[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
IDENTITY THEFT AND
INCOME TAX PREPARATION FRAUD
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CRIME, TERRORISM,
AND HOMELAND SECURITY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
JUNE 28, 2012
__________
Serial No. 112-126
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TIM GRIFFIN, Arkansas LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania JARED POLIS, Colorado
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada
Richard Hertling, Staff Director and Chief Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
------
Subcommittee on Crime, Terrorism, and Homeland Security
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
LOUIE GOHMERT, Texas, Vice-Chairman
BOB GOODLATTE, Virginia ROBERT C. ``BOBBY'' SCOTT,
DANIEL E. LUNGREN, California Virginia
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
TED POE, Texas HENRY C. ``HANK'' JOHNSON, Jr.,
JASON CHAFFETZ, Utah Georgia
TIM GRIFFIN, Arkansas PEDRO R. PIERLUISI, Puerto Rico
TOM MARINO, Pennsylvania JUDY CHU, California
TREY GOWDY, South Carolina TED DEUTCH, Florida
SANDY ADAMS, Florida SHEILA JACKSON LEE, Texas
MARK AMODEI, Nevada MIKE QUIGLEY, Illinois
JARED POLIS, Colorado
Caroline Lynch, Chief Counsel
Bobby Vassar, Minority Counsel
C O N T E N T S
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JUNE 28, 2012
Page
OPENING STATEMENTS
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 2
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Committee on the Judiciary....... 3
WITNESSES
Rebecca Sparkman, Director, Operations, Policy, and Support,
Criminal Investigation Division, Internal Revenue Service
Oral Testimony................................................. 5
Prepared Statement............................................. 6
Nina E. Olson, United States Taxpayer Advocate, Office of the
Taxpayer Advocate, Internal Revenue Service
Oral Testimony................................................. 13
Prepared Statement............................................. 15
Sanford Zinman, National Tax Chair, National Conference of CPA
Practitioners (NCCPAP)
Oral Testimony................................................. 44
Prepared Statement............................................. 45
Michael Robinson, Victim of Income Tax Preparation Fraud
Oral Testimony................................................. 49
Prepared Statement............................................. 51
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 2
Prepared Statement of the Honorable Louie Gohmert, a
Representative in Congress from the State of Texas, and Vice-
Chairman, Subcommittee on Crime, Terrorism, and Homeland
Security....................................................... 58
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Robert C. ``Bobby'' Scott, a
Representative in Congress from the State of Virginia, and
Ranking Member, Subcommittee on Crime, Terrorism, and Homeland
Security....................................................... 69
IDENTITY THEFT AND
INCOME TAX PREPARATION FRAUD
----------
THURSDAY, JUNE 28, 2012
House of Representatives,
Subcommittee on Crime, Terrorism,
and Homeland Security,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 9:48 a.m., in
room 2141, Rayburn House Office Building, the Honorable Louie
Gohmert (Vice-Chairman of the Subcommittee) presiding.
Present: Representatives Gohmert, Smith, Marino, Scott,
Conyers, and Cohen.
Staff Present: (Majority) Caroline Lynch, Subcommittee
Chief Counsel; Sarah Allen, Counsel; Lindsay Hamilton, Clerk;
(Minority) Bobby Vassar, Subcommittee Chief Counsel; Joe
Graupensberger, Counsel; Ashley McDonald, Counsel; and Veronica
Eligan, Professional Staff Member.
Mr. Gohmert. Thank you for being here today. This hearing
of the Crime, Terrorism, and Homeland Security Subcommittee
will come to order.
Today's hearing on identity theft and income tax
preparation fraud is an important hearing. Especially like to
welcome our witnesses. We appreciate your being here and look
forward to your testimony.
Joined by my colleague from Virginia, the distinguished
Ranking Member of the Subcommittee, Bobby Scott. We are also
pleased to be joined by Ranking Member Conyers, the former
Chairman of the Committee, and Chairman Lamar Smith should be
here shortly. So, and when he comes, I understand he has an
opening statement.
I have an opening statement, but because the Speaker has
called a conference for 10:30 a.m., I don't want to run out of
time and have left one of you to have to come back after a
recess. So I will reserve my opening statement for later and
proceed.
Ranking Member Mr. Scott, I understand, has a statement,
and so we yield to Mr. Scott for his opening statement.
Mr. Scott. Thank you, Mr. Chairman.
And in light of your statement of the time, I will just
thank you for calling the hearing. You will recall that
Representatives Cohen, Rigell, and Thompson wrote in requesting
a hearing, particularly as it pertains to Mo' Money Taxes.
We will hear from our witnesses about that, and I reserve
the balance of my time. I will yield back the balance of my
time.
Mr. Gohmert. All right. Well, thank you, Mr. Scott. And we
will certainly yield later after we hear from the witnesses.
Well, then at this time, Mr. Conyers, would you care to
make an opening statement?
Mr. Conyers. Yes, sir.
Mr. Gohmert. I will yield to you.
Mr. Conyers. And I will keep it brief in light of the
custom of my Subcommittee Chairman and my distinguished Ranking
Member.
But this is an important hearing. Identity theft and tax
preparation fraud. Now this is bothering apparently a lot of
people, and we are glad that all of you witnesses are here for
it.
The message that is really getting my interest is the alert
sent out by the Better Business Bureau of Western Michigan, a
consumer alert about the national tax preparation company Mo'
Money Taxes, of which there are plenty of offices in Detroit
and the state of Michigan. Its home office is Memphis,
Tennessee.
Consumers are complaining that their refunds were promised
in January. Some of the Mo' Money offices are closed. Some
don't answer their phones or return calls. Some blame the IRS.
Mo' Money blames the IRS.
And so, I would like to hear a lot more about that, and I
will put the rest of my statement in the record, Mr. Chairman,
but note that identity fraud is a $37 billion cost in America,
and we think that this is worthy of this hearing.
I commend my leaders on this Subcommittee for dealing with
this problem and ask unanimous consent to put my statement into
the record.
Mr. Gohmert. Without objection, it will be so entered and
appreciate the statement.
[The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, Ranking Member, Committee on
the Judiciary, and Member, Subcommittee on the Constitution
Thank you, Chairman, for this hearing on these important issues of
identity theft and income tax preparation fraud. I would like to
welcome all of today's witnesses, and especially Mr. Michael Robinson.
I understand Mr. Robinson will testify today about his experience with
the Mo Money tax company, and I want to express my appreciation for him
joining us today.
Identity theft and income tax preparation fraud are serious
problems. In assessing whether a legislative response is required,
there are several issues we should consider.
To begin with, we must recognize that identity fraud is a costly
problem that affects many Americans. For example, about 8.1 million
Americans in 2010 were reportedly victims of identity fraud. The cost
of this fraud was an astounding $37 billion. For one specific type of
identity theft--tax fraud through identity theft--the IRS estimates
that it paid as much as $5.2 billion in fraudulent returns in 2010.
In addition, identity fraud is not just a matter of money; it can
ruin one's personal financial life in numerous respects.
Once perpetrators of identity fraud have someone's personal
information, they can wreak havoc.
They can use the information to:
obtain credit cards in the victim's name;
establish bank accounts in the victim's name and write
bad checks;
take out a loan in the victim's name;
obtain a driver's license or official ID card issued in
the victim's name but with their picture;
use the victim's name and Social Security number to get
government benefits; and
file a fraudulent tax return using the victim's
information so that they can get the refund.
Victims of this crime often are forced to expend substantial time
and money to address these problems.
Of equal concern is the fact that these identity theft perpetrators
can sell personal information to other criminals, including terrorists,
who seek to elude law enforcement detection efforts.
Most importantly, in addressing this serious crime, we must fashion
a serious solution.
Our colleague, Representative Wasserman Schultz, introduced H.R.
4362, the ``STOP Identity Theft Act of 2012.''
This bill directs the Department of Justice to undertake a series
of meaningful efforts. It requires the Department to pursue more
prosecutions of tax return identity theft and expands the definition of
victims of identity theft to include organizations in addition to
individuals.
In addition, the bill requires the Department to report on the
incidence of tax return identity theft and enforcement efforts.
All of these provisions of the bill would result in real
improvements to the law.
I am concerned, however, that H.R. 4362 would also add tax fraud as
a predicate for aggravated identity theft under section 1028A(c) of
title 18 of the United States Code.
The penalty for aggravated identity theft is a mandatory term of
imprisonment of two years or, for a terrorism offense, five years. H.R.
4362 therefore includes a mandatory minimum by adding a new crime (tax
fraud) to a statute (aggravated identity theft) that already has a
mandatory minimum.
As we have discussed in this committee many times, mandatory
minimum sentencing laws require automatic prison terms for those
convicted of certain crimes, without allowing the judge to take the
facts and circumstances of the crime or the defendant in the particular
case into account.
Identity theft crimes need stiff punishments, and even increased
punishments, but mandatory sentences are problematic. I look forward to
working with Ms. Wasserman Schultz and Chairman Smith to explore ways
to combat identity theft without mandatory minimums.
I also plan to introduce a bill that will increase the statutory
maximum for aggravated identity theft but delete the mandatory minimums
currently included in section 1028A(c) of title 18 of the United States
Code.
I look forward to discussing the problem of identity fraud at
today's hearing and to explore ways to curtail this crime.
__________
Mr. Gohmert. And we have the Chairman of the full
Committee, Chairman Smith. Recognize you for an opening
statement.
Mr. Smith. Thank you, Mr. Chairman.
In 2010, a couple from Fort Worth, Texas, lost their
daughter a week after she was born. That year, when they filed
their tax returns, they found that someone had profited from
the death of their newborn baby by fraudulently claiming their
deceased daughter as a dependent.
The following year, the same thing happened to some friends
of the couple who also had lost a young child. In addition to
dealing with their grief, these two families were forced to
fight through the Federal tax system to set the record
straight.
Unfortunately, the fraud committed against these two Texas
families is not an isolated event. Tax fraud through identity
theft is a rapidly growing problem in the United States. The
number of these thefts has increased by approximately 300
percent every year since 2008. The Internal Revenue Service
detected almost 1 million fake returns among the 2010 returns
alone.
Tax thieves victimize innocent taxpayers in a number of
ways. They often file fake returns under a false name or claim
someone who is no longer alive as a dependent on their own
forms. Often, the fraud is not detected until an individual
files a legitimate tax return that is rejected by the IRS
because a false return has already been filed and the refund
paid.
Tax return identity theft is a very real problem. Congress
should do all it can to protect citizens from this crime. I am
an original cosponsor of H.R. 4362, the Stop Identity Theft Act
of 2012, along with Congresswoman Debbie Wasserman Schultz.
This is a bipartisan bill that strengthens criminal penalties
for tax return identity thieves.
H.R. 4362 adds tax return fraud to the list of predicate
offenses for aggravated identity theft and expands the
definition of an identity theft victim to include businesses
and charitable organizations. It also improves coordination
between the Justice Department and State and local law
enforcement officials in order to better protect groups that
are most vulnerable to tax fraud so they are not future
victims.
The changes to Federal law proposed by H.R. 4362 are
important to keep pace with this ever-increasing crime. Tax
identity theft cost American families and taxpayers millions of
dollars each year. We can help reduce the number of people who
are victimized by this crime.
So thank you, Mr. Chairman, and I thank the witnesses for
being here as well and yield back the balance of my time.
Mr. Gohmert. Thank you, Mr. Chairman.
At this time, it is my pleasure to introduce today's
witnesses. First, we have Ms. Rebecca Sparkman, serves as
Director of Operations, Policy, and Support in the Criminal
Investigation Division of the Internal Revenue Service. Prior
to this position, Ms. Sparkman served as special agent-in-
charge of the IRS Washington, D.C., field office with the
Criminal Investigation.
Ms. Sparkman began her IRS career in 1987 as a student
trainee internal revenue agent and student trainee special
agent in Riverside, California. She became a special agent in
1988 and has served several supervisory positions, including
Deputy Director of Operations, special agent-in-charge of the
Atlanta field office, executive assistant to the Chief of the
Criminal Investigation Division, and counterterrorism
coordinator to the Deputy Commissioner of Services and
Enforcement.
Ms. Sparkman has most recently acted as the Director of
Technology, Operations, and Investigative Services, and the
Executive Director of the Investigative and Enforcement
Operations for Criminal Investigation.
Ms. Sparkman holds a bachelor of science degree in
accounting from California Baptist University.
At this time, Ms. Sparkman, we will recognize you for a
statement, and please consider and understand that we will
accept your full written statement as part of the record. But
for purposes of these hearings, both Members and witnesses are
restricted to 5 minutes for their statement, and you can watch
the lights go from green to yellow to red to let you know time
is up.
So thank you, Ms. Sparkman. We appreciate it.
TESTIMONY OF REBECCA SPARKMAN, DIRECTOR, OPERATIONS, POLICY,
AND SUPPORT, CRIMINAL INVESTIGATION DIVISION, INTERNAL REVENUE
SERVICE
Ms. Sparkman. Thank you.
Chairman Gohmert, Ranking Member Mr. Scott, Mr. Conyers,
and Members of the Subcommittee, my name is Rebecca Sparkman,
and I am the Director of Operations, Policy, and Support in the
Criminal Investigation Division of the Internal Revenue
Service. And I appreciate the opportunity to testify on the
important issues of identity theft and return preparer fraud.
The work being done by the Criminal Investigation Division
is a key component of the IRS's overall refund fraud strategy,
which combats both identity theft and return preparer fraud. In
these cases, there are at least two victims for each crime--the
innocent person whose identity information is used to file a
false return and the U.S. Treasury when the fraudulent refund
goes out the door. Both are harmed, and both must work to
rectify the situation.
