[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

                              ----------                              

                             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

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               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.

                                 
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