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



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

                            SERVICE, PART 4 

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

                                HEARING

                               before the

                SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,
                  EFFICIENCY AND FINANCIAL MANAGEMENT

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                           NOVEMBER 29, 2012

                               __________

                           Serial No. 112-191

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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                      http://www.house.gov/reform

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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

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

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

   Subcommittee on Government Organization, Efficiency and Financial 
                               Management

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



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on November 29, 2012................................     1

                               WITNESSES

Ms. Beth Tucker, Deputy Commissioner for Operations Support, 
  Internal Revenue Service
    Oral Statement...............................................     6
    Written Statement............................................     9
The Honorable J. Russell George, Inspector General, Treasury 
  Inspector General for Tax Administration
    Oral Statement...............................................    19
    Written Statement............................................    21
Ms. Nina E. Olson, National Taxpayer Advocate, Internal Revenue 
  Service
    Oral Statement...............................................    37
    Written Statement............................................    39
Mr. James R. White, Director, Strategic Issues, U.S. Government 
  Accountability Office
    Oral Statement...............................................    56
    Written Statement............................................    58

                                APPENDIX

The Honorable Todd Russell Platts, a Member of Congress from the 
  State of Pennsyvania, Opening Statement........................    95
The Honorable Edolphus Towns, a Member of Congress from the State 
  of New York, Opening Statement.................................    97
Mr. Kenneth H. Ryesky, Esq., Adjunct Assistant Professor, 
  Department of Accounting and Information Systems, Queens 
  College of the City University of New York, Statement for the 
  Record.........................................................    99