The Criminal Investigation Division will more than double
its investigative work on identity theft in 2012. We have
already initiated 576 criminal cases, compared to 276 for all
of last year, and we have obtained over 300 indictments,
compared to 165 last year.
This past January, the IRS conducted a coordinated
enforcement sweep related to identity theft in partnership with
the Justice Department's Tax Division and local U.S. attorney's
offices, which led to more than 900 criminal charges across 23
States. The Criminal Investigation Division continues to
partner with Federal, State, and local law enforcement,
including participation by our special agents throughout the
country in task forces and working groups that target tax-
related identity theft crimes.
About 60 percent of Americans use paid professionals to
prepare and file their tax returns. Most return preparers
provide honest service to their clients. But as in any other
business, there are also some who prey on unsuspecting
taxpayers.
Unfortunately, unscrupulous return preparers have been
known to promise guaranteed or inflated refunds, skim off part
or all of the refund, hijack returns, which takes personal
information of former or potential clients and files false
returns when the client did not intend to file a return. And
they also conspire with others in identity theft schemes
because they have access, and they are familiar with the IRS's
filing systems.
Like our case work in identity theft, cases involving
return preparer fraud by the Criminal Investigation Division in
2012 is on pace to increase from that of last year. While
criminal investigations and the resulting prosecutions are
critical to deterring tax crimes related to identity theft and
return preparer fraud, it cannot totally prevent them from
occurring.
The IRS must continually work to improve its processes and
programs to detect and prevent these crimes. The harm that is
inflicted by identity theft or return preparer fraud on
innocent taxpayers is a problem that we take very seriously.
The IRS has made several key improvements in a number of
detection and prevention programs since 2011.
We have developed new screening filters to improve our
ability to spot false returns. We implemented special identity
protection personal identification numbers, or PINs, for
victimized taxpayers. We have launched a pilot program to aid
local law enforcement in obtaining tax return data vital to
their identity theft investigations.
We are collaborating with software developers, banks, and
other industries to better detect fraud. We have improved
outreach and case resolution to assist taxpayers who have been
victimized. We have deployed a return preparer initiative
requiring registration for paid return preparers, as well as
competency testing and continuing education.
Overall, IRS programs identified and prevented the issuance
of over $14 billion in fraudulent refunds in 2011, a subset of
which includes identity theft and a portion of return preparer
fraud.
Fighting refund fraud will be an ongoing battle for the IRS
and one where we cannot afford to let up. The landscape is
constantly changing as identity thieves continue to create new
ways of stealing personal information to use it for illicit
gain, and unscrupulous return preparers are constantly
formulating new schemes to hide their fraud.
At the IRS, we will continue to review our processes and
policies to ensure that we are doing everything possible to
minimize the incidence of fraud, help those who find themselves
victimized by it, and bring to justice those who perpetrate
these crimes.
Mr. Chairman, I thank you for the opportunity to appear
before the Subcommittee and describe the steps that the IRS is
taking to combat identity theft and return preparer fraud,
especially the work of the Criminal Investigation Division in
these areas. And I would be happy to answer any questions.
Thank you.
[The prepared statement of Ms. Sparkman follows:]
Prepared Statement of Rebecca Sparkman, Director, Operations, Policy
and Support, Criminal Investigation Division, Internal Revenue Service
introduction and summary
Chairman Sensenbrenner, Ranking Member Scott and Members of the
Subcommittee on Crime, Terrorism and Homeland Security, my name is
Rebecca Sparkman and I am the director of operations, policy and
support in the Criminal Investigation division of the Internal Revenue
Service. I appreciate the opportunity to testify on the important issue
of identity theft and also discuss actions that the IRS is taking in
the area of return preparer fraud.
Over the past few years, the IRS has seen a significant increase in
refund fraud schemes in general and schemes involving identity theft in
particular. Identity theft and the harm that it inflicts on innocent
taxpayers is a problem that we take very seriously. The IRS has a
comprehensive identity theft strategy comprised of a two-pronged
effort, focusing both on fraud prevention and victim assistance.
Identity theft is the use of another person's identifying
information stolen from a wide variety of places and through a wide
variety of means. With respect to the IRS, identity theft manifests
itself in several ways. First, it is used to defraud the government of
funds through the filing of fraudulent refund claims. Second, in many
instances it victimizes an innocent taxpayer by impeding his or her
ability to get a refund from us. Fraudulent filings may also cause us
to initiate an adverse enforcement action against the innocent
taxpayer. There are also many instances where the identity stolen is
not of an active filer so there is less immediate impact on the real
taxpayer. In these instances, the identity may belong to a deceased
individual or an individual without a filing requirement. In this
category, the IRS is faced with fraud, but there is less immediacy in
the need to assist the correct taxpayer because there is no return
filed or other IRS activity underway with respect to that individual.
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. The IRS cannot stop all
identity theft. However, we have improved and we are committed to
continuing to improve our programs. We can and will continue to work to
prevent the issuance of fraudulent refunds and we can and will continue
to work with innocent taxpayers to clear their accounts and/or get them
their money faster in a courteous and professional manner.
The IRS has also taken actions to be better prepared in both fraud
prevention and victim assistance. On the prevention side, this means
implementing new processes for handling returns, new filters to detect
fraud, new initiatives to partner with stakeholders and a continued
commitment to investigate the criminals who perpetrate these crimes.
The work being done by our Criminal Investigation division is a key
component of our overall refund fraud and identity theft strategy. We
have been increasing our investigations of fraud related to identity
theft, and expanding our efforts to work with other divisions within
the IRS as well as with local law enforcement and other federal
agencies in this area.
As for victim assistance, the IRS is working to speed up case
resolution, provide more training for our employees who assist victims
of identity theft, and step up outreach to and education of taxpayers
so they can prevent and resolve tax-related identity theft issues
quickly.
The improvements that the IRS is making would not be possible
without the additional resources that we have directed toward these
programs. We have substantially increased our resources devoted to both
prevention and assistance. Even in a declining budget environment, we
are hiring and training additional staff to address the growing
challenge of identity theft.
Fighting identity theft will be an ongoing battle for the IRS and
one where we cannot afford to let up. The identity theft landscape is
constantly changing, as identity thieves continue to create new ways of
stealing personal information and using it for their gain. We at the
IRS must continually review our processes and policies to ensure that
we are doing everything possible to minimize the incidence of identity
theft, to help those who find themselves victimized by it, and to
investigate those who are committing the crimes.
And yet there is a delicate balance here. We cannot manually
inspect 100 million refunds to ensure all are correct--nor is there any
justification for doing so. That is neither practical nor in keeping
with Congressional intent. The IRS has a dual mission when it comes to
refunds, particularly when they are generated in whole or in part by
tax credits. Refundable and other tax credits are provided to achieve
important policy goals, such as relieving poverty, encouraging work, or
boosting the economy. The IRS must deliver refunds in the intended time
frame, while ensuring that appropriate controls are in place to
minimize errors and fraud. We must balance the need to make payments in
a timely manner with the need to ensure that claims are proper and
taxpayer rights are protected.
So it is indeed a difficult challenge to strike the right balance.
The IRS' approach to tackling identity theft must be multi-faceted. We
are improving processes to prevent fraudulent filings from being
processed as well as identifying promoters and other schemes. We are
aggressively pursuing perpetrators of tax fraud from identity theft to
bring them to justice. We are also taking actions to improve handling
of identity theft cases and to better serve taxpayers whose identities
have been stolen for tax purposes. All of this is being done within a
very difficult budget environment. The Administration's FY 2013 Budget
request includes important funding for additional enforcement
initiatives focused specifically on addressing refund fraud, including
identity theft. Let me walk through our work to prevent the fraud up
front and how we hope to improve our service to the victims of identity
theft.
preventing fraud from identity theft
Tax filings can be affected by identity theft in various ways. For
example, an identity thief steals a legitimate taxpayer's personal
information in order to file a fake tax return and attempt to obtain a
fraudulent refund. There are also instances where the identity stolen
is of an individual who is deceased or has no filing requirement.
Overall, IRS identified and prevented the issuance of over $14
billion in fraudulent refunds in 2011. Identity theft is a subset of
this overall refund fraud. From 2008 through May 2012, the IRS
identified approximately 550,000 taxpayers who have been affected by
identity theft. The IRS is committed to improving its approaches to
blocking these fraudulent refund claims. To that end, we strive to
process returns in such a way that potentially false returns are
screened out at the earliest possible stage.
Catching the Refund at the Door--Enhanced Return Processing
Identity theft is a key focus of an IRS program launched in 2011.
Under this program, the following improvements have been made:
Various new identity theft screening filters are in place
to improve our ability to spot false returns before they are processed
and before a refund is issued. For example, new filters were designed
and launched that flag returns if certain changes in taxpayer
circumstances are detected.
Moreover, this filing season, we have expanded our work
on several fraud filters which catch not only identity but other fraud.
In this area we have already stopped more returns this filing season
than we stopped all last calendar year.
We have implemented new procedures for handling returns
that we suspect were filed by identity thieves. Once a return has been
flagged, we will correspond with the sender before continuing to
process the return.
We are issuing special identification numbers (Identity
Protection Personal Identification Numbers or IP PINs) to taxpayers
whose identities are known to have been stolen, to facilitate the
filing of their returns and prevent others from utilizing their
identities.
We have accelerated the availability of information
returns in order to identify mismatches earlier, further enhancing our
ability to spot fraudulent tax returns before they are processed.
We are leveraging mechanisms to stop the growing trend of
fraudulent tax returns being filed under deceased taxpayers'
identities. We are also working with the Social Security Administration
in order to more timely utilize the information SSA makes available to
us.
We have also developed procedures for handling lists of
taxpayers' personal information that law enforcement officials discover
in the course of investigating identity theft schemes or other criminal
activity. This is extremely valuable data that can be used to flag
taxpayer accounts and help us block returns filed by identity thieves
who have used the personal information of these taxpayers. The Criminal
Investigation (CI) division will utilize this data to ensure linkages
are identified between criminal schemes and will also ensure that the
information is shared appropriately to affect victim account adjustment
and protection activity.
We expanded the use of our list of prisoners to better
utilize the list to stop problematic returns. We have collaborated with
the Bureau of Prisons for many years to help identify Federal prisoners
who may be engaged in tax fraud, and we received additional help under
the United States-Korea Free Trade Agreement Implementation Act passed
in 2011 that requires federal and state prisons to provide information
on the current prison population. Unfortunately, the authority allowing
us to share return information with prisons expired at the end of 2011.
The Administration's FY 2013 Budget proposal would reinstate the
provision authorizing the IRS to disclose return information with
respect to individuals incarcerated in Federal or State prisons whom
the IRS determines may have filed or facilitated the filing of a false
return.
We are also collaborating with software developers,
banks, and other industries to determine how we can better partner to
prevent theft.
Stopping It Before It Starts--Criminal Investigation Work
The investigative work done by the Criminal Investigation (CI)
division is a major component of our efforts to combat tax-related
identity theft. CI investigates and detects tax fraud and other
financial fraud, including fraud related to identity theft, and
coordinates with other IRS divisions to ensure that false refunds
involving identity theft are addressed quickly and that the IRS
accounts of identity theft victims are marked to help prevent any
future problems. CI recommends prosecution of refund fraud cases,
including cases involving identity theft, to the Department of Justice.
CI works closely with the other IRS divisions to improve processes
and procedures related to identity theft refund fraud prevention. For
example, CI provides regular updates to the IRS' Wage and Investment
division regarding emerging scheme trends so that processes and filters
can be enhanced to prevent refund loss. These collaborative efforts
have been instrumental in helping the IRS stop more refund fraud.
In response to this growing threat to tax administration, CI
established the Identity Theft Clearinghouse (ITC), a specialized unit
that became operational in January, to work on identity theft leads.
The ITC receives all refund fraud-related identity theft leads from
IRS-CI field offices. The ITC's primary responsibility is to develop
and refer identity theft schemes to the field offices, facilitate
discussions between field offices with multi-jurisdictional issues, and
provide support to on-going criminal investigations involving identity
theft.
CI investigations of tax fraud related to identity theft have
increased significantly over the past two fiscal years and the trend is
continuing in FY 2012. In FY 2011, 276 investigations were initiated,
compared with 224 in FY 2010 and 187 in FY 2009. CI recommended 218
cases for prosecution in 2011, compared with 147 the previous year and
91 in 2009. Indictments in identity-theft related cases totaled 165 in
2011, with 80 individuals' sentenced and average time to be served at
44 months. This compares with 94 indictments, 45 individuals sentenced
and a 41 month average sentence in 2010.
Already in FY 2012--through May 31--CI has initiated 576 cases and
recommended 342 cases for prosecution. Indictments in identity theft
cases total 316, with 107 individuals sentenced and average time to be
served at 49 months. The direct investigative time spent on identity
theft in FY 2011 was 225,000 hours and CI is on pace to double this in
FY 2012, as we have already reached 304,053 hours through the end of
May.
The IRS conducted a coordinated identity theft enforcement sweep
during the week of January 23. It was an outstanding success. Working
with the Justice Department's Tax Division and local U.S. Attorneys'
offices, the nationwide effort targeted 105 people in 23 states. The
coast-to-coast effort that took place included indictments, arrests and
the execution of search warrants involving the potential theft of
thousands of identities. In all, 939 criminal charges are included in
the 69 indictments and information related to identity theft.
In addition, in that same week IRS auditors and investigators
conducted extensive compliance visits to check cashing businesses in
nine locations across the country. The approximately 150 visits
occurred to help ensure that these check-cashing facilities aren't
facilitating refund fraud and identity theft.
