[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



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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

   Subcommittee on Government Organization, Efficiency and Financial 
                               Management

              TODD RUSSELL PLATTS, Pennsylvania, Chairman
CONNIE MACK, Florida, Vice Chairman  EDOLPHUS TOWNS, New York, Ranking 
JAMES LANKFORD, Oklahoma                 Minority Member
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
FRANK C. GUINTA, New Hampshire       ELEANOR HOLMES NORTON, District of 
BLAKE FARENTHOLD, Texas                  Columbia












                            C O N T E N T S

                              ----------                              
                                                                   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:]
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    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:]
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    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:]
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    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:]
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    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:]




                                 
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