IDENTITY THEFT AND TAX FRAUD: GROWING PROBLEMS FOR THE INTERNAL REVENUE 
                            SERVICE, PART 4

                              ----------                              


                      Thursday, November 29, 2012

                   House of Representatives
Subcommittee on Government Organization, Efficiency 
                          and Financial Management,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 10:07 a.m., in 
Room 2247, Rayburn House Office Building, Hon. Todd Russell 
Platts [chairman of the subcommittee] presiding.
    Present: Representatives Platts, Issa, Towns, Connolly.
    Also Present: Representative Diaz-Balart.
    Staff Present: Alexia Adrolina, Majority Assistant Clerk; 
Molly Boyl, Majority Parliamentarian; Steve Castor, Majority 
Chief Counsel, Investigations; John Cuaderes, Majority Deputy 
Staff Director; Linda Good, Majority Chief Clerk; Mark D. 
Marin, Majority Director of Oversight; Tegan Millspaw, Majority 
Professional Staff Member; Scott Schmidt, Majority Deputy 
Director of Digital Strategy and Press Secretary; Jaron Bourke, 
Minority Director of Administration; Beverly Britton Fraser, 
Minority Counsel; and Devon Hill, Minority Research Assistant.
    Mr. Platts. Good morning. Today's hearing on Identity Theft 
and Tax Fraud: Growing Problems for the Internal Revenue 
Service will come to order.
    Before I begin my statement, I would like unanimous consent 
that our colleague from Florida, Mr. Diaz-Balart, will be 
allowed to participate in today's hearing. Without objection, 
so ordered.
    Mario, we are delighted to have you here with us.
    The purpose of today's hearing is to address the serious 
and rapidly growing problem of identity theft-related tax 
fraud. This is the fourth hearing the Subcommittee has had this 
Congress on this important issue, and it will continue our 
examination of how fraud is occurring and what can be done to 
stop it. We will review the IRS's actions to prevent and detect 
identity theft tax fraud, and evaluate what more can be done to 
reduce the problem and assist victims of this crime.
    Identity theft-related tax fraud occurs when a fraudster 
uses stolen information to file a fraudulent tax return in the 
victim's name. If the victim has not filed a tax return yet, 
the fraudster can file a return and end up receiving a tax 
refund from the IRS. When the legitimate taxpayer goes to file 
a tax return, it may be flagged by the IRS as a duplicate 
claim.
    Many victims are unaware that their identities, and in many 
cases their tax refunds, have been stolen until they file their 
own return and are notified that someone else has already filed 
in their name. It can take months or, as we have learned, 
sometimes even years for these cases to be resolved and for a 
tax refund to the legitimate taxpayer be issued.
    In the last few years, the number of incidents of identity 
theft-related tax fraud has drastically increased, from 
approximately 51,700 cases in 2008 to over 1 million cases in 
2011. This number represents only the known cases of identity 
theft. The total number of incidents that go undetected is 
unknown, but the Treasury Inspector General for Tax 
Administration, Mr. George, who we are delighted to have with 
us here today, estimates that the number could be much higher. 
In TIGTA's review of tax returns filed in 2011, TIGTA 
identified an additional 1.5 million potentially fraudulent 
returns that were not detected by the IRS.
    TIGTA and the Taxpayer Advocate have also raised concerns 
that victims of identity theft do not receive adequate 
assistance from the IRS. In June 2011, this Subcommittee heard 
from three witnesses who had been victims of identity theft and 
learned that their interactions with the IRS were often 
uninformative, frustrating, or discourteous. One witness stated 
that, ``the way I feel I have been treated by the IRS system 
has made me a victim a second time.' We want to certainly 
recognize that the IRS has made tremendous efforts to improve 
its assistance to victims, including creating a Taxpayer 
Protection Unit and providing better training to their 
employees. However, we also want to recognize that there are 
still significant issues to be addressed to ensure that victims 
get the assistance they need.
    In addition to the impact on victims, identity theft-
related tax fraud results in a significant loss to the United 
States Government and ultimately the American taxpayers. TIGTA 
estimates that the IRS could issue as much as $21 billion in 
fraudulent tax refunds over the next five years as a direct 
result of identity theft.
    The average amount of a fraudulent tax refund is only about 
$3,400, so it is difficult, and almost impossible, for the IRS 
to devote the resources necessary to investigate every case. 
Some fraudsters manage to collect millions of dollars, though, 
through multiple refunds. Given the severity of the problem, we 
are committed to ensuring that we do better in deterring this 
type of fraud.
    And while, Ranking Member Towns and I, this is our last 
hearing as Chairman and Ranking Member, and in the past we 
would say and perhaps we would be switching seats, but this 
time we are both leaving our seats as we both prepare to retire 
from Congress, but we know, with our great staff on both sides 
of the aisle, as well as our colleagues on this Subcommittee 
and full Committee, the attention to this issue will continue.
    Another key problem is the lack of information the IRS has 
about identity theft-related tax fraud. The Government 
Accountability Office has raised concern that IRS needs better 
performance measures and data collection to help assess the 
effectiveness of its initiatives to stop fraud. IRS agreed with 
GAO's recommendation, but there is still a shortage of 
information about this problem, and I know one of those 
challenges is resources available to commit to this 
responsibility.
    IRS is also not utilizing all information that it currently 
possesses, according to TIGTA, including the case files of 
victims of identity theft. Once a case has been resolved, files 
are often deleted without IRS using this information to 
identify trends or study them for ways to detect and prevent 
future fraud.
    We are pleased that the IRS has launched a number of pilot 
programs to better combat fraud and to improve on the issues 
that TIGTA has raised, as well as the Taxpayer Advocate, and we 
look forward to hearing about them here today. One of these 
improvements is a Personal Identification Number, or PIN, which 
is given to victims of identity theft. This PIN is used by the 
victims to identify their returns and add an extra level of 
security to their legitimate return.
    IRS has also finished its first pilot of a program designed 
to share sensitive taxpayer information with local law 
enforcement officials in order to better investigate and 
prosecute fraud. IRS tested this pilot in Florida and, in 
October, the IRS expanded the pilot program to eight additional 
States, including my home State of Pennsylvania and Mr. Towns' 
home State of New York.
    The IRS is working to stop the rise of identity theft-
related tax fraud and to better detect and prevent fraud. We 
appreciate their efforts and have followed their work closely 
throughout this Congress. As I stated earlier, though, we also 
know we have more room for improvement, and we appreciate the 
continued focus on this important issue. Today we will hear 
from a panel of experts on how to both combat identity theft-
related tax fraud and how to better assist the victims of this 
fraud. We look forward to their testimony.
    We are certainly grateful for the written testimony that we 
have been provided, as well as the oral testimony you will give 
here today, and very much want to thank each of our witnesses 
not just for being here today, but for your focus on this 
issue, as well as numerous others that relate to tax code and 
the implementation of the tax code and how we can do so in a 
fair and efficient manner that ensures that the Federal 
Government receives its revenues prescribed by law, but also 
that we do right by the American taxpayers and, in this case, 
especially by innocent Americans who are victimized by 
criminals.
    With that, I am honored to recognize the distinguished 
Ranking Member, my colleague from New York, Mr. Towns. And, Ed, 
before I do, just again, with this being our final hearing, 
whether it was when I chaired the Committee and you have been 
ranking member, or when you chaired it and I was ranking 
member, it has been an absolutely great privilege to have 
served with you in the broad sense, and especially here with 
this Subcommittee; and not just from a professional standpoint, 
but personally. I know that we are both leaving the House and 
going to be going our separate ways, but look forward to a 
continued friendship with you and we will look forward to 
future visits to Brooklyn and seeing how you are doing in your 
retirement as I move on to my next chapter as well.
    With that, I recognize Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman. And let me 
say that a term and phrase that is used around here sometimes 
and people don't really mean it, they say my good friend. Well, 
I want you to know when I say my good friend to you, I really, 
really mean it, because it has been a pleasure working with you 
over the years. And, of course, I know you that will do well in 
whatever you decide to pursue in the future.
    Identity theft and tax fraud are serious, and it is a 
growing problem. According to a July 2012 report from the 
Treasury Inspector General for Tax Administration, incidents of 
identity theft reported by the Internal Revenue Service have 
skyrocketed, from 51,702 in 2008 to over 1 million cases in 
2011. Even though ID theft and the related tax fraud continue 
to escalate, the IRS has been working diligently to get ahead 
of the identity thieves. More fraud cases are being detected by 
IRS filters. As a result, billions of dollars have been kept 
from the hands of criminals. But more effort is required for us 
to stay ahead of the criminals and to help the victims.
    One of the most important priorities we must address is the 
quality of assistance given to taxpayers victimized by tax 
refund fraud. The Inspector General puts it bluntly: The IRS is 
not providing effective assistance to taxpayers who report 
being victims of identity theft. This must change. It also 
appears that a better job has to be done tracking ID theft tax 
fraud cases so that a clear solution can be developed. And, 
most notably, we must increase the prosecution rates of 
fraudsters to serve as a deterrent to others.
    Today's hearing is the fourth in a series held by this 
Subcommittee examining how the IRS handles the problems of 
identity theft and tax fraud. Our witnesses are all well versed 
in the issues we will examine today. Each of them has had a 
hand in identifying problems and crafting solutions to the 
current crisis, and I thank you for that and I look forward to 
your testimony this morning.
    I have spent most of my 30 years in Congress pursuing 
initiatives that have resulted in a better, more efficient 
Federal Government. As you have heard from my colleague and the 
Chairman of this Committee, Mr. Platts and I have shared this 
commitment as we traded the chairmanship of this Committee over 
the years. Unfortunately, this will be our last hearing. I look 
to you and the returning members of this Committee to continue 
the hard work and the fight for a solution to this problem and 
all of the other issues that will make our great government a 
better one.
    Mr. Chairman, it has been an honor and a great pleasure 
working with you. Whatever you decide to pursue, I wish you the 
best and I know you will have success. On that note, I yield 
back.
    Mr. Platts. Thank you for the kind words and, as I said, 
the feeling is mutual, and you truly are my good friend as 
well.
    Mr. Towns. Thank you.
    Mr. Platts. With that, I am honored to yield to one of our 
colleagues from Florida who joined us here today, the gentleman 
who is not a member of the Committee, but I know has a keen 
interest in this issue for his constituents as well, Mr. Diaz-
Balart.
    Again, welcome, and I yield to you for an opening 
statement.
    Mr. Diaz-Balart. Thank you very much, Mr. Chairman. Let me 
first thank you and also Ranking Member Towns for holding 
another hearing on this important issue and for inviting me to 
sit in and give a brief opening statement.
    I do want to take this opportunity, Mr. Chairman, though, 
to mention that you have been really a spectacular leader on 
this issue and others, but specifically on this issue, and I 
know that I can speak for everyone in Congress and the American 
people when I say that you are going to be missed here, Mr. 
Chairman. Again, I want to thank you for your service, for your 
leadership.
    I also want to take this opportunity to thank the Ranking 
Member. He has dedicated his life to public service and we are 
very grateful for that. So, to both of you, thank you for your 
invaluable service.
    Mr. Chairman, as some of you know, as you clearly know, 
South Florida has been one of the most affected areas in the 
Country when it comes to IRS identity theft. I, myself, my 
office have had dozens of constituents who have reached out to 
us because their tax returns have been stolen, and as you 
mentioned, Mr. Chairman, they feel absolutely helpless. I have 
had numerous constituents who have also had their tax returns 
stolen more than once, in consecutive years; and imagine how 
they must feel. These are hardworking people who depend on, in 
many cases, their returns to pay basic bills, basic 
necessities.
    So obviously we need to do more to help those victims and 
to prevent those crimes from taking place in the future. It has 
been one of my top priorities and I have worked closely with 
the IRS to try to help resolve this epidemic.
    I also want to thank the IRS. You all have been 
exceedingly, exceedingly accessible not only to me, but to my 
staff; always been willing to come forward to discuss this 
issue and to try to let us know what you are working on, et 
cetera. SoI want to thank you for being extremely accessible to 
us.
    Mr. Chairman, they have made some great improvements over 
the last year, but obviously, as the Ranking Member and you 
have said, a lot more has to be done. I was really happy to 
learn about the Identity Theft Victim Disclosure Waiver pilot 
program that was implemented in Florida in April of this year. 
I let met with stakeholders down there, the State attorney's 
office and the State attorney herself, and they were really 
looking forward to getting this program going. And I have 
spoken to both the IRS and the local authorities about the 
success so far. It does seem to be helping State and local 
authorities to prosecute the individuals responsible for this 
heinous crime.
    Now, while this program is a step in the right direction, 
as we have all said before, much more needs to be done. So far, 
most of what the IRS has implemented deals with dealing with 
the crime after it has occurred. That pilot program is one of 
those examples. And, again, while I appreciate that and I think 
they are having some success, I think more emphasis needs to be 
put and more focus needs to be put on preventing these crimes 
from happening in the first place. Obviously, the IRS needs to 
come up with detailed and up-to-date plans to prevent further 
tax return fraud, while also taking care of the taxpayers who 
have already fallen victim.
    So it is my hope that this hearing will once again serve as 
a discussion on how we can improve our tax return system and to 
protect taxpayers' hard-earned money.
    I once again want to thank you, Mr. Chairman, and the 
Ranking Member for holding this hearing, but for being leaders 
in this area. The taxpayers of our Country have a great debt of 
gratitude to you. And I hope, Mr. Chairman, that we are able to 
also hear about exactly how successful and some of the results 
from the South Florida pilot program.
    With that, Mr. Chairman, I thank you very much for this 
opportunity, for allowing me to sit in, and I yield back.
    Mr. Platts. The gentleman yields back, and more than glad 
to have you here with us, Mario, and, again, your efforts with 
your constituents. I think more and more of our colleagues are 
coming to realize the challenge of this issue as our offices 
are being contacted by those who have been victimized and all 
the more important of the work of the IRS and all involved to 
prevent this and, when it does occur, help those who have been 
victimized.
    We will keep the record open for seven days for any other 
opening statements or extraneous material. We will now move to 
our panel of witnesses, and we are, again, very grateful for 
all four of you being here with us today.
    First, Ms. Beth Tucker, Deputy Commissioner for Operations 
Support at the Internal Revenue Service; the Honorable J. 
Russell George, Inspector General at the Treasury Inspector 
General for Tax Administration; Nina Olson, National Taxpayer 
Advocate; and Mr. James White, Director of Strategic Issues at 
the United States Government Accountability Office.
    Pursuant to our Committee rules, if I could ask all four of 
you to stand and raise your right hand as I swear you in.
    Do you solemnly swear or affirm that the testimony you are 
about to give this Committee will be the truth, the whole 
truth, and nothing but the truth?
    [Witnesses respond in the affirmative.]
    Mr. Platts. Thank you. You may be seated.
    Let the record reflect that the witnesses all answered in 
the affirmative.
    We are going to set the clock at five minutes because we 
do, again, appreciate the written testimony in greater detail. 
If you need to go over a little bit, that is not a problem. We 
will try to keep it as close to five as we can so we can get 
more time for exchange, Q and A, with you.
    So, Ms. Tucker, if you would like to begin.