These efforts send an unmistakable message to anyone considering
participating in a refund fraud scheme that we are aggressively
pursuing cases across the nation with the Justice Department, and
people will be going to jail.
Identity theft has been designated as a priority in 2012. We also
will be piloting dedicated cross-functional teams with other parts of
the IRS that will allow us to create a greater footprint in one or more
geographic locales.
Local law enforcement and other federal agencies play a critical
role in combating identity theft. Thus, an important part of our effort
to stop identity thieves involves partnering with law enforcement
agencies. We collaborate on these issues and this effort will only
increase going forward. It should be noted that the existing rules for
protecting taxpayer privacy often make it difficult for us to provide
easy access to information that may be useful for local law
enforcement. Despite these difficulties, in April 2012 we implemented a
new law enforcement assistance pilot program designed to aid law
enforcement in obtaining tax return data vital to their local efforts
in investigating and prosecuting specific cases of identity theft. The
IRS will carefully assess the results and performance of the pilot
program before deciding on how to proceed.
We will continue to search for other innovative ways to partner
with local law enforcement. Furthermore, CI special agents throughout
the country participate in at least 35 task forces and working groups
with federal, state, and local law enforcement that target tax-related
identity theft crimes. CI personnel also coordinate with these agencies
in an effort to ensure that victims are aware of the steps they need to
take to resolve their affected tax accounts. We will continue to
develop new partnerships with law enforcement agencies.
Some of the recent successes involving identity theft include the
following cases in which sentences were handed down in just the last
couple of months:
A Florida man was sentenced to 22 years in prison and
ordered to pay approximately $3.5 million in restitution on charges
that included wire fraud, making false statements against the U.S. and
aggravated identity theft. This individual and four accomplices
perpetrated a scheme in which taxpayers' identities were stolen from
state databases and used to file hundreds of fraudulent tax returns.
The four accomplices were sentenced to a total of 117 months in prison
and ordered to pay restitution totaling more than $1.6 million.
A South Carolina woman was sentenced to 75 months in
prison and ordered to pay more than $289,000 in restitution after she
was convicted on 18 counts of filing false, fictitious and fraudulent
claims, and one count of aggravated identity theft. This individual,
who operated a tax preparation service out of her home, filed false
returns using identifying information stolen from a former employer,
relatives, prisoners and others. She attempted to obtain approximately
$437,000 in bogus refunds.
Three Texas women were sentenced to a total of more than
70 months in prison for conspiring over a four-year period to steal
taxpayer identities and use the information to file false returns and
attempt to claim approximately $200,000 in bogus refunds. These
individuals used their positions in Texas state agencies governing
child support and low-income housing to steal the identities of agency
clients and claim the false refunds.
Two Alabama women were sentenced to 115 months in prison
apiece and ordered to pay more than $500,000 in restitution for their
involvement in a conspiracy to file false returns using stolen
identities. One of these individuals operated a tax return preparation
business and prepared the fraudulent returns, while the other gathered
stolen personal information and also recruited customers, coaching them
to provide false information in order to obtain the bogus refunds.
Five Georgia men were sentenced to a total of more than
280 months in prison and ordered to pay a total of more than $3 million
in restitution for participating in a scheme in which they prepared
more than 150 false tax returns using the identifying information of
prison inmates or persons living in their community.
A Tennessee woman was sentenced to 168 months in prison,
three years of supervised release, and ordered to pay more than
$200,000 in restitution on charges that included aggravated identity
theft, smuggling and mail fraud. This individual and an accomplice
filed more than 500 false returns over a three-year period using stolen
identifying information, and she attempted to collect more than $2
million in bogus refunds.
A Montana man was sentenced to 33 months in prison, three
years of supervised release, and ordered to pay more than $85,000 in
restitution on charges of submitting false claims and identity theft.
Over a two-year period this individual filed numerous fraudulent
returns using information of deceased taxpayers, and he attempted to
obtain more than $125,000 in bogus refunds.
assisting taxpayers victimized by identity theft
Along with prevention, the other key component of the IRS' efforts
to combat identity theft involves providing assistance to taxpayers
whose personal information has been stolen and used by a perpetrator in
the tax filing process. This situation is complicated by the fact that
identity theft victims' data has already been compromised outside the
filing process by the time we detect and stop perpetrators from using
their information.
We have taken a number of actions, including those described below,
to restore the account of the innocent taxpayer. We have had difficulty
keeping pace with the number of cases, but we are determined to bring
to bear new resources and streamline existing processes. Thus, we have
committed additional resources, even in this tough budget climate,
trained our people, developed an IP PIN program, and expanded our
external outreach.
Improving our work on Identity Theft Cases
We realize the importance of resolving cases involving identity
theft quickly and efficiently so that identity theft victims who are
owed their refunds can receive them as soon as possible and so that we
do not take adverse enforcement actions against such individuals.
We are implementing new procedures designed to resolve cases faster
and minimize the disruption to innocent taxpayers. For example, every
division within the IRS is making identity theft cases a higher
priority in their work. As indicated above, new procedures and
additional staff are being put in place to work cases faster where a
refund has been stopped. We increased staffing last year and this year,
and have plans to dedicate additional resources following the filing
season.
Along with taking steps toward faster resolution of identity theft
cases, we are continuously improving the way we track and report on the
status of all identity theft cases. We believe these improvements will
reduce the time to work identity theft cases in coming filing seasons
so that honest taxpayers will receive their refunds sooner.
Additionally, better tracking and reporting means that we can spot--and
correct--any flaws in the system more quickly.
Identity Protection PIN Program
In addition to helping identity theft victims clear up problems
with their IRS accounts, the IRS works proactively to help ensure that
these taxpayers do not encounter delays in processing their future
returns. In 2011, we launched a pilot program for Identity Protection
Personal Identification Numbers (IP PIN). The IP PIN is a unique
identifier that establishes that a particular taxpayer is the rightful
filer of the return. The pilot program showed us that this is a very
promising innovation that can dramatically reduce the number of
taxpayers caught up in delays. Therefore, we have expanded the program
for the new filing season, and have issued IP PINs to approximately
250,000 taxpayers who have suffered identity theft in the past.
Employee Training
The IRS runs one of the largest phone centers in the world, and is
dedicated to providing quality service with a high degree of accuracy
to every taxpayer who contacts us. Having said that, we realize that
taxpayers who call the IRS with identity theft problems present unique
challenges to our telephone representatives and we need to ensure
taxpayers receive quality, courteous service.
Therefore, last year we conducted a thorough review of the training
we provide our employees to make sure that they have the tools and
sensitivity they need to respond in an appropriate manner to those who
have been victimized by identity theft. As a result, we updated the
training course for our telephone assistors to maintain the proper
level of sensitivity when dealing with identity theft victims, and we
broadened the scope of our training to include other IRS employees who
interact with identity theft victims or work identity theft cases.
Taxpayer Outreach and Education
The IRS continues to undertake outreach initiatives to provide
taxpayers, return preparers and other stakeholders with the information
they need to prevent tax-related identity theft and, when identity
theft does occur, to resolve issues as quickly and efficiently as
possible. Recent actions in this area include the following:
overhauling the identity protection training provided to tax
practitioners at last year's Tax Forums; updating the identity theft
information provided in the IRS.gov website; and continuing a far-
reaching communications effort through traditional and social media in
both English and Spanish, including producing new identity theft
awareness videos for the IRS YouTube channel in English, Spanish and
American Sign Language, and making identity theft the top item in this
year's ``Dirty Dozen'' annual list of taxpayer scams.
return preparer fraud
I would like to turn now to the subject of tax return preparer
fraud and describe for you the efforts that the IRS has made in recent
years to ensure a basic competency level for tax return preparers and
focus our enforcement efforts on rooting out unscrupulous preparers.
The role of third party assistance in tax preparation in the U.S.
has become increasingly important, particularly in light of growing tax
law complexity and growing confusion among taxpayers over how to comply
with the tax code and meet their responsibilities. Today, most federal
individual income tax returns are prepared by paid return preparers or
by taxpayers using consumer tax preparation software.
The IRS' Return Preparer Initiative
As the importance of the practitioner's role in tax preparation
increased, the IRS determined that it was necessary to address a gap in
oversight involving return preparers who are not certified public
accountants (CPAs), enrolled agents (EAs) or attorneys. Our research
suggested that our tax system and a large number of taxpayers may be
poorly served by some return preparers who engage in fraud.
It was within this context that the IRS in 2009 launched its Return
Preparer Initiative, one of the most important initiatives that the IRS
has taken in recent years. This initiative has strengthened
partnerships with tax practitioners who are already regulated and
tested, while at the same time ensuring that all return preparers are
serving taxpayers well.
In 2009, the IRS launched a six-month review focusing on the
competency and conduct of paid return preparers. That review spawned a
series of recommendations to extend oversight to certain areas of the
preparer industry to enhance tax compliance and service to taxpayers.
The IRS began implementing these recommendations in 2010 and is now
well into the process of putting in place the main components of the
initiative, which include a registration requirement for preparers, and
a competency test and continuing education requirement for preparers
who are not CPAs, EAs or attorneys.
Criminal Investigations of Preparers
About 60 percent of taxpayers use tax professionals to prepare and
file their tax returns. Most return preparers provide honest service to
their clients. But as in any other business, there are also some who
prey on unsuspecting taxpayers.
Unfortunately, some unscrupulous return preparers have been known
to promise clients guaranteed or inflated refunds, skim off part or all
of their clients' refunds, or charge inflated fees for return
preparation services. Frequently, return preparer fraud involves the
orchestrated preparation and filing of false income tax returns (in
either paper or electronic form) which claim inflated personal or
business expenses, false deductions, excessive exemptions, and/or
unallowable credits that result in a refund. In many instances, the
preparers' clients may not have knowledge of the false nature of the
entries on their tax returns.
A new aspect of return preparer fraud is the highjacking of client
returns--taking personal information of former or potential clients and
filing falsified returns when the client did not intend for that
preparer to submit a return. This may occur in instances where the
client no longer has a filing requirement, has decided to retain a
different return preparer or has met with a preparer to obtain an
estimate for preparation of a return.
A second new aspect of this type of fraud is participation by
return preparers in the identity theft schemes initiated by other
third-parties. These individuals seek out unscrupulous return preparers
due to their access to, and familiarity with, the IRS' filing systems.
Identity thieves are continually searching for accomplices, either to
create and file the fraudulent returns or to collect and convert the
tax refunds into usable forms, i.e. cash or bank accounts they control.
Willing return preparers that participate in identity theft schemes
also offer an important incentive for identity thieves--the ability to
commingle fraudulent returns with legitimate ones in order to make
pattern recognition harder for IRS systems and personnel.
CI investigations of tax fraud related to return preparer fraud
have increased significantly over the past two fiscal years and the
trend is continuing in FY 2012. In FY 2011, 371 investigations were
initiated, compared with 397 in FY 2010 and 224 in FY 2009. CI
recommended 233 cases for prosecution in 2011, compared with 202 the
previous year and 129 in 2009. Indictments in return preparer fraud
related cases totaled 176 in 2011, with 163 individuals sentenced with
an average time to be served at 25 months. This compares with 182
indictments, with 132 individuals sentenced and a 24-month average
sentence in 2010. Already in FY 2012--through May 31--CI has initiated
317 cases and recommended 181 cases for prosecution. Indictments in
return preparer fraud cases total 149, with 103 individuals sentenced
and average time to be served at 30 months.
conclusion
Mr. Chairman, thank you for the opportunity to appear before the
Subcommittee and describe the steps that the IRS is taking to prevent
identity theft and assist taxpayers who have been victims of this
crime, and to discuss the actions we have been taking in the area of
return preparer fraud. These two areas are major challenges for the
IRS, and, while we have had some success of late, we are committed to
improving our efforts in regard to both. The Criminal Investigation
division has played and continues to play a key role in our efforts
both on identity theft and return preparer fraud. We will continue to
be aggressive in investigating fraud schemes perpetrated by identity
thieves and unscrupulous preparers. We want to make certain that the
message gets through that those participating in such schemes do so at
their peril, because we will do everything we can to make sure that
they are caught and sent to jail. I would be happy to answer any
questions that you may have.
__________
Mr. Gohmert. Thank you so much, Ms. Sparkman. We appreciate
that.
And there will be questions, but next, we will hear from
Ms. Nina Olson is the head of the Taxpayer Advocate Service.
Ms. Nina Olson serves as an advocate for taxpayers within the
IRS. Prior to her appointment as the national taxpayer advocate
in January 2001, Ms. Olson maintained a private law practice,
concentrating in tax controversy representation.
She was the founder and Executive Director of the Community
Tax Law Project, the first independent low-income taxpayer
clinic in the United States. From 1975 until 1991, she owned
and operated Accounting, Tax, and Information Services, a tax
planning and preparation firm in Chapel Hill, North Carolina.
Ms. Olson served as the chair of both the American Bar
Association Section on Taxation and Low-Income Taxpayers
Committee and the pro se, pro bono task force of the ABA
Section of Taxation's Court Procedure Committee.
Ms. Olson graduated from Bryn Mawr College with an AB in
fine arts. She received her J.D. from North Carolina Central
School of law and her master's of law in taxation from the
Georgetown University Law Center.
Ms. Olson has served as an adjunct professor at several law
schools, and we are honored and proud to have you here, Ms.
Olson. We would ask that you proceed with your 5 minutes of
testimony.
TESTIMONY OF NINA E. OLSON, UNITED STATES TAXPAYER ADVOCATE,
OFFICE OF THE TAXPAYER ADVOCATE, INTERNAL REVENUE SERVICE
Ms. Olson. Thank you. Thank you for inviting me today to
testify about tax-related identity theft and refund fraud.
