearly need to do much better while protecting the
    tax dollars of all Americans.
        So we'll keep the record open for 14 days for the
    additional information that you're going to provide. And if we
    have any final questions that we didn't get to, also we'll get
    them to you in a timely fashion. But we're grateful for your
    testimony here today and, again, your workday and a day out, as
    well your colleagues and your various departments and your
    agencies, and we know we're on the same team trying to do a
    good job for the American people.
        This hearing stands adjourned.
        [Whereupon, at 11:32 a.m., the subcommittee was adjourned.]
        [Additional information submitted for the hearing record
    follows:]