                       WITNESS STATEMENTS

                    STATEMENT OF BETH TUCKER

    Ms. Tucker. Chairman Platts, Ranking Member Towns, and Mr. 
Diaz-Balart, my name is Beth Tucker, and I am the Deputy 
Commissioner for Operations Support at the Internal Revenue 
Service. I appreciate the opportunity to update you on the 
actions we are taking at the IRS to combat refund fraud and 
help the victims of identity theft.
    Let me also say, on a personal note, you probably don't 
hear this from witnesses at hearings a lot, but it is an honor 
to be here with you today for your final hearing, and I 
appreciate all the support you have given us at the IRS over 
the years.
    Mr. Platts. Well, Ms. Tucker, it is a partnership with you, 
between the Committee, and I was going to joke that maybe you 
are glad that Ed and I are retiring so you can get rid of it.
    Ms. Tucker. No, sir, you won't hear that from me.
    [Laughter.]
    Mr. Platts. And I can honestly say that has never been 
conveyed by you and your staff and colleagues at IRS. It has 
been a great partnership, so thank you.
    Ms. Tucker. Over the past few years, the IRS has seen a 
significant increase in refund fraud schemes, particularly 
schemes involving identity theft. Identity theft, and the harm 
it inflicts on innocent taxpayers, is a problem that we take 
very seriously at IRS.
    When it comes to identity theft, the IRS faces, 
unfortunately, the same challenges as every major financial 
institution. We are continually reviewing our processes and our 
policies to make sure we are doing everything possible to 
minimize identify theft, to help the victims, and to 
investigate the people committing these crimes.
    There is a delicate balance here, as we all know. The IRS 
has a dual mission when it comes to refunds, particularly when 
they are generated, in whole or in part, by tax credits. When 
we develop controls to minimize fraud, we must always consider, 
as well, the need to distribute refunds in a timely manner and 
ensure that taxpayer rights are protected.
    The IRS is committed to improving our efforts at blocking 
fraudulent refund claims before they are processed. We strive 
to screen our false returns at the earliest stage and we are 
getting results. During the first ten months of this calendar 
year, we protected approximately $20 billion of revenue related 
to refund or to fraudulent returns, including identify theft. 
Let me share with you some of our up-front prevention efforts.
    We did implement 13 new filters at last filing season to 
improve our ability to spot false refunds before they go out 
the door. We are also adding additional filters for the 
upcoming filing season, which I can discuss more later. We also 
issued identity protection PINs in 2012 to more than 250,000 
taxpayers whose identities were stolen. The PIN authenticates a 
return filer as the legitimate taxpayer at the time of filing 
and also, of course, helps prevent the repeat of stolen 
identity that Mr. Diaz-Balart mentioned earlier. For the coming 
filing season, we expect to issue well over 600,000 PINs to 
taxpayers to aid in protection of their next return.
    We have accelerated the matching of information returns to 
help identify bad returns earlier. We are also locking more 
accounts of deceased taxpayers whose Social Security Numbers 
have been used by these unscrupulous thieves so they can't be 
used again. We are also working more closely with law 
enforcement to match information they are providing us against 
information we have on file. We are also working closely with 
our partners across tax administration to identify other 
opportunities.
    This effort is not over. We have talked about all of the 
things that IRS has done. We continue to find ways to improve 
our processes and our systems, and we look forward to talking 
with you today about those continuing efforts.
    [Prepared statement of Ms. Tucker follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Platts. Thank you, Ms. Tucker.
    General George?