Since 2004, I have written extensively about the impact of
these crimes on taxpayers and tax administration, and I have
worked closely with the IRS to improve its efforts to assist
taxpayer victims. The IRS has adopted many of my office's
recommendations and made significant progress in this area, but
significant challenges also remain.
I will highlight five points that I think deserve
particular emphasis. First, I am concerned that the Federal
Government continues to facilitate tax-related identity theft
by making public the Death Master File, a list of recently
deceased individuals that includes their full name, Social
Security number, date of birth, date of death, and the county,
State, and zip code of the last address on record.
There is some uncertainty about whether the Social Security
Administration has the legal authority to restrict public
access to DMF records in light of the Freedom of Information
Act. For that reason, I strongly support legislation to
restrict public access to the DMF.
However, I believe the SSA has at least a reasonable basis
for seeking to limit public access to the DMF, and if
legislation is not enacted, I encourage the SSA to act on its
own. The longer we delay, the more taxpayers are harmed.
Second, I am aware that some State and local law
enforcement agencies would like access to tax return
information to help them combat identity theft. I have
significant concerns about loosening taxpayer privacy
protections and believe this is an area where we need to tread
carefully.
But as I describe in my written statement, the IRS is
piloting a procedure that would enable taxpayers to consent to
the release of their returns in appropriate circumstances to
these agencies. In my view, giving taxpayers a choice strikes
the appropriate balance.
Third, unscrupulous preparers sometimes alter taxpayers'
returns by inflating income, deductions, credits, or
withholding without their clients' knowledge or consent and
pocket the difference between the revised refund amount and the
amount expected by the taxpayer. The taxpayer learns about this
fraud when the IRS contacts him or her to collect the
improperly paid out refund amount.
Nine years ago, IRS chief counsel advised the IRS that it
must remove the liability from the taxpayer victims' accounts.
Yet as recently as January of this year, the IRS had no
procedures to make the taxpayer whole. Only yesterday did the
IRS issue partial interim guidance to its employees on this
matter after I personally issued taxpayer assistance orders,
taxpayer advocate directives to the highest levels of the
organization, and covered the issue in the annual reports to
Congress and in congressional testimony.
The taxpayers are the victims here, and the IRS has let
them down for almost a decade. This is unacceptable.
Fourth, unscrupulous tax return preparers sometimes change
the routing number on a taxpayer's return in an attempt to
misappropriate the direct deposit refund. When this occurs, the
IRS's position is that because it paid out the refund according
to the instructions it received on the return, the taxpayer's
sole recourse is to pursue the matter in a civil lawsuit
against the return preparer.
But if the taxpayer had requested a paper refund check that
was stolen, the Treasury Department could issue a replacement
check after verifying the theft. I encourage Congress to modify
the statute authorizing payments from the Check Forgery
Insurance Fund to expressly include direct deposits and other
electronic transactions.
That said, I don't think the IRS needs to wait for
legislation before helping these tax fraud victims. In the case
of a stolen direct deposit, the IRS chief counsel has advised
that the service is legally permitted to reissue the refund to
the taxpayer and that a return with tax data wrongfully altered
by a preparer is not valid.
I do not think it is too much of a stretch for the IRS to
treat a return with an account number wrongfully altered by a
preparer as invalid.
Fifth, there is an inherent conflict between the need to
protect the public fisc from refund fraud and taxpayers'
expectation and need to receive their refunds quickly. We can
either delay issuance of refunds until IRS has reviewed all 110
million refund returns, or we can accept that some dollars will
be paid to persons committing refund fraud.
Alternatively, the IRS will need considerably larger staff
to enable it to review questionable returns more quickly. There
is no way around these tradeoffs.
Thank you for the opportunity to testify today.
[The prepared statement of Ms. Olson follows:]
__________
Mr. Gohmert. Thank you very much.
We certainly appreciate your testimony and your insights.
You have certainly been in a position to observe things from
both sides of these issues.
At this time, we will hear from Mr. Sanford Zinman, who is
a CPA, president of Sanford E. Zinman, CPA, PC, located in
White Plains, New York.
Mr. Zinman started his own practice in 1983. He has been in
public accounting for more than 30 years and has expertise in
compilations and tax. He is a member of the American Institute
of Certified Public Accountants and the National Conference of
CPA Practitioners.
He serves as the president of the Westchester/Rockland
Chapter of the National Conference of CPA Practitioners and is
chair of the Tax Committee for this organization. Mr. Zinman is
a graduate of Iona College with a master of business
administration in public accounting.
Mr. Zinman, you are recognized for 5 minutes.
TESTIMONY OF SANFORD ZINMAN, NATIONAL TAX CHAIR, NATIONAL
CONFERENCE OF CPA PRACTITIONERS (NCCPAP)
Mr. Zinman. Mr. Chairman and Members of the Subcommittee,
thank you for inviting me to testify today.
The National Conference of CPA Practitioners, NCCPAP,
serves more than 500,000 businesses and individual clients. I
personally regularly prepare several hundred income tax returns
for clients throughout the country during any given year, and I
am in the trenches with my clients, discussing their tax,
financial, and personal issues.
The National Taxpayer Advocate's Office has reported a
growth in identity theft in relation to tax refund fraud. The
Identity Protection Specialization Unit, which was created by
the IRS in 2008, has seen a continuously increasing number of
cases reported to the IRS since the inception of the unit.
In fiscal year 2009, there were a total of 80,637 cases.
This increased to 184,839 cases in 2010 and 226,356 cases in
2011. This is an increase in over 280 percent in just 2 years.
The real issue is what identity theft does to the
individuals and what can be done to combat the problem. It is
reasonable to presume that every American has either been
personally affected by identity theft or has known someone who
has been a victim. This is a good definition of an epidemic.
Identity theft can destroy a person's life. It can prevent
them from buying a car or a house, getting a credit card, or
even having a bank account. It can hamper someone's ability to
get a job. The problem of identity theft will not go away. The
issue is how can we protect our citizens in an efficient, cost-
effective manner, and what is the Government's role in this
matter?
As I prepared today's testimony, I decided to poll the
NCCPAP membership about their experience with identity theft.
We sent an email blast Monday morning asking, ``Have you
personally or professionally experienced or witnessed an
identity theft situation within the past 2 years?'' We
requested a yes or a no response.
Within 2 days, I received responses from in excess of 25
percent of our members. And more than two-thirds of the
responses were yes.
If I can extrapolate on this, that means that in excess of
335,000 of our clients have experienced or witnessed some form
of identity theft within the past 2 years. Additionally, many
of the responses included that they had witnessed several cases
of identity theft.
The Internal Revenue Service has, for many years,
recognized the serious issue of identity theft and has
instituted measures to combat identity theft and continues to
do so. However, many of the IRS fixes can be cumbersome and
time consuming.
The GAO has indicated that the quality of customer service
at the IRS has declined noticeably because of budget cuts over
the past year. The IRS was hit with a 2.5 percent budget cut in
2012, with many cuts to the enforcements and operations
support. Cuts took the form of elimination of 3.1 percent of
its full-time employees through attrition, hiring freeze, and
targeted buyouts of more than 900 workers.
NCCPAP has strongly--is a strong supporter of identity
protection and has been for many years. We spearheaded the PTIN
registration for tax preparers and have partnered with the IRS
in the registration of all tax preparers.
NCCPAP has recommended that full Social Security numbers be
redacted from documents which are mailed to taxpayers. We also
recommend that Social Security numbers be removed from client
copies of tax returns that are e-filed.
Additionally, NCCPAP recommends a dedicated IRS Form 14039
Identity Theft Affidavit fax line for victims of identity theft
to speed up the notification process and provide an additional
level of security. We also recommend that some form of positive
acknowledgments be sent to the individual within 48 hours to
provide an additional level of assurance that the problem is
being addressed.
NCCPAP also supports H.R. 4362, the Stop Identity Theft Act
of 2012, and we thank Chairman Smith for being a cosponsor.
This uses Department of Justice resources with regard to tax
identity theft. We agree with the concept that no one agency or
department can mitigate the problem alone. The problem is too
pervasive.
We support the concept of the Justice Department working
with the Treasury Department. We also support the concept that
the Federal Government reach out to State governments to attack
the problem of identity theft.
Thank you.
[The prepared statement of Mr. Zinman follows:]
Prepared Statement of Sanford Zinman,
National Tax Chair, National Conference of CPA Practitioners
Mr. Chairman and members of the Committee, thank you for inviting
me to testify today. My name is Sanford Zinman. I am a Certified Public
Accountant, member of the American Institute of CPA's and am currently
the National Tax Policy Chair of the National Conference of CPA
Practitioners, (ncCPAp), as well as the President of the Westchester/
Rockland New York Chapter of ncCPAp. ncCPAp is a professional
organization that advocates on issues that affect Certified Public
Accountants in public practice and their small business and individual
clients located throughout the United States. ncCPAp members serve more
than 500,000 businesses and individual clients and are in continual
communication with regulatory bodies to keep them apprised of the needs
of the local CPA practitioner.
I am the sole owner of a CPA firm in White Plains, New York which I
started approximately 30 years ago. I have been preparing individual
and small business tax returns as well as sales tax and payroll tax
returns for over 35 years. I regularly prepare several hundred income
tax returns during any given year and am in the trenches with my
clients discussing their tax, financial and personal issues and the
impact of events on them. Although my clients are mostly in the New
York, New Jersey and Connecticut area I have many clients in Florida,
Alabama, California, Massachusetts, Nebraska, Tennessee and Washington
DC. In this respect my practice is the same as many members of ncCPAp
and other CPA firms throughout the United States.
According to the Javelin Strategy & Research 2011 Survey Report,
the number of US adult victims of identity fraud decreased from 10.1
million in 2003 to 9.3 million in 2005 and 8.4 million in 2007. The
total one year fraud amount decreased from $55.7 billion in 2006 to
$49.3 billion in 2007. There are numerous reasons for these decreases.
Much of the change can be attributed to the Identity Theft and
Assumption Deterrence Act of 1998. However identity fraud increased by
13% in from 2010 to 2011 when more than 11.6 million adults were
victims. Approximately 1.4 million more adults were victimized by
identity fraud in 2011, compared to 2010. Much of the increase in
identity theft can be attributed to social media and mobile phone
behaviors as consumers are still sharing a significant amount of
personal information.
The National Taxpayer Advocate's office has also reported growth in
identity theft in relation to tax refund fraud. The Identity Protection
Specialized Unit (IPSU) which was created by the IRS in 2008 has seen a
continuous increase in the number of cases reported to the IRS since
the inception of the unit. In Fiscal Year 2009, IPSU had a total of
80,637 cases. In Fiscal Year 2010, this increased to 184,839 cases, and
in Fiscal Year 2011, 226,356 cases. This is an increase of over 280% in
just two years.
My testimony provides data of which, I am certain, you are already
aware. However, the real issue is what identity theft does to
individuals and what can be done to combat the problem. It is
reasonable to presume that every American has either been personally
affected by identity theft or has known someone who has been a victim.
This is a good definition of an epidemic. Identity theft can destroy a
person's life. It can prevent them from buying a house or a car,
getting a credit card or even having a bank account. It can even hamper
someone's ability to get a job. The problem of identity theft will not
go away. Attached are a few examples of identity theft problems that
have been witnessed and can be shared. The issue is, how can we protect
our citizens in an efficient, cost effective manner and what is the
government's role in the matter.
During the week of January 23, 2012 the Internal Revenue Service
and the Justice Department engaged in a massive national sweep to crack
down on suspected identity theft perpetrators as part of a stepped-up
effort against refund fraud and identity theft. Working with the
Justice Department's Tax Division and local U.S. Attorneys' offices,
the nationwide effort targeted 105 people in 23 states. The coast-to-
coast effort included indictments, arrests and the execution of search
warrants involving the potential theft of thousands of identities and
taxpayer refunds. In all, 939 criminal charges were included in the 69
indictments and information related to identity theft. In addition, IRS
auditors and investigators conducted extensive compliance visits to
money service businesses in nine locations across the country.
Approximately 150 site visits occurred to help ensure these check-
cashing facilities were not facilitating refund fraud and identity
theft. This national effort was part of a comprehensive identity theft
strategy the IRS has embarked on that is focused on preventing,
detecting and resolving identity theft cases as soon as possible. In
addition to the law-enforcement crackdown, the IRS has stepped up its
internal reviews to spot false tax returns before tax refunds are
issued as well as working to help victims of the identity theft refund
schemes. To help taxpayers, the IRS created a new, special section on
the IRS website (www.IRS.gov) dedicated to identity theft matters,
including YouTube videos, tips for taxpayers and a special guide to
assistance. The information includes how to contact the IRS Identity
Protection Specialized Unit and tips to protect against ``phishing''
schemes that can lead to identity theft. The IRS recommended that a
taxpayer who believes they are at risk of identity theft due to lost or
stolen personal information should contact the IRS immediately so the
agency can take action to secure their tax account. The taxpayer should
contact the IRS Identity Protection Specialized Unit. The taxpayer will
then be asked to complete the IRS Identity Theft Affidavit, and
``follow the instructions on the back of the form based on their
situation''.