          STATEMENT OF THE HONORABLE J. RUSSELL GEORGE

    Mr. George. Thank you, Chairman Platts, Ranking Member 
Towns, Mr. Diaz-Balart. Thank you for the invitation to provide 
testimony on our recent work regarding identity theft.
    As TIGTA has previously reported, the total impact of 
identity theft on tax administration is significantly greater 
than the amount the IRS detects and prevents. The IRS is not 
providing effective assistance to taxpayers who report that 
they have been victims of identity theft. While the IRS is 
continuing to make changes to its processes to address these 
weaknesses, there is much work that still needs to be done.
    My auditors analyzed tax year 2010 tax returns processed 
during the 2011 filing season and identities 1.5 million tax 
returns with tax refunds issues totaling in excess of $5 
billion which the IRS did not identify as potentially 
fraudulent. If not addressed, the IRS could issue approximately 
$21 billion in fraudulent tax returns resulting from identity 
theft over the next five years.
    Incidents of identity theft affecting tax administration 
have continued to rise since calendar year 2011, when the IRS 
identified more than 1 million incidents of identity theft. As 
of October, the IRS identified over 1 million incidents thus 
far this year.
    When the identity thief files the fraudulent tax return, 
the IRS does not yet know that an individual's identity could 
have been used more than once. Instances of duplicate tax 
returns cause the greatest burden to the legitimate taxpayers. 
Once the legitimate taxpayer files a return, the duplicate tax 
return is identified and the refund is held until the IRS can 
confirm the taxpayer's identity.
    When reviewing returns for 2010, we identified more than 
48,000 Social Security Numbers that were used multiple times on 
potentially fraudulent tax returns. We estimate that more than 
$70 million in potentially fraudulent tax returns were paid to 
identity thieves who filed tax returns before the legitimate 
taxpayer filed theirs. This is in addition to the $5.2 billion 
noted previously, which was related to taxpayers who do not 
appear to have a filing requirement.
    The gaining of access to third-party income and withholding 
information at the time tax returns are processed is the single 
most important tool the IRS could use to detect and prevent 
identity theft resulting from the reporting of false income and 
withholding. Most of this information is not available until 
well after the tax return filing season begins.
    As we reported both in 2008 and 2012, the IRS is not in 
compliance with direct deposit regulations that require tax 
refunds to be deposited to an account only in the name of the 
individual listed on the tax return. Direct deposit, which 
includes a debit card, provides thieves the ability to quickly 
receive fraudulent tax refunds. Of the approximately 1.5 
million 2010 returns we identified, 1.2 million, about 82 
percent, used direct deposit to obtain tax refunds totaling 
approximately $4.5 billion. One bank account received 590 
direct deposits totaling over $900,000.
    Our analysis of questionable tax year 2010 tax returns that 
appear to have been filed by an identity thief found that 2,274 
children under the age of 14 had almost $4 million in refunds 
issued. In addition, almost 1 million individuals whose income 
level does not require them to file a tax return had over $3 
billion in refunds issued.
    In May of this year we reported that the IRS is not 
effectively providing assistance to taxpayers who report that 
they have been victims of identity theft. Identity theft cases 
can take more than one year to resolve, and communication 
between the IRS and victims is limited and confusing.
    The growth of identity theft presents considerable 
challenges for tax administration. In fiscal year 2011, the 
IRSreceived approximately 438,000 identity theft cases and 
closed more than 300,000 cases. For fiscal year 2012, it 
received over 640,000 identity theft cases and closed almost 
440,000 of them. As of October of this year, the IRS had over 
370,000 identity theft cases in its inventory.
    In January 2012, the IRS established a unit to manage 
identity theft cases during the 2012 filing season. Taxpayers 
found it difficult to reach employees in this unit. The unit 
received approximately 200,000 calls during fiscal year 2012, 
but was only able to answer about 73,000 of them.
    In conclusion, the IRS has made some progress in this area; 
however, we at TIGTA remain concerned over the ever-increasing 
growth of identity theft and its impact on tax administration.
    In closing, Mr. Chairman, Ranking Member Towns, I also want 
to just express my true appreciation for the cooperation and 
the attention that you and this Committee have put to this very 
important issue. You will be missed. Thank you.
    [Prepared statement of Mr. George follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Platts. Thank you, General George. You, in your 
previous life as a staff director of this Subcommittee with Mr. 
Horn, set a great model for Mr. Towns and me to follow, so we 
are honored to have been allowed to kind of carry that torch 
for the last several years.
    Ms. Olson?

                    STATEMENT OF NINA OLSON

    Ms. Olson. Chairman Platts, Ranking Member Towns, 
Congressman Diaz-Balart, and members of the Subcommittee, thank 
you for inviting me to testify at your second hearing this year 
which I have testified on the subject of tax-related identity 
theft.
    Since 2004, I have written extensively about the impact of 
identity theft on taxpayers and tax administration, and I have 
worked closely with the IRS to improve its efforts to assist 
taxpayers who become identity theft victims. The IRS has 
adopted many of my office's recommendations and made 
significant progress in this area in recent years. 
Notwithstanding these efforts, the IRS continues to struggle to 
keep up with the increase in identity theft schemes and their 
evolving nature, and I remain concerned that the IRS is not 
doing a good enough job of working with and assisting the 
victims of this crime.
    At the end of September, the IRS had nearly 650,000 
identity theft cases in its inventory. The IRS did not have a 
reliable way to track the cycle time of all of its cases yet, 
but at least one major category of cases had an average cycle 
time of over six months and the IRS issued instructions to its 
employees to advise identity theft victims it would generally 
take about six months to resolve their cases. After I objected 
and urged the IRS to move more quickly, it rescinded the 
instruction to provide taxpayers with a six-month case 
resolution estimate, but it is not clear yet whether the IRS 
will do substantially better than that time frame.
    The impact these delays have on victims is significant. 
About 80 percent of taxpayers each year are due a refund, and 
the average refund amount is about $3,000. While an identity 
theft case is pending, the victim generally does not receive 
the refund. Particularly for low income taxpayers, for whom the 
refund may constitute 25 percent or more of their annual 
income, this delay imposes an enormous hardship. In addition, 
once a taxpayer's Social Security Number has been compromised, 
the taxpayer is at much greater risk of becoming a victim in 
future years.
    The IRS has implemented measures to protect victims in 
future years by issuing them a Personal Identification Number 
that they may use in filing their returns, but with a six month 
cycle time to resolve cases, many victims will go into the 
following filing season with their cases unresolved and, 
therefore, be at greater risk of being victimized again, or at 
least having their refund held up a second time.
    Even when the IRS closes a case, because the IRS looks at 
each year and each issue one at a time, victims find themselves 
dealing with the IRS year after year, through no fault of their 
own, just to resolve collection and audit issues caused by 
identity theft. In fact, more than 20 functional areas of the 
IRS deal with different aspects of identity theft, and 
taxpayers with multiple issues have often had to deal with 
multiple functions.
    I have repeatedly urged the IRS to establish a single point 
of contact for taxpayers to work through, and former 
Commissioner Shulman committed to that in a hearing before the 
Senate Finance Committee in April 2008. Specifically, he said 
in his testimony that a new unit known as the Identity 
Protection Specialized Unit, or the IPSU, ``will provide end-
to-end case resolution. Victims will be able to communicate 
with one customer service representative to have their 
questions answered and issues resolved quickly and efficiently. 
We believe this unit will assist taxpayers whenever the need 
arises in dealing with identity theft.''
    Yet, today the IRS is moving backward, toward a 
decentralized approach, creating specialized identity theft 
units within 21 separate functional areas. The specifics of the 
new procedures are still under development, and if the IRS 
maintains the IPSU as the single point of contact or traffic 
cop for all taxpayers, the specialization within each unit 
could be a net plus.
    But if, as seems likely, the IRS reduces the role of the 
IPSU and directs taxpayers to deal directly with the 21 
specialized units, I am deeply concerned we will revert back to 
where we were in 2008, with large numbers to taxpayers that 
have cross-functional issues unable to get their problems 
resolved without multiple contacts, with multiple functions, 
and that would, in my opinion, be a disaster for the victims.
    All this does not paint a pretty picture, but there is good 
news. The IRS now recognizes that tax-related identity theft is 
a major threat to tax administration, and the agency's senior 
leadership, including Deputy Commissioner Tucker, is making 
this a priority and is devoting considerable resources to 
addressing it. Among its achievements, the IRS has made 
considerable improvements to its identity theft filters to try 
to identify and stop more identity theft returns before they 
are processed, and it appears to be having some success.
    Mr. Chairman and Ranking Member Towns, I want to thank you 
for your continuing interest in this issue, and wish you well 
in your retirement. I pledge to you that I and my office will 
continue to work with taxpayers and the IRS and this Committee 
to try to get this problem under control and ensure that victim 
assistance improvements.
    [Prepared statement of Ms. Olson follows:]

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    Mr. Platts. Thank you, Ms. Olson.
    Mr. White?