The Internal Revenue Service has, for many years, recognized the
serious issue of identity theft and has instituted measures to combat
identity theft and continues to do so. However, many of the IRS
``fixes'' can be cumbersome and time consuming. Beginning in 2008 the
IRS implemented Service-wide identity theft indicators which are placed
on a taxpayer's account if the taxpayer claimed they were a victim of
identity theft. But these indicators are implemented only after the
taxpayer contacts the Service with certain required substantiation
documentation. The IRS can then issue an ``Identity Protection PIN''
which allows the legitimate taxpayer's return to bypass the identity
theft filters. In mid-November 2011 selected taxpayers received an IP
PIN Notice letter notifying them that they would be receiving an IP PIN
for use when filing their 2011 return. In mid-December 2011 these
taxpayers received a second letter with their IP PIN which was a
single-use 6 digit PIN. Some of these letters caused confusion when
returns were filed partly because the program was so new. Some letters
were lost which caused problems with filing returns. Some taxpayers
forgot to tell their preparers that they received a letter with an IP
PIN. Since this was a limited program the negative impact was very
limited. Obviously, better communication could result in better
outcomes.
In its final report issued on May 3, 2012 The Treasury Inspector
General for Tax Administration (TIGTA) indicated that The Federal Trade
Commission reported that identity theft was the number one complaint in
calendar year 2011, and government documents/benefits fraud was the
most common form of reported identity theft. As of December 31, 2011,
the IRS's Incident Tracking Statistics Report showed that 641,052
taxpayers were affected by identity theft in calendar year 2011 versus
270,518 in 2010--a 137% increase. The TIGTA report concluded that the
IRS is not effectively providing assistance to victims of identity
theft, and current processes are not adequate to communicate identity
theft procedures to taxpayers, resulting in increased burden for
victims of identity theft. TIGTA found that Identity theft cases are
not worked in a timely manner and some cases can take more than a year
to resolve. Sometimes communications between the IRS and identity theft
victims is limited and confusing, and some victims are asked multiple
times to substantiate their identity.
TIGTA recommended that the IRS: 1) establish accountability for the
Identity Theft Program; 2) implement a process to ensure that IRS
notices and correspondence are not sent to the address listed on the
identity thief's tax return; 3) conduct an analysis of the letters sent
to taxpayers regarding identity theft; 4) ensure taxpayers are notified
when the IRS has received their identifying documents; 5) create a
specialized unit in the Accounts Management function to exclusively
work identity theft cases; 6) ensure all quality review systems used by
IRS functions and offices working identity theft cases are revised to
select a representative sample of identity theft cases; 7) revise
procedures for the
Correspondence Imaging System screening process; and 8) ensure
programming is adjusted so that identity theft issues can be tracked
and analyzed for trends and patterns.
The Government Accountability Office (GAO) indicated, in a report
issued on June 8, 2012 that the quality of customer service at the IRS
has declined noticeably because of budget cuts over the past year and
may get worse as the agency is tasked with additional implementation
work related to the health care overhaul. The IRS was hit with a 2.5
percent budget cut in fiscal year 2012, with cuts mainly to Enforcement
and Operations Support. The cuts took the form of the elimination of
3.1 percent of its full-time employees through attrition, a hiring
freeze, and targeted buyouts of more than 900 workers. GAO said data
from the Congressional Budget Office justification for the IRS's budget
fiscal year 2013 budget request shows that the percentage of phone
calls that reach IRS customer service representatives is expected to
have fallen to 61 percent in fiscal year 2012, down from 70.1 percent
in fiscal year 2011.
It is important that the Treasury and Justice Departments work
hand-in-hand to deter identity theft, and impose the severest penalty
possible on those who commit it.
As identity theft increases, this also places an additional burden
on the tax return preparers. Preparers often find out about identity
theft issues after they are authorized to submit a tax return
electronically. This only happens after the tax return is prepared,
printed and mailed to the taxpayer, and the taxpayer has authorized the
electronic submission of the return. On some occasions the delay
between the original e-file submission and when the return finally gets
filed can affect the taxpayer. States must also be made aware of
identity theft problems. In New York a taxpayer's name, address, social
security number and birth date are indicated on the tax return. Client
copies of returns are mailed to clients for approval. A thief, armed
with this information could do irreparable harm.
ncCPAp has been a strong supporter of identity protection for any
years. We spearheaded the PTIN regulations for tax preparers to
safeguard the preparer's social security number and have partnered with
the IRS in the registration of all tax preparers to reduce the number
of unscrupulous preparers who try to take advantage of the IRS
modernized e-file system. ncCPAp has recommended that full social
security numbers be redacted from documents (such as Form 1099R, 1099
DIV and 1099 INT) which are mailed to taxpayers. We also recommend that
social security numbers be removed from client copies of tax returns
that are e-filed. Additionally ncCPAp recommends a dedicated IRS Form
14039 (Identity Theft Affidavit) fax line for victims of identity
theft. This would speed up the notification process and would also
provide an additional level of security compared with the present
system of mailing documentation to the IRS. ncCPAp also strongly
supports H.R. 4362, the STOP Identity Theft Act of 2012 which uses
Department of Justice resources with regard to tax return identity
theft. We agree with the concept that no one agency or department can
mitigate the problem alone. The problem is too pervasive. We support
the concept of the Justice Department working with the Treasury
Department. We also support the concept that the federal government
reach out to the state governments to attack the problem of identity
theft.
__________
Addendum
Example 1:
I prepare approximately 300 individual returns per year. In the
last two years I have had three clients experience Identity theft
issues, one in 2010 and two in 2011. Two of the cases involved
surviving spouses.
The 2010 incident involved a doctor client who was rejected when we
tried to electronically file his return. We filed it before April 15 on
paper per the instructions. The client called me the end of May asking
where his refund was. About a week later the taxpayer called me back
and informed me that he had received written communications from the
IRS at his summer residence on Cape Cod (an address never given to the
IRS). We finally resolved the issue and secured the client's refund
with the help of IRS Taxpayer's Assistance office.
There were two instances of identity theft this past tax season;
one was a similar situation with a surviving spouse being rejected when
we tried to e-file his return. The other situation involved a taxpayer
who received a letter from the IRS stating the refund would be held up
for standard identity check. The client's return is on extension and
has not been filed yet. In both cases we have filed the proper
documentation but no resolution has been reached.
Example 2:
Two separate incidents. The first; I received an e-file rejection
for a taxpayer due to a possible identity theft issue. Taxpayer called
the IRS numerous times and (according to the taxpayer) got different
answers each time. We finally had to submit on paper. The second; I
received an e-file rejection indicating that the taxpayer was deceased.
I called the taxpayer who told me he received some notification from
the IRS but thought he lost it. He found the IP PIN and we were able to
file the return.
Example 3:
Client is a single mom with two elementary school children. One
child's social security number was compromised. Neither the parent nor
I were aware of this. The IRS never sent the taxpayer a notification.
After the e-file was rejected we filed on paper and the refund (in
excess of $4,000.00) took nine weeks to be received.
Example 4:
A taxpayer sent me her tax information in early April. We prepared
the return and sent the documents to the taxpayer. We received the
authorizations to e-file and did so only to have the return rejected.
Neither the taxpayer nor I were able to determine from the IRS the
origin of the problem for several days. We paper filed the return and
then found out that someone else had e-filed using the taxpayer's
social security number.
__________
Mr. Gohmert. Thank you, Mr. Zinman.
Mr. Michael Robinson is a lifelong resident of the Norfolk,
Virginia, area; been employed by the City of Norfolk for the
past 10 years; and is currently a water treatment plant
operator's assistant. Mr. Robinson is here to testify today
about his experience with Mo' Money Taxes.
The witnesses' written statements of all of you, as I
mentioned earlier, will be entered and be part of the record,
and we appreciate your staying with the 5-minute limit.
Mr. Scott. Mr. Chairman?
Mr. Gohmert. Yes.
Mr. Scott. Could I say a word about Mr. Robinson?
Mr. Gohmert. Yes, certainly.
Mr. Scott. He has made quite an effort to get here. His
original transportation plans got disrupted, and he made a
yeoman's effort to get here, and we appreciate his presence.
Mr. Gohmert. Mr. Robinson, it is not like you don't know
frustration and anxiety, and we are sorry if there has been any
today in getting you here. But we appreciate your efforts.
At this time, we give you 5 minutes to provide your
testimony.
Thank you.
TESTIMONY OF MICHAEL ROBINSON,
VICTIM OF INCOME TAX PREPARATION FRAUD
Mr. Robinson. Good morning, everybody, ladies and
gentlemen.
[Pause.]
Mr. Robinson. Good morning, everybody, ladies and
gentlemen.
My name is Michael Robinson. I am from the City of Norfolk.
I work for the water treatment plant, Moores Bridges water
treatment plant.
I went--I learned about----
Mr. Conyers. Pull that a little closer to you, sir, the
microphone, so that everybody can hear you clearly. Pull that
up there.
Thank you, sir.
Mr. Robinson. I learned about Mo' Money Taxes through my
family members--my daughter, my brother, his wife. They all
filed through them. They were telling me to go to them for get
extra money.
So I went there to get an estimate, and when I did get an
estimate, me and my wife sat down. My daughter introduced me to
a guy named Red, a young gentleman that were filing taxes for
Mo' Money.
We sat down. He got on the computer. I gave him my ID and a
check stub. He did his figures on a computer. He got up, went
and talked to another gentleman. He came back. He gave me the
estimate, turned the monitor screen toward me, and showed me
that I could get back $3,602.
So I looked at my wife. Me and my wife, we wasn't like--I
told him we weren't going to file. I would just let him know if
I was satisfied, I would get back with him later. So we got up,
we left. I would say about after--about a month later, I got my
tax return from my job, the W-2s, at the end of January. I
filed in March.
I went to Jackson Hewitt, where I usually go at. I went, me
and my wife sat down. Well, first, I called the lady, Ms.
Caroline, seeing we had set an appointment. Then we got our
taxes done. And we signed those. We got our taxes done.
But the next day, Jackson Hewitt called me, Miss Caroline
called me and told me about a problem. And I was like ``a
problem?'' So I told her I would come there after I get off
work.
Then when I got off work, she exposed me that I had been
filed. And I was like, ``I didn't file.'' She said, ``You have
already been filed through Mo' Money Taxes.'' I said, ``I
didn't file with Mo' Money.''
So she called IRS. When IRS came, she answered the phone,
Ms. Wade, Ms. Caroline, both--all three us was talking. We had
Ms. Wade on the intercom, and we were talking about what had
happened.
So I explained to them that I had never filed. I never
signed no papers. They did it without me knowing. So she was
doing something, reading something and found out in the
computer that they sent me a check for $5,270, and I was like--
I was in shock because I know I haven't received nothing. And
she asked me did I receive a check or anything? I was like
``not one brown penny.''
So me and my wife was looking. And Miss Caroline asking me
if we would sign some papers about some complaint about Mo'
Money for using my name. So as we are sitting there, Ms. Wade
informed me that they--again, she asked me did I receive any
money? I said, ``No, ma'am. I know nothing about it. Never
received nothing.''
So they did a little--opened up a little investigation of
their own, Ms. Caroline and Ms. Wade, and they found out that
Mo' Money had--the guy that filed my taxes name, Red, he didn't
use his first, his real name. He had ``Tristan something'' on
the paper that Ms. Wade found out that it was a female that
filed, instead of him. He used the Social Security number that
led to being a female.
When he turned the screen to me, it was $3,600. But
whatever he done, whatever he did to get it up to $5,000, the
IRS sent me a check for $5,270 was different from what he
showed me on the TV screen.
And we both, me and my wife, were sitting there, and the
lady was like--Ms. Wade told us that she was going to fax some
papers, and they are going to open up an investigation. So she
faxed that to Jackson Hewitt. We signed papers. They launched
the investigation, and I did a bunch of paperwork, had the
transcript from Mo' Money Taxes that I will file as a full-time
student, college student.
And that was from that.
[The prepared statement of Mr. Robinson follows:]
__________
Mr. Gohmert. We are going to have an opportunity for
questions, and appreciate your testimony, Mr. Robinson.
Obviously, you have been through quite an ordeal already.
I will utilize Chairman's prerogative and reserve my
questioning. At this time, I yield to the Ranking Member, Mr.
Scott, for 5 minutes.
Mr. Scott. Thank you.
Mr. Robinson, have you gotten your refund check yet?
Mr. Robinson. No, sir.
Mr. Scott. You still haven't gotten your refund check?
Mr. Robinson. No. I filed the amended. I filed the amended
after----
Mr. Scott. You filed with Jackson Hewitt, right?
Mr. Robinson. Yes, sir.
Mr. Scott. And then they wrote back, said, well, you
already filed?
Mr. Robinson. Right.
Mr. Scott. Okay. And so, they are still working on it, and
you haven't gotten your refund?
Mr. Robinson. I haven't received anything yet. But it is
supposed to be coming in like a 12-week span because I filed
the amended.
Mr. Scott. Okay. Ms. Sparkman, what is the Federal
Government doing in response to the situation with Mo' Money
Taxes that Mr. Robinson has articulated?
Ms. Sparkman. Thank you, Mr. Chairman.
That is a great question, and I apologize that I cannot
speak directly about anything that may be ongoing. But let me
tell you that, first of all, I think it is a travesty that we
have victims in these types of cases. I will tell you that
Criminal Investigation is actively pursuing criminal
investigations of perpetrators of these types of crimes because
nobody should be victimized.
We have similar cases across the country where we have
actively gone after return preparers who are victimizing
victims by stealing their identity and getting the money for
themselves. We will continue to do that actively across the
Nation and put these people in jail.
Also, for Mr. Robinson, we have a victim assistance
program. He would file an affidavit--it sounds like Mr.
Robinson did do that--so that we could tell that he is the true
taxpayer. Then we could make him whole on his tax return. The
IRS marks his account so that in future years, we can protect
him against being further victimized by an individual that may
have already victimized him before or somebody else who may
have gotten his identification.