                  STATEMENT OF JAMES R. WHITE

    Mr. White. Chairman Platts, Ranking Member Towns, and 
Congressman Diaz-Balart, I am pleased to be here to discuss 
identity theft-based refund fraud. The problem appears to be 
growing. IRS reported over 600,000 incidents of identity theft 
that affected taxpayers in 2012 and another 400,000-plus in one 
scheme using stolen identities of Puerto Rican citizens.
    First some background. Typically, the identity theft takes 
place outside of IRS and IRS may be unaware of resulting tax 
fraud attempts until well after they occur. There are two basic 
types of identity theft tax fraud. One is refund fraud, where 
the thief files a tax return using the name and Social Security 
Number of the innocent victim and claims a refund. If 
successful, money is stolen from the U.S. Treasury.
    The other is employment fraud, where the thief uses a 
stolen ID to obtain a job. The thief's employer reports the 
wages to IRS and it appears that the innocent victim is under-
reporting income. I will focus on refund fraud.
    My major point today is that the full extent and nature of 
identity theft refund fraud is not well understood. This is not 
a surprise because of the hidden nature of the crime and the 
continually changing tactics of the thieves. However, without 
good information on the extent and nature of the fraud, it is 
hard for IRS to craft a response and congressional oversight is 
complicated.
    Here is some of what IRS does not know.
    One, the total number of fraudulent returns. IRS counts the 
refund fraud attempts it identifies, but does not have an 
estimate of fraud it failed to detect. Identifying a fraud 
attempt when the thief files with the name and Social Security 
Number that match is a challenge. IRS may not know of the fraud 
until the legitimate taxpayer files and IRS realizes it has two 
returns with the same name and Social Security Number. However, 
identifying fraud can be complicated. Some honest taxpayers 
mistakenly file duplicate returns.
    Two, cost of fraudulent returns. IRS counts the amount it 
recovers from fraudulent returns of all types; it does not 
label recoveries by specific fraud type. We do know that 
significant amounts of fraudulent returns of all types are 
returned to IRS by banks and other entities. Between January 
and September of 2012, IRS reported that $754 million was 
returned.
    Three, identity of the thieves. Unless IRS pursues a 
criminal investigation, it generally does not know the identity 
of the thief. The only information on the fraudulent tax return 
is the identity of the innocent victim. Criminal investigation 
officials at IRS told us they focus their resources on the most 
egregious identity theft cases. In 2012, they initiated 898 ID 
theft cases, more than doubling the investigative time spent in 
2011. But this is small compared to the number of fraud 
incidents.
    Four, fraud, whether the fraud is part of a broader scheme. 
Identifying schemes where one thief uses numerous taxpayer 
identities depends on IRS analysts noticing patterns that 
connect cases. As a result, some schemes may go undetected.
    Five, characteristics of ID theft returns. IRS officials 
told us that their current processes limit their ability to 
systematically track many of the characteristics of ID theft-
related returns, such as whether it was paper or electronic, or 
whether the refund was a check, direct deposit, or debit card.
    The dearth of information about the extent and nature of ID 
theft-related refund fraud highlights the importance of a 
recommendation we made to IRS in our 2009 report, namely, that 
IRS measure the effectiveness of its new identity theft 
initiatives. IRS implemented our recommendation and has since 
taken a number of actions, including placing new indicators on 
taxpayers' accounts, giving PIN numbers to past victims, and 
shifting resources to victim resolution.
    This year, IRS took another step to consolidate and track 
existing information about ID theft tax fraud with its new 
Identity Theft Global Report. While not a direct attack on the 
problem itself, the Report is useful. It provides IRS 
management and others with up-to-date, consistent information. 
Because it is so new, IRS officials said they are working to 
improve the Report.
    We agree that improvements are possible. Based on a 
selective assessment that we did before this hearing, we 
recommended adding additional information about data 
definition, sources, and limitations. This would give IRS 
managers and others who use the Report a clearer picture of the 
current state of the ID theft refund problem and IRS's efforts 
to combat it.
    Despite IRS's efforts, the evidence shows ID theft is 
growing. Making headway will require continued innovation and 
strategies to combat the fraud, but such innovation depends on 
making continued improvements in measuring and assessing the 
outcome of current strategies.
    Mr. Chairman and Ranking Member, this concludes my 
statement, and I would be pleased to answer any questions. I 
also want to echo what the other witnesses said about your 
retirements. I really appreciate, coming from GAO, your 
willingness to dig into the facts on a very challenging issue.
    [Prepared statement of Mr. White follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Platts. Well, thank you, Mr. White. And I know from Mr. 
Towns and all of us concerned about this issue, while we are 
leaving office, the two of us, we know that you and your 
colleagues in your various agencies and offices will continue 
to stay on top of this issue and make improvements in the 
coming year.
    I am going to yield myself five minutes for questions. I 
have a good number of issues I want to address, but maybe 
starting with a specific issue relating to the filters. I know 
we are not going to talk about it in detail here as part of a 
public hearing because we don't want to let the bad guys know 
what we are looking for so that they can then try to get around 
that.
    I want, Ms. Tucker, to allow you to address some of the 
comments that were made, starting with the issue of bank 
accounts. It is my understanding that the IRS is not in 
compliance today of only making deposits into bank accounts 
with the same name. In the testimony we heard today with 
General George, he referenced one bank account receiving 590 
direct deposits totaling over $900,000. So I guess first is, 
are we still not in full compliance with only making direct 
deposits into accounts with the same name? And are the filters 
that are new going to be helping to target this type of issue?
    Ms. Tucker. Let me start by maybe talking about some of the 
enhancements in the filters, and then we will get onto the 
direct deposit issue.
    So I think, the numbers that I alluded to earlier and my 
colleagues on the panel have talked about, IRS and the actions 
we have taken have shown progress in being able to detect 
identity theft and prevent bad refunds from going out, so the 
numbers speak for themselves in that we have stopped $20 
billion in refund fraud this year, as compared to 14 last year. 
And then specific to these new identity theft filters that we 
put into play this last filing season, and these are filters 
specific to identity theft, there was approximately 480,000 
returns that were blocked and connected to that $1.5 billion in 
refund fraud.
    These filters, as we talked about, are constantly being 
revised to help us focus on different characteristics to 
different geographic locations where we are seeing spikes in 
identity theft, etcetera.
    The other issue as it relates to deposit of refunds, and as 
my colleague, Mr. George, will say, we don't necessarily always 
agree 100 percent on all of our interactions. The direct 
deposit issue is complicated from the standpoint that a 
taxpayer that has a legitimate power of attorney can ask IRS to 
deposit their refund to the account of their legitimate power 
of attorney, and I think Mr. George would agree with that.
    The other thing, obviously, too, is a lot of times you 
could have a dependent child who is filing a legitimate tax 
return that perhaps does not have their own bank account. Also, 
we believe that that is a legitimate deposit.
    Now, that said, this coming filing season we do have what 
we believe is a very important progress to report in this area 
that I think Mr. George would agree with, and one of the 
filters we will be using will flag accounts where a deposit is 
going to a duplicate account. So, for example, the first return 