Mr. Scott. And what does the victim advocate do?
Ms. Sparkman. I am sorry?
Mr. Scott. The IRS has a victim assistance program. When he
files his affidavit, what do they do?
Ms. Sparkman. Yes, sir. I am from the Criminal
Investigation; I don't have all of the specifics, but I
understand that my colleagues have an active victim assistance
program. They look through and ensure which identify is the
correct return because we do have to make sure we know who the
correct taxpayer is.
Once that is done, I understand that they mark the account
appropriately and make sure that the victim is made whole.
Their legitimate return is filed, it is processed and they
receive their refund. The information from the bad guy who
filed the return is sent to Criminal Investigation to see if we
can work a criminal investigation on that matter or if that
individual or that unscrupulous preparer is doing it for
others.
Mr. Scott. Well, if somebody cashes a fraudulent check,
what happens?
Ms. Sparkman. If----
Mr. Scott. And in this case, the check from--the check was
cashed apparently by Mo' Money.
Ms. Sparkman. Okay.
Mr. Scott. In general, and I know you can't talk about a
specific case. In general, if you catch somebody cashing a
check illegally, do you just stop payment on the check? Do you
just write it off? Or do you actually pursue aggressively the
criminal act?
Ms. Sparkman. I don't know the specifics in this case, of
course. But generally, it is illegal for someone to take a
check that is not theirs, that they have no right to, and cash
that check.
They would be committing a crime at that point. Whether
that is cashed or not, it depends on the facts and
circumstances of that particular situation.
Mr. Scott. Well, I mean, do you have enough staff to
actually pursue people that you have found to have illegally
cashed checks?
Ms. Sparkman. Yes, sir. We do. Because we find that many
times these unscrupulous preparers have partners in their
conspiracies who also cash the checks for them. Those check
cashers we would also pursue criminally for that crime.
Mr. Scott. Ms. Olson, what has been your experience when
people run into these kind of problems?
Ms. Olson. As I noted in my testimony, if there is a paper
check that has been forged, there is a process that the
taxpayer has to submit to Treasury, to the Financial Management
Service, three copies of their signature, you know, checks that
are with their signature. And then FMS will compare that to the
check that--the signature that is on the back of the check, and
then they can pay out the proceeds to the taxpayer from this
special fund.
But if the money went to a direct deposit account, and most
of these thieves really like direct deposit, there is no
procedure. The IRS says you have to go against Mo' Money or
whomever and try to get the money back from them.
Mr. Scott. Well, if it is a paper check, does the
Government take criminal action against those who are cashing
the checks?
Ms. Olson. If it is a large scheme, then it will convince
CI to make the referral to Department of Justice and pursue it.
If it is, you know, a small number of people, I think it is
highly unlikely because it is a very expensive thing to bring
those prosecutions.
Mr. Scott. Mr. Chairman, I want to point out that Mr.
Robinson went into this Mo' Money Taxes and felt something
unscrupulous was going on and had the intelligence to just walk
out and go to someone who is a legitimate preparer.
So I want to thank you. And if others had done the same
thing, we wouldn't have as much problem as we have now.
Mr. Gohmert. Thank you, Mr. Scott.
And you are right. But obviously, some of these people
don't exude the fraudulent intent that Mr. Robinson was able to
pick up, and they aren't--don't know to walk out. And even as
wise as Mr. Robinson acted, obviously, they still got to him.
But at this time, I would like to yield to the former
Chairman of the full Committee, Mr. Conyers, for 5 minutes.
Mr. Conyers. Thank you, Judge Poe.
Nobody has mentioned the whole question of the Smith-
Wasserman Schultz bill about including identity theft. Is it
because you don't know anything about it, or you don't think it
is related to this, Ms. Olson?
Ms. Olson. In my written testimony, we thought that it
was--we were very supportive of it. And I do think that it is
going to take a combination of approaches, and increasing the
recognition, both legally and publicly of identity theft, as a
crime is going to help.
So I think that this bill is a help. However, as long as
people can continue to ping our computers, something will come
through, and I think it is a combination of us also developing
better screens and developing better processes to help the
victims to really address this crime.
Mr. Conyers. No question that one bill alone isn't going to
solve this, and you identified a number of improvements that
can be made, and I congratulate you on that.
Ms. Sparkman, where do you come out on the legislation that
would include identity theft like the Wasserman Schultz-
Chairman Smith idea?
Ms. Sparkman. Thank you, Mr. Conyers.
Yes, I would have to work with my folks at tax policy, at
the Treasury Department, and with the IRS to look at the
specific legislation. But I will say that I appreciate the
support of law enforcement. I will tell you that criminal
investigation, along with bringing tax charges of false claims,
287 false claims, we are also actively charging identity theft
in these types of cases.
And in fact, we are able to----
Mr. Conyers. Okay. While you are at it, how many people
have been prosecuted and convicted for all this theft and false
activity having to do with filing tax claims? You keep talking
about it, but I don't get any numbers. Do you have them, or can
you get them?
Ms. Sparkman. I can certainly get those for you, Mr.
Conyers, if I may take that back? But I can tell you that this
year alone, we have already brought 300 indictments, that those
are charges----
Mr. Conyers. That is good.
Ms. Sparkman [continuing]. On these folks.
Mr. Conyers. All right. Good start.
Now what are we--Ms. Olson, Ms. Sparkman, what are we doing
about Mo' Money? We have got a witness here that has been
totally ripped off. It leads me to believe that there are more
around. We have got a few complaints from the Michigan attorney
general about Mo' Money.
What is going on?
Ms. Olson. Congressman Conyers, my office was approached by
the Illinois attorney general's office to help them. They were
taking action against Mo' Money, and they wanted to be able to
put information out about the services that my office could
provide and how victims could get help from the IRS.
And we have worked with them. We are both taking cases in
and trying to get those cases, such as Mr. Robinson's,
straightened out. And we would offer our office's assistance to
any--to partner with any attorney general, State attorney
general's office, including Michigan.
You know, I can't speak about the specific cases. But my
local taxpayer advocates have been seeing these kinds of
patterns of behavior for several years now, and we do work
closely with Criminal Investigation to identify them and let
them know about them when we----
Mr. Conyers. Got any numbers that you can----
Ms. Olson. I do. I think we, to date--it is in my written
testimony. But I think it is about 96 cases so far just from
Illinois.
Mr. Conyers. Okay.
Ms. Olson. And that has been a couple of months.
Mr. Conyers. Okay. Now at the table yards away is a
classic--I mean, this is a textbook rip-off that Michael
Robinson has reported to you. Can't we get on--I got two
officials from IRS here and a classic victim. Can't we do
something with Robinson immediately?
Ms. Olson. Well, this is----
Mr. Conyers. I don't want to put him at the head of the
line, but we can't have a hearing and talk about this
academically and philosophically, and here is a victim right at
the table with you. What are you going to do about him?
Ms. Olson. First, after the hearing, I am certainly going
to offer my assistance.
Mr. Conyers. Okay.
Ms. Olson. But my criticism of the IRS right now is his
particular case, up until yesterday, the IRS had no procedures
to take that return, that is the false return, off of his
account and let him file a fresh return that is his return so
he can get his refund.
Up until yesterday, the IRS had no procedures, even though
they knew since 2003 that they were supposed to do that under
the law.
Mr. Conyers. Well, I know two Members, three Members on
this Committee that are ready to call the IRS immediately after
this hearing and get that corrected.
Ms. Olson. Thank you.
Mr. Conyers. I mean, this is outrageous. We are talking
like this is philosophy, and in real life--and I commend you
for being here. And you weren't even our witness. I commend the
Committee for having you both here. But can we all get on this
and get this in? You don't have any objection to this, do you,
Ms. Sparkman?
Ms. Sparkman. Mr. Conyers, I will take back his information
to my colleagues and to my department.
Mr. Conyers. Well, that is not enough. I mean, I am going
to take it back to them. You don't have to worry about you
taking it back to them because I want this--I want to get this
accomplished.
I mean, they could be looking at the hearing. It is being
published nationally. So taking it back to them isn't enough. I
want some action.
Ms. Olson. Congressman Conyers, I have to say in defense of
my colleague that it was Criminal Investigation that asked
chief counsel of IRS four times whether the IRS must remove
that bad return. They were trying to get a solution.
It is the civil side that has been dragging its feet, and
I, myself, personally ordered the IRS for years to do this. And
like I say, it was only until yesterday that they complied.
Mr. Conyers. Well, Olson absolves you somewhat, Sparkman.
But we have got to get moving on this. This is not a play
hearing or just file grievances, and then we all go home for
the holiday. We have got to get going on this.
And I expect you to be cooperating with Scott and Cohen,
myself, and the Chair as well.
Thank you very much, Mr. Chairman.
Mr. Marino [presiding]. You are welcome, sir. I do have
some questions, but I am going to defer to my colleague, Mr.
Cohen. And then I will wrap up the questioning.
Mr. Cohen. Thank you. Appreciate it.
First, I would like to thank the Chairman for calling this
hearing, for all the work that Mr. Scott's done in working with
me on this issue about Mo' Money, which has affected so many of
his constituents and mine.
Mr. Robinson, your story is one similar to one I have heard
in Memphis. Do you know of other people in your jurisdiction,
your area, who used Mo' Money and had similar type of problems?
Mr. Robinson. Yes, sir. I know a lot of people that is
going through--they got checks that they can't cash. They got
checks----
Mr. Marino. Sir, I don't know if your microphone is on, or
if you want to pull that a little closer as well?
Thank you.
Mr. Robinson. I have friends that is holding onto checks
that they can't cash. People, I was like, I got nephews that
had the same situation. They went to different places and been
turned down because the people are not accepting Mo' Money
checks, nowhere you could cash them. Some people's checks is
outdated. And----
Mr. Cohen. Were some of the checks for--you couldn't get
them cashed, and some places just wouldn't accept Mo' Money
checks?
Mr. Robinson. Right.
Mr. Cohen. Did they charge large fees to cash those checks
when you could get them cashed?
Mr. Robinson. Yes, sir. And after they seen the news and
all this going on, people just stopped taking the checks.
Mr. Cohen. Did you know about the VITA program at the IRS
where you could get your taxes filed without having to pay a
fee? Did you know anything about that?
Mr. Robinson. No, sir.
Mr. Cohen. Let me ask Ms. Olson. That is a great program,
and that is one of the things I think we need to come out of
this is that the VITA program, low- and middle-income taxpayers
can get their returns for free instead of paying companies like
Mo' Money.
Why do people not know about it? Do we not have enough
money to publicize this to people and let them know that they
can get their taxes done for free?
Ms. Olson. I think it is a little bit that. I think it is
also that people were going to get--to some of these entities
to get refunds early, the refund anticipation loans, rather
than having to wait to get their refunds through direct deposit
or in the mail. And the IRS can't, obviously, loan the money to
the taxpayers in advance for their refunds.
That is why they go to these places, I think.
Mr. Cohen. Do you or Ms. Sparkman or anybody else know, are
these anticipatory loans regulated by anybody, like the Dodd-
Frank tried to regulate a lot of loans? Is that part of what
that regulates?
Ms. Olson. We have--in the last year and a half, we have
seen a lot of activity through the bank regulators on these.
And most of the banks have pulled out of the refund
anticipation loan process.
What we are seeing instead are these tax estimation loans
where you take your last pay stub for the year and you go into
one of these places, and they estimate, as with Mr. Robinson,
based on the last pay stub what they think that you are due.
And they give you a loan for that amount or maybe a percentage
of the refund amount. And then they have a little form where
you are supposed to check and say I agree to come back to this
return preparer and file my actual taxes.
Just like with Mr. Robinson, we have seen cases where
taxpayers haven't signed that form. They have gone to somewhere
else to file their return, and the original place where they
have gone to get the estimation loan goes ahead and files their
return based on the pay stub. They don't even have full
information.
Mr. Cohen. Should this type of conduct be made illegal?
Should people not be allowed to use their IRS returns to--
basically, by doing that, it encourages the preparer to find
ways to defraud the Government to get the money for themselves.
Ms. Olson. And we also have evidence that these products
increase the risk that people are claiming things on their
returns that they are not entitled to. So it also increases tax
noncompliance.
I think that----
Mr. Cohen. Would that be what--go ahead.
Ms. Olson. I was just going to say it is a banking
regulation issue who owns these kinds of loans. And I don't
know the answer to that.
Mr. Cohen. Mr. Zinman, you were nodding your head.
Mr. Zinman. Well, I think the Mo' Money tax scheme is
probably the tip of the iceberg. It is one that came out. There
are so many unscrupulous preparers that are signing and filing
returns as self-prepared, getting refund anticipation loans or
getting the money put into their accounts, and not filing as
registered tax preparers.
NCCPAP has seen a lot of that. That is why we spearheaded
the PTIN registration to eliminate the tax preparers' Social
Security numbers. That is why we worked very closely with the
IRS to bring about the registered tax preparer issues because
we need to get the whole system--especially with the e-file
system, we need to get this whole system regulated so that
unscrupulous people don't do these things.
Mr. Cohen. Ms. Sparkman mentioned that, that the
registration requirement for preparers and a competency test,
continuing education requirements. Is that sufficient? Is the
test sufficient? Should it be stronger?
Mr. Zinman. It is a start. I know we have talked with David
Williams in the IRS, and he--it is just a start. It is going to
take a while before he sees whether the testing is meeting the
minimum requirements. I would say it is a good start. It is a
step forward rather than a step backward, and they are at least
addressing this issue.
I think we need to address the issues like the Mo' Money
type of preparers, and there are still a lot of preparers out
there that are not signing returns that are completely avoiding
the law.