comes in and the deposit goes to X bank account. Subsequent 
returns that are filed that show a refund going to that account 
will be flagged for us to take a look at.
    Mr. Chairman, as you and I have talked about a little bit, 
this gets into the balancing act too, because we do know that 
there are situations where it is a legitimate refund going into 
that account again, so the balance is going to be how we 
quickly analyze that and then don't keep that refund from not 
getting to the legitimate person timely.
    Mr. Platts. Certainly understanding that balance of timely 
refunds, but when we have cases where 590, obviously the system 
has not been working. Those examples that you gave, where there 
is a power of attorney, is it correct to say technically 
speaking the law would not allow that deposit because the name 
is not the same on the account?
    Ms. Tucker. No. I will defer to Mr. George. I believe that 
it would because we do have the power of attorney and the 
taxpayer saying that they would allow that to go to the other 
account.
    Mr. Platts. And as maybe also relates to that child. Not 
that it shouldn't, but my point would be that it is an 
extenuating circumstance, so the fact that it would take a 
little extra time to allow those to be processed to make sure 
they are valid, along with the fact that we are trying to 
protect identity theft against it, is a reasonable delay.
    Ms. Tucker. I believe that the way that we have looked at 
these additional filters for this coming filing season, once 
again, goes back to the balancing act, that to detect and 
prevent fraud, there could be some delays for legitimate 
taxpayers as wedo our validation.
    Mr. Platts. Maybe a final follow-up before I yield to Mr. 
Towns. On the direct deposits, of the cases that you, not the 
ones that are potentially the $1.5 million that Mr. George's 
office has identified, but the ones that you have identified, 
do we know what percentage of those were direct deposits today?
    Ms. Tucker. No, I don't believe I have that information.
    Mr. Platts. Because that is one of those filter issues that 
how you look at it. My guesstimate, and it is more based on no 
exact data, but that you are going to find direct deposit or 
the debit cards are going to be the norm, especially the debit 
cards because it is easier to get them and don't always require 
a photo ID, as now you are going to have to show at a bank.
    So that type of data collection, that goes to, I think, Mr. 
White's testimony. I am not sure what needs to be done in your 
system, but to be able to be able to pull out that type of data 
to then assess what is a typical case that has been identified 
as fraud and what are other parameters.
    And I think, Mr. White, that is what your testimony, I know 
in your written testimony, addressed, that because we don't 
have that data yet, it makes it harder for you to be able to 
respond to better prevent, not just after the fact, but up 
front.
    Ms. Olson. Mr. Platts, if I might intercept something here. 
Several years ago we identified this very issue about the name 
mismatch for a different reason, when sometimes taxpayers 
inadvertently switch the numbers of their accounts for a direct 
deposit and the dollars were going into that account, and then 
we couldn't retrieve it back from that account and the IRS 
wouldn't issue a new refund to the taxpayers.
    And we learned that historically the IRS did have 
arrangements with the banks in which they did do a mismatch, 
and I could never identify the exact reason why it was 
discontinued maybe about a decade ago. I heard different 
stories: one that the banks didn't want to do it anymore or 
that, because of different programming, we weren't able to have 
that exchange. But it was done, so I know it is possible to do.
    Mr. Platts. Okay. Thank you.
    Mr. George. This is just not necessarily in their defense, 
but this is a government-wide issue; whenever taxpayers or any 
citizen receives a benefit from the Federal Government this 
issue exists.
    Now, the Financial Management Service, which is a component 
of the Department of the Treasury, could help the IRS and other 
federal agencies develop procedures to help allay this problem. 
And I don't know whether Ms. Tucker is in a position to 
elaborate on their discussions, but it was my understanding 
that they were reaching out.
    Mr. Platts. That is kind of an ongoing dialogue you are 
having.
    Ms. Tucker. Correct.
    Mr. Platts. Right?
    Ms. Tucker. Correct. And I appreciate Mr. George for 
bringing that up just for clarification. I mean, the actual 
issuance takes place with FMS and I know that they are looking 
into the debit card issue.
    Mr. Platts. Thank you.
    I yield to the gentleman from New York for purpose of 
questions.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me begin, Ms. Tucker, with a question. We talk about 
the budget deficit and all of that. I am wondering do you have 
enough employees to be able to do the kind of things that are 
being asked of you to do? I know it is a sensitive question. I 
really realize that.
    Ms. Tucker. I think probably every time any of us from IRS 
come before a committee, we talk about the delicate balancing 
act in executing our duties. We are at a place right now with 
the IRS, our overall staffing levels are down fairly 
significantly. We just wrapped up a fairly tough budget year, 
and because of that we haven't been hiring in the numbers to 
replace attrition that we have in past years.
    So as our staffing levels have gone down, to deal with this 
heinous issue of identity theft, we have increased our staffing 
significantly over the past year. In fact, we have doubled it. 
We have, going into this upcoming filing season, 3,000 IRS 
employees solely dedicated to identity theft. And when you look 
at the fact that our overall staffing levels have declined 
during this tight budget time, the reality is that staffing has 
to come from somewhere else.
    At the same time we have put additional staffing against 
identity theft, we also, to help get to the very issue that I 
know has been on your all's mind about assistance to taxpayers, 
we have trained 35,000 IRS employees in identification of 
identity theft and what they can do, even if their job is in an 
unrelated area to the 3,000 we have specifically dedicated to 
try to help and steer victims of identity theft to the proper 
channel.
    So it is a concern for us that we have all of these 
initiatives that we have in play trying to get in front of 
identity theft, but the reality is once that victim has had 
this perpetrated against them, a lot of times it is that 
personal IRS touch that they need to help work through 
resolution of their account.
    Mr. Towns. Thank you very much. Sometimes I think we don't 
look at things in the total way. The fact is that if you had 
more workers, then maybe some of the things we are talking 
about wouldn't exist. At the same time, more revenue would be 
coming in and life would be much better for people. So that is 
the reason why I raised it. But I know that it is a sensitive 
issue in terms of deficit and all of that, but I think the 
point is that I think that we need to spend some time making 
the case that this is the right way to go, this is the right 
thing to do.
    Mr. George, you used a statement that I just can't let go. 
You said that much more work needs to be done. Could you be 
more specific?
    Mr. George. Yes, sir. It relates to what you just discussed 
with Ms. Tucker in terms of resources. Again, in their defense, 
it is a zero sum game. Unless they are given additional 
resources, they have to take people from one function and apply 
them to another. And, again, as it relates to customer service 
and identity theft, many of the individuals within the IRS who 
attempt to assist people with their problems also handle 
routine telephone calls from other taxpayers who do not have, 
necessarily, identity theft problems, and these people are 
assigned on an as-needed basis, and I think once a week, and 
then many times the victims will be dealing with multiple 
representatives who are not familiar with their particular 
case, so they have to start the entire process all over again, 
from proving they are who they say they are and then explaining 
the situation that they find themselves in.
    Now, again, to their credit, we reported in May of 2012 
that the IRS case resolution of an identity theft issue was 
over 414 days. Now, our most recent review has shown that the 
average has fallen to 247 days during the review of an initial 