Mr. Cohen. If I can have 30 additional seconds, without
objection? Thank you.
Do you see any problem with a law that would require that
the return, the refund be made to the citizen and to not allow
refunds to go to a third party? Would that affect legitimate
folks such as yourself?
Mr. Zinman. I have been wrestling with that issue for a
long time. And within our organization, we have talked about
all sorts of fraud that can be perpetuated and brought upon
citizens. And it is an issue. It is a concern.
Some of our members have advocated that a refund not be
allowed to go to a bank account unless the IRS confirms the
name on the bank account, as well as the account number. That
is being advocated by some people, and perhaps that is an
alternative.
Again, we have to get into the whole issue of banking
regulations when we get into that.
Mr. Cohen. Thank you, Mr. Chairman.
I appreciate it. I yield back the balance of my time, which
doesn't exist.
Mr. Marino. You are welcome. I have one question.
There was a request from my colleagues to ask additional
questions. I think that because of the time, we do have
additional time to ask questions.
I have one question that I would like to present. But
before I do that, I have to ask for unanimous consent that Mr.
Gohmert's statement be entered into the record.
I am hearing no objection, and so ordered.
[The prepared statement of Mr. Gohmert follows:]
Prepared Statement of the Honorable Louie Gohmert, a Representative in
Congress from the State of Texas, and Vice-Chairman, Subcommittee on
Crime, Terrorism, and Homeland Security
Today's hearing examines the growing trend of identity theft tax
fraud, and fraudulent activities by tax preparation companies.
Tax fraud through identity theft occurs when scam artists file fake
tax returns claiming to be another person with the IRS or fraudulently
claim someone as a dependent in order to receive an illegal refund.
Criminals obtain Social Security Numbers and other taxpayer
information from various sources, including hospitals, schools, and
pension funds. Another common source for this information ironically is
the federal government itself, through the Social Security
Administration's Death Master File--a list containing the full name,
Social Security Number, date of birth, and address information for
every person who dies in the United States that is published each year.
This crime can be devastating to victims, who often have to spend
months and even years fighting to establish their identity to the IRS
and waiting to receive any refunds actually owed to them. It is also
devastating to taxpayers as a whole. While the IRS estimates that it
stopped over $6.5 billion dollars in fraudulent refunds in 2010 alone,
it also estimates that it still paid out approximately $5.2 billion
that same year to fraudulent filers. This is taxpayer money that should
have been used for much better purposes.
The IRS is working with the Department of Justice to investigate
and prosecute these identity theft cases. For example, in January of
this year, the IRS and DOJ announced a nationwide sweep of identity
theft scam artists that resulted in actions against 105 individuals in
23 states. While I applaud these efforts, it is clear that there is
still much work to be done.
A different but related problem is fraud by tax preparation
companies. Unscrupulous tax preparers have been accused of preying on
the most vulnerable by offering advance loans against income tax
returns, or promising unrealistically high refunds that are based on
intentionally false information. The Justice Department recently sued
one such company but, again, it appears that there is still work to be
done.
The Assistant Attorney General for Tax, Kathryn Keneally, recently
testified before the Subcommittee on Courts, Commercial and
Administrative Law about the Justice Department's efforts to stop both
identity theft and tax preparation fraud. I look forward to hearing
from our witnesses today about what else can be done to stop these
destructive, and ever expanding, crimes.
__________
Mr. Marino. My question is pretty straightforward and
simple, but I would like to start with Ms. Sparkman and anyone
else who would like to comment on it.
It has been reported that in 2009, U.S. prisoners, United
States prisoners in Federal prisons in this Nation collected a
staggering $130 million in fraudulent tax returns, $130 million
in fraudulent tax returns and refunds.
I understand that in 2010, after pressure from several
United States Senators, the IRS and the Bureau of Prisons
signed a memorandum of understanding to address this growing
problem. What has been the progress of this agreement and
collaboration? And is there anything that Congress can do and
should do to help both the IRS and BOP crack down on this
criminal behavior?
And being very familiar with the law enforcement segment
and Bureau of Prisons, put my share of people in Federal
prison, I know that routinely mail coming in and mail going out
is read by the authorities. How is this happening that inmates
are collecting $130 million in fraudulent tax returns?
Ms. Sparkman, please?
Ms. Sparkman. Chairman Gohmert, thank you very much for
asking this question.
I will tell you that one way that you can help us is to
reimplement the prisoner tax compliance strategy. We had a
strategy where we were able to exchange data with prisons for
State prisons and Federal prisons, tax return information
specific when fraudulent activity is detected. That expired in
December of 2011, and it was not reupped.
It is in the 2013 budget that we have proposed that you
reestablish that authority to allow us to share information
back and forth with these prisons. Because, as you well know,
when you are already in prison, another prison sentence on top
of a very hefty sentence is not as much of a deterrent, this
would go a long way to reestablish this into helping us
continue to exchange information in this area.
Mr. Marino. Anyone else wish to comment? You did spawn
another question that I do have. Tax returns are an obvious
document. It is just not a little letter put into an envelope.
Have you ever discussed with or have any information from
the Bureau of Prisons as to how these are getting through the
system at the Bureau of Prisons?
Ms. Sparkman. I don't have that specific information.
However, I can tell you that the Bureau of Prisons does provide
information to us regularly about fraud they are detecting.
They can send us information. We just need this
reimplementation to share back.
And so, we have seen that. Remember, there are different
ways to file your tax return, not only through the mail, but
also electronically.
Mr. Marino. Well, certainly, I would think that the Bureau
of Prisons is monitoring what is going out on electronic mail,
if that is the case.
We are going to have to----
Mr. Conyers. Would the gentleman from Pennsylvania yield
for a question?
Mr. Marino. Yes, sir.
Mr. Conyers. Thank you.
Are you implying that the prison system is in on this
scheme?
Mr. Marino. No.
Mr. Conyers. Okay. Then can I ask you then do you think it
is being generated by outside forces, or how is this being
done? It is a staggering----
Mr. Marino. I do not know. That is why I am asking the
questions. And certainly, I did not imply, I don't know how you
inferred that I thought the Bureau of Prisons was part of this.
But that is not the case. I think it is simply someone in
the prison has--an inmate has decided, well, I am going to try
this, and it worked.
Mr. Conyers. But millions of dollars, that means--I mean,
are all the smart guys in the Federal prisons? I don't get it,
and I appreciate your candor that you don't know either. I had
never heard of this before just now. That is why I just wanted
to get as much clarification as I could.
Mr. Marino. Well, we are going to try and get that
clarification. And I know what the prison officers go through.
I know their responsibilities, and I know the number of
individuals that they have to monitor.
So something is falling through the cracks here. We will
find out one way or another and correct this problem.
My colleague, Ranking Member Mr. Scott has some more
questions.
Mr. Scott. Thank you.
Ms. Sparkman, did I understand from your previous testimony
that there is a fund out of which victims like Mr. Robinson can
get paid, be made whole, while the investigation goes on?
Ms. Sparkman. I did not--I don't know of a particular fund.
However, Mr. Scott, what I did say is that when victims are
victimized like this, they can work with our victim assistance
program, and then they can work with them so we know who the
real taxpayer is. And they can file their real return and then
be able to get their refund while we are investigating, yes,
the perpetrator who stole their identification----
Mr. Scott. So this would be an avenue for victims of Mo'
Money Taxes to become whole while the investigation goes on?
Ms. Sparkman. That is correct. For victims of these types
of schemes, they can come to our victim assistance program. We
are continuing to improve our processes and procedures in
working with the taxpayer advocate.
Mr. Scott. Okay. Ms. Olson, as an advocate, have you been
able to utilize that program?
Ms. Olson. Pardon?
Mr. Scott. Have you been able to help victims utilizing
that program?
Ms. Olson. We are part and parcel of that program. And in
most instances, these victims come to us because they have not
been able to get the assistance through the Victims Assistance
Unit. It takes so long, and they economic emergencies.
They will not get a refund until the account has been
cleaned up and they have proven that they are the taxpayers and
not the perpetrators. And that can take months and a lot of
document requests.
And as I said, in Mr. Robinson's case, up until yesterday
there were no procedures to make them whole. The fund that the
money is paid out of, if it is a paper check, is called the
Check Forgery Insurance Fund. That is set up by statute. But
the language speaks specifically about paper checks, and our
counsel said it can't be read for electronic.
Mr. Scott. Okay. So we have some work to do to see if we
can't conform that.
And Mr. Chairman, just a word about the ID theft bill that
has been referred to. One of the problems with that pending
legislation is the fact that it includes mandatory minimum
sentences.
Mandatory minimum sentences have been studied and have been
shown to disrupt normal intelligent sentencing processes, waste
the taxpayers' money, do nothing to reduce crime, violate
common sense. And a recent example of a mandatory minimum is
the case of Marissa Alexander in Florida, who was given 20
years mandatory minimum for firing a warning shot to ward off
her abusive husband.
Had she, on the other hand, just leveled the firearm, shot
him and killed him, and been charged with voluntary
manslaughter, the maximum she could have been looking at was 15
years. But because of the simple-minded mandatory minimum, she
had to be sentenced to 20 years, not the 15 she would have been
sentenced if she had just killed him and had been charged with
manslaughter.
And so, I would hope that in order to get some of these
mandatory minimums off the books, the first thing we have to do
is stop passing new ones. And so, I would hope that as we
continue trying to do something about ID theft, we don't make
matters worse by adding to mandatory minimums.
And I thank you for your generosity on the time.
Mr. Marino. Any other of my colleagues have additional
questions? Mr. Conyers?
Mr. Conyers. Sure. Thank you, sir.
I want to pick up on where Ranking Member Scott left off on
mandatory minimums. Mandatory minimums is in the Chairman
Smith-Wasserman Schultz bill. And I know three people on this
Committee, and the Chairman from Pennsylvania may make the
fourth, we are all against mandatory minimums for the reasons
that Ranking Member Scott just went through.
Just as a matter of information, where are all of you on
the mandatory minimum situation? And you are free to evade this
question if you want to because it is not directly connected to
the hearing, but it is an important part of us understanding
where we all stand on these matters.
Ms. Sparkman.
Ms. Sparkman. I would definitely need to defer to my
colleagues at the Department of Justice because that is in the
purview of the courts. But I do think we should still
continually actively investigate these crimes. I believe that
jail sentences are a deterrence. But as to the actual amount of
time, I would defer to my colleagues at the Department of
Justice.
Mr. Conyers. What a dodge.
Okay. Ms. Olson, can you do any better?
Ms. Olson. Well, I am going to dodge on the mandatory
minimums, but let me say about in general the risk of
committing this crime needs to be increased. Because right
now----
Mr. Conyers. Yes, the sentencing. And that is our----
Ms. Olson. Yes. That is----
Mr. Conyers. That is how we take care of eliminating the
mandatory minimum provision is by increasing the sentencing.
But that is leaving it to the court. That is the discretion of
the judge, which is, in our opinion, where these decisions
ought to rest rather than on an automatic law that takes the
discretion out of the court's hands.
Ms. Olson. Yes, but I am not going to comment on mandatory
minimums.
Mr. Conyers. Well, now you are not with the Government.
Mr. Zinman. No, I am not.
Mr. Conyers. Mr. Zinman?
Mr. Zinman. I am only a CPA. I am not an attorney.
Mr. Conyers. Right.
Mr. Zinman. But I do know identity theft, tax fraud very
often is a low-risk, high-yield situation, and we have got to
switch that around. We have got to do something about making
this an issue that there are some real problems to face if you
get caught doing this, and we need to address the real issues
of where they are coming from.
A lot of this stuff----
Mr. Conyers. Do you think mandatory minimums, you think the
people committing these crimes check to see if there is a
mandatory minimum before they do it?
Mr. Zinman. I do not think that they check to see that
there is a mandatory minimum, but I think that they do believe
that it is a low-risk crime.
Mr. Scott. Would the gentleman yield?
Mr. Conyers. Surely.
Mr. Scott. The low risk is whether you get caught or not,
and what happens in sentencing is later on in the process. To
increase the risk, you have to increase the investigation and
prosecution. What happens in sentencing is further down the
line, and most people calculate whether they are going to get
caught or not, not as much what the penalty is going to be.
Mr. Zinman. That is right, and that is why I am a CPA and
not an attorney.
Mr. Conyers. Well, CPAs can have an opinion on mandatory
minimum.
Mr. Zinman. Yes.
Mr. Conyers. You don't get excused because you are not a
lawyer.
Mr. Zinman. That is correct.
Mr. Conyers. We invited you here maybe because you weren't
a lawyer.
Mr. Zinman. That is right, and we are--the CPAs, I can't
speak for every one of them. But as a whole, we are the trusted
professionals, and we do want the law enforced. Whatever the
Congress decides, whatever the attorneys and the courts decide
is the law, we will allow that. But we do want some sort of
enforcement because the e-file tax system is starting to run
amok.
Mr. Conyers. Sure. Well, we are talking about lengthening
the time, the sentencing, increasing the period of
incarceration when you are caught as a replacement to mandatory
minimums. So I put you in the dodger category with the other
two witnesses. [Laughter.]
Mr. Cohen. Mr. Chair?
Mr. Marino. Please, go ahead, sir.
Mr. Cohen. Thank you.
Let me ask Ms. Sparkman a question. In this time of budget
constraints and desires by all of us to deal with the deficit,
is cutting monies to the IRS in some of these across-the-board
type things, is that counterproductive in that if the IRS has
more money for agents and for scrutiny of returns that the
return to the United States Government will be greater? The
more money the IRS has to enforce its laws, would that result
in greater revenues to the United States Government?
Ms. Sparkman. Well, certainly, Mr. Cohen, more resources
have more work, and I will tell you that in our 2013 budget
proposal, there is a provision in there for increased resources
specifically for identity theft. And those resources are in
there to be across the board to help all sorts of different
departments in the Internal Revenue Service attack this
critical, critical issue.
And I will also tell you that even in these declining
resource times, the IRS has taken steps to move our current
resources into this very critical area of identity theft so
that we can combat this problem with our current resources, and
we have moved those resources today.
Mr. Cohen. And let me ask you this. You can't comment on an
ongoing investigation.
Ms. Sparkman. That is correct.
Mr. Cohen. But we know that the IRS did raid the Mo' Money
company in Memphis and get certain information. When a company
has a name like Mo' Money, which probably should have been
``Mo' Money than you are entitled to,'' shouldn't the IRS look
at some companies like that and look at them before Mr.
Robinson and other people are taken advantage of and then the
case comes to your attention through Mr. Scott and my office,
the media, et cetera?
Ms. Sparkman. Mr. Cohen, I appreciate your question.
Obviously, in criminal investigations, we have to look at the
evidence that leads to the crime. Simply a name is not
necessarily illegal to----
Mr. Cohen. It is not illegal. But you don't have to have
probable cause necessarily, do you, to look into something?
Maybe you start to check some returns and see if there are like
a pattern of behavior.
Ms. Sparkman. We have actively pursued and looked at many
unscrupulous preparers from across the Nation, who appear to be
doing bad things and victimizing folks like this and like Mr.
Robinson.
Mr. Cohen. All this money in this scheme was going to
different banks, and they would send the money, as I understand
it, the agency would be asked to send the money to Up2U, ``Up 2
U.'' Not up with Chris Hayes, but Up2U. And then deposit the
money in Value Bank, and then Up2U would tell the company
called TRX Alliance that the money is in the bank, and they
would go ahead. And Mo' Money----
There is a lot of float involved here, isn't there?
Ms. Sparkman. A lot of--I am sorry?
Mr. Cohen. Float. Money that is just sitting there, and
there is interest collected by somebody.
Ms. Olson, you seem to know float. Do you want to float
with that one?
Ms. Olson. I am just rather amazed at the scheme you have
described. The IRS has filters that they use to identify
patterns of return filing. And so, rather than just looking at
a name of an entity, what they would look at is the data based
on the returns coming in, and that will actually help us focus
on here is a return preparation firm or here is a return
preparer that is associated with all these--you know, what
questionable returns.
And that is when we would go out and focus. And certainly,
some of those screens are through the Criminal Investigation
Division. That is how they develop many of their cases.
So it is really a data-based issue. But in the meantime,
the legitimate taxpayers' returns are coming in and also being
frozen, as well as these questionable ones.
Mr. Cohen. Mr. Zinman, have you looked at Mo' Money and
other firms like this and the fees they charge people and the
fees the banks charge, et cetera? Are you familiar with it?
Mr. Zinman. We have seen that, yes.
Mr. Cohen. And how are they compared to the fees that
traditional CPAs would charge?
Mr. Zinman. Interestingly, they are not a whole lot cheaper
sometimes than what regular CPAs charge, who don't get involved
in return anticipation or advance loans or any of these things.
CPAs who perform the work and legitimate registered tax
preparers who perform the work very often perform it at a
reasonable fee.
Jackson Hewitt performed the work for Mr. Robinson, and I
would imagine it was a reasonable fee, and they prepared a
correct return. So a lot of these companies or individuals who
do these schemes really are not looking for the fees. They
don't care about the fees. They care about the refunds and
getting the money.
Mr. Cohen. And then the fees that they charge for the
anticipatory loans is really where they----
Mr. Zinman. Oh, the fees--the rates are ridiculous, yes.
Mr. Cohen. And this has put a bad tenor over the entire
industry, including your group. Is your group, which has not
been part of this, doing anything to try to help either the
victims of these scams or the industry to come up with higher
and better standards?
Mr. Zinman. We constantly work with governmental agencies.
Within my testimony, written testimony, I mention that New York
State did something this year. And I am actually going to go up
to Albany this summer and ask them what they were thinking
because on the tax return where you send a copy of the tax
return to the individual to get approval, it asks for--the New
York State tax return asks for your name, address, Social
Security number, and date of birth. Sort of an invitation for
somebody to steal an identity.
So NCCPAP continuously works with governmental agencies. We
work closely with the IRS. As a matter of fact, there is a
NCCPAP member right now at the IRS for the National Public
Liaison meeting because we constantly try to inform them of
what we see going on, boots on the ground, so to speak.
Mr. Cohen. I want to thank, once again, the Chairman for
holding the hearing, Mr. Scott, our Chairman today, and all the
panelists. This is very important because this is a rip-off
both of citizens, who are the most vulnerable and need these
refunds and are being taken advantage of, and a rip-off of the
Government.
And they are ripping off from both directions. And it
really is hundreds of millions of dollars if it came from the
prison folks, but also in general of tax fraud costing us money
that could be used to help offset the deficit.
Thank you, and I yield back the balance of my time.
Mr. Marino. I just have a request and a statement, and we
will bring this to a conclusion.
Ms. Sparkman, could you inquire with the Bureau of Prisons
the issue that we discussed about the inmates collecting
refunds and perhaps get an explanation? And I am going to do
the same thing as well.
Ms. Sparkman. Yes, sir.
Mr. Marino. And when you get that information from them,
would you please forward it to the Committee, to the Chair, and
we will compare it with the response that I get.
And in conclusion, my colleagues, and I want Mr. Conyers to
know that he knows that I support mandatory minimums--I am not
going to dodge the issue, sir--to a certain extent and in
certain situations. And I look forward to discussing with my
colleagues the issue of mandatory minimums and how we can come
to an understanding.
I do find it interesting and it is an interesting concept
on how eliminating mandatory minimums is going to increase the
penalties. But I think that is a discussion for another day. I
don't want to take----
Mr. Conyers. Would the gentleman yield? Just briefly, we
are substituting, we are not trying to keep mandatory minimums
and increase the penalties. We are trying to increase the
penalties so that that will be a larger deterrent, but we will
be transferring that judgment to the courts and not to Members
of Congress.
Mr. Marino. That is part of the debate. And as a prosecutor
for 19 years, I see the pros and cons of each. So look forward
to working with you on these issues, sir.
Mr. Conyers. Thank you very much.
Mr. Marino. And I know that my colleague Mr. Scott cited a
case. And if you would be so kind, I would like to--if you
would be able to at some point give me the cite on that case, I
would like to look into it because----
Mr. Scott. Marissa Alexander's case has been widely
reported.
Mr. Marino. Okay.
Mr. Scott. It is particularly in light of the fact that it
is in Florida, with all of the what happens when somebody
shoots somebody controversy in Florida. For her to get 20 years
mandatory minimum, and we will provide you with----
Mr. Marino. Would you? Because I would like to read that,
and I want to be part of preventing an injustice. Although I do
have to add, sir, that being involved in many drug raids, it is
not unusual for a shot to be fired from the drug dealer's side
as a warning.
So I just want to know the details, and hopefully, we can
eliminate situations if it is----
Mr. Scott. The point of eliminating a mandatory minimum is
it eliminates the requirement that the judge mindlessly impose
a simple-minded sentence that makes no sense. If a sentence
makes sense, the judge can impose it in appropriate cases. And
in fact, that is what the Supreme Court said a couple of days
ago with mandatory life without parole for juveniles.
Didn't say that life without parole for juveniles in non-
homicide cases was unconstitutional. It said that making it
mandatory in all cases whether it made sense or not was
unconstitutional. But if you are going to apply that kind of
sentence, you have to look at the individual case and make sure
it is appropriate.
Mr. Marino. But we know with involving minors, particularly
in cases of murder, that it is a different standard by which we
review it because of the age of the individual. It is not that
I disagree with that ruling, just it is apples and oranges
compared to a 14-, 15-, or 16-year-old involved in a homicide
and someone over the age of 18.
But again, that is an issue for another day, and I want to
thank my colleagues.
And in closing, I would like to thank our witnesses for
their testimony today and coming in here and giving us your
time and letting the American people know what is going on.
Without objection, all Members will have 5 legislative days
to submit to the Chair additional written questions for the
witnesses, which we will forward and ask the witnesses to
respond as promptly as they can so that their answers may be
part of the record.
Without objection, all Members have 5 legislative days to
submit any additional materials for inclusion in the record.
With that, again, I thank the witnesses, my colleagues, the
people visiting us, and this hearing is adjourned.
Thank you, ladies and gentlemen.
[Whereupon, at 11:07 a.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Robert C. ``Bobby'' Scott, a
Representative in Congress from the State of Virginia, and Ranking
Member, Subcommittee on Crime, Terrorism, and Homeland Security
Thank you, Chairman, for calling this hearing, particularly on the
issue of tax preparer fraud. You will recall that Reps. Cohen, Rigell,
Thompson of Mississippi, and I wrote to you in March requesting a
hearing into the interstate activities of the tax preparation firm Mo
Money. We have each had many constituents contact our offices with
complaints regarding their dealings with Mo Money. I want to thank you
for agreeing to our request by including this issue in today's hearing,
and I am pleased to welcome today Mr. Michael Robinson, from Virginia's
3rd Congressional District, to tell us about his experience with the
company. Thank you, Mr. Robinson, for making the trip up from Norfolk
to share with us your experience. I look forward to hearing your
testimony.
Over the last several months I have heard troubling stories from
many people in my district involving the tax preparation firm Mo Money.
Some of these stories involve customers who assigned their refund from
the IRS to Mo Money in order to get a refund anticipation loan. The
checks these customers received from Mo Money containing their loans or
refunds then ``bounced,'' and Mo Money has not made good on many of
those bounced checks. Other stories involve customers who never
received a tax refund at all, although IRS records reflect that refunds
were sent to Mo Money pursuant to the customers' assignments. Some
customers say Mo Money deducted additional fees from their refund
checks without their consent, or included additional deductions on
their returns to which they were not legally entitled (and for which
they would be penalized by the IRS), or submitted tax returns to the
IRS without authorization or a signature, or did not give customers a
copy of their tax returns. My colleagues Mr. Rigell, Mr. Cohen, and Mr.
Thompson received similar complaints from their constituents, as well.
According to reporting by WAVY TV in Portsmouth, and WTVR in
Richmond, none of the Mo Money franchise locations listed on the Better
Business Bureau web site are accredited, meaning they do not get the
BBB's seal of approval when it comes to good business practices. Many
on the list received an ``F'' rating. In addition, two states have
taken public action against Mo Money Taxes. In 2010, the Arkansas
Attorney General sued Mo Money Taxes for failing to properly disclose
fees on refund anticipation loans, and the company had to pay $25,000
in fines for illegal business practices. The Illinois Attorney General
filed suit against the company this year for overcharging taxpayers and
filing inaccurate returns.
Complaints about what customers have experienced with Mo Money have
been made to Congressional offices, the IRS, the department of Justice,
and state and local authorities. I am sorry that Mr. Robinson was
victimized, but I appreciate his willingness to make the sacrifices he
had to make to come and tell us here today about his experience. I look
forward to exploring what we can do to prevent this from happening to
others.
What we do to address the problems of fraud and identity theft
should be effective and measured. While I appreciate the sentiments and
efforts behind H.R. 4362, the ``STOP Identity Theft Act of 2012,''
which will be discussed here today, I cannot support an effort that
seeks to stop one injustice by applying another. H.R. 4362 adds tax
fraud as a predicate for aggravated identity theft under 18 U.S.C.
Sec. 1028A(c). The penalty for aggravated identity theft is a mandatory
term of imprisonment of 2 years or, for an offense related to
terrorism, 5 years. Because of the mandatory minimum sentences included
in H.R. 4362, this bill is not the solution to the problem of identity
theft. It doesn't mean that some should not be sentenced to these
amounts, or more, but to require an unjust sentence to be imposed
before any of the facts or circumstances of the case, or the
characteristics of the defendant, are taken into account, is
unnecessary and wrong.
Mandatory minimums have been studied extensively and have been
found to distort rational sentencing systems, to discriminate against
minorities, to waste the taxpayer's money and to often violate common
sense. Even if everyone involved in a case, from arresting officer,
prosecutor, judge and victim, believes that the mandatory minimum would
be an unjust sentence for a particular defendant in a case, it still
must be imposed. Mandatory minimum sentences, based merely on the name
of a crime, remove sentencing discretion from the judge. Regardless of
the role of the offender in the particular crime, the offender's record
or lack thereof, or the facts and circumstances of the case, the judge
has no discretion but to impose the mandatory minimum set by
legislators long before the crime has been committed. This is what
brings about results such as that in the recent case of Marissa
Alexander, a mother of 3 and graduate student, who was sentenced to a
mandatory minimum sentence of 20 years for discharge a gun to warn off
an abusive husband during a dispute. Ironically, if she had
intentionally shot and killed him under such circumstances, the maximum
penalty for voluntary manslaughter is 15 years!
The two year and five year mandatory sentences in H.R. 4362 are,
therefore, problematic, even though I support the intent of the
sponsors to do more to address identity theft. This is the third
mandatory minimum we have considered in a month, and each time we hear,
``This bill is not a new mandatory minimum, it's just adding a new
crime to a statute that already has a mandatory minimum'' or ``it's
just one more.'' First it was synthetic drugs, then VAWA, now it's
identity theft. We need to stop passing mandatory minimums. Identity
theft is a serious problem, but mandatory minimum sentences are never
the solution.
I again thank the Chairman for calling this hearing and welcome Mr.
Robinson and the other witnesses, and I yield back my time.