sample that we took a look at, with cases open still from 47 
days to still over 735 days.
    So, again, it is getting better, but as you, I am sure, are 
certain when you deal with your constituents, if you are being 
told that it is going to take six months to a year to get your 
tax refund, to get this matter cleared up, it is very 
frustrating, sir.
    Mr. Towns. And I think about the fact that there were 
200,000 calls. There are 127,000 that are not being answered. I 
mean, that is disturbing.
    Yes, Mr. White?
    Mr. White. I agree with my colleagues about what has been 
said about the tradeoffs and resources here, but one thing to 
note is that despite the increase in resources that IRS has 
devoted to the problem and the initiatives they put in place, 
the problem continues to grow and get worse. So despite the 
efforts, they are not keeping up with the problem. And 
resolving cases after the theft has occurred and after the 
fraud has occurred is very labor-intensive. So that will be a 
huge hit to the budget.
    The trick here is figuring out a way to prevent the fraud 
in the first place. That means doing more research up front, 
experimenting with better filters to try to prevent the fraud, 
and that way you avoid this very expensive process and very 
time consuming, lengthy process that is a terrible process for 
the victims, the innocent victims. But you can avoid that with 
the up-front prevention.
    Mr. Towns. Thank you, Mr. Chairman.
    Mr. Platts. I thank the gentleman.
    Yield to the gentleman from Virginia, Mr. Connolly.
    Mr. Connolly. Thank you so much, Mr. Chairman. Again, 
before I begin, I want to thank you for your service here in 
the Congress. This is, I believe, your very last hearing?
    Mr. Platts. Our final one. We have been just trying to 
groom you, so----
    [Laughter.]
    Mr. Platts. I know you are a ranking member on a different 
subcommittee, but this one is well served to have you move 
over.
    Mr. Connolly. Well, thank you, but apparently the Chairman 
of the Committee is just abolishing these subcommittees left 
and right, so I don't know.
    Also, Mr. Towns, I am sorry to see you go, as well. You 
have been a great mentor and friend, and your leadership and 
commitment to trying to make this a better government, a more 
efficient government, the two of you have worked so well 
together and you have been a model, I think, for others. I wish 
them would emulate. But I personally am really going to miss 
both of you. Thank you so much for your leadership.
    And thanks to our panel. Let me sort of start, for me, over 
a little bit on identity theft and IRS. Anybody, maybe Mr. 
George, but do I have it right that in a four-year period, 
formally recognized incidents of identity theft with respect to 
IRS went from 51,000, almost 52,000 in 2008 to 1.2 million this 
year?
    Mr. George. Well, and we believe that is an understatement.
    Mr. Connolly. Understatement.
    Mr. George. Exactly.
    Mr. Connolly. So we now have an exponential explosion in 
this problem.
    Mr. George. Correct.
    Mr. Connolly. In four years.
    Mr. George. Correct.
    Mr. Connolly. Is that correct?
    Mr. George. That is correct.
    Mr. Connolly. Why do you think that is?
    Mr. George. Sir, people are nimble and they will use their 
ingenuity when it comes to taking advantage of a federal 
program, a state program, a non-governmental opportunity, if 
they think they can get away with it.
    Mr. Connolly. Well, apparently they think they can.
    Mr. George. And they are.
    Mr. Connolly. Now, you mentioned that at one point--first 
of all, the Ranking Member indicated 200,000 phone calls not 
even responded to.
    Mr. George. Yes.
    Mr. Connolly. You mentioned that if we get around to 
responding to it, it is going to take you, well, at least 
recently, over 400 days, over a year.
    Mr. George. The IRS, unfortunately, did not devote the 
amount of resources initially to this. And in all honesty----
    Mr. Connolly. Well, don't go there in resources just yet.
    Mr. George. Okay.
    Mr. Connolly. I am going to come back to that.
    Mr. George. Okay.
    Mr. Connolly. I just want to make sure I get the facts 
straight in my head. So here we are with that kind of 
statistic. Before we get to resources, maybe we have to pay 
attention to this problem. And anyone reasonably looking at 
this, let's say somebody of evil intent or someone who just has 
trouble not yielding to temptation. Maybe not a bad person, but 
gee, the odds are pretty good I can get away with it.
    Mr. George. Yes. And keep in mind this is not only a 
domestic problem, this is an international problem.
    Mr. Connolly. Right. So, in a sense, the IRS has now become 
like a bank. Remember the famous bank robber who said why do 
you rob banks, because that is where the money is? I mean, this 
is where the money is. And if I understand it correctly, if we 
don't sort of change this trajectory, over the next five years 
the estimated loss due to identity theft alone is $21 billion. 
Is that correct?
    Mr. George. And, again, that is, in our view, a 
conservative estimate.
    Mr. Connolly. A conservative estimate.
    Mr. George. Yes.
    Mr. Connolly. My, my, my. Okay. Now, I guess I want to 
understand to what extent, though, are we part of the problem 
here in Congress. It is easy to have a panel and beat up on IRS 
for why aren't you doing more, why didn't you catch on to this 
earlier, why aren't you answering the phone calls, and all 
that.
    Ms. Olson. Sir, could I intercede on that question?
    Mr. Connolly. Yes.
    Ms. Olson. I would just like to point out that one of the 
major sources of the availability of Social Security 
information and numbers is the death master file from the 
Social Security Administration, which is made public, sold by 
the Federal Government and is posted very quickly after a 
decedent, you know, after someone dies and contains all sorts 
of personal information.
    Mr. Connolly. Right.
    Ms. Olson. I was just meeting with low income taxpayer 
clinics yesterday in Cleveland. One of the clinics that had 
reported to me earlier that they had represented a taxpayer 
whose daughter had been murdered and the death master file 
dutifully reported her death, it was made public on one of the 
genealogy websites, and she spent over a year trying to clear 
up the last return of her deceased murdered daughter.
    I think that there is legislation that has been introduced 
in both houses to restrict the access of this data, and I think 
until we do that, the Federal Government is perpetuating 
identity theft. And we do believe, my personal opinion is that 
the Social Security Administration can restrict access to that 
without Congress acting. People might not like that, they might 
sue, but I think that FOIA law, the case law now under FOIA 
recognizes the kinds of exceptions to protect personal 
information.
    Mr. Connolly. I wasn't even thinking of that kind of 
example, but what a great point, Ms. Olson. Thank you. I mean, 
here we are, obviously unintentionally, but nonetheless 
contributing to the problem ourselves in terms of data release, 
data requirements, and so forth.
    And I thank you for that intervention, but I was actually 
going to go at the resource question. So in the last few years 
what has happened to IRS's budget? We have been beefing it up, 
right? We have been adding agents, we have been giving you a 
lot more money because we recognize this problem and we want to 
solve it with you? That is what we have done here in Congress, 
right?
    Ms. Tucker. So, let me talk to the numbers. So for 2012, 
the year that was, we had a 2.5 percent reduction in the IRS 
budget from 2011.
    Mr. Connolly. And what kind of reduction did you have from 
2010 to 2011?
    Ms. Tucker. We were also down. I don't have the number off 
the top of my head, but the number for last year, the 
equivalent for us with the increase in our overhead costs for 
our facilities, etcetera, was roughly a $350 million reduction 
in our budget for 2012.
    Mr. Connolly. A $350 million reduction? Is that what you 
said, Ms. Tucker?
    Ms. Tucker. Yes, sir.
    Mr. Connolly. Now, I am over my time, forgive me, Mr. 
Chairman, but I praised you.
    [Laughter.]
    Mr. Connolly. And you really are a great chairman.
    [Laughter.]
    Mr. Connolly. Is there sort of a back-of-the-envelope ratio 
of every dollar we invest in an IRS agent we collect X?
    Ms. Tucker. Yes, sir. It is actually a very good return on 
investment.
    Mr. Connolly. Well, what is that, Ms. Tucker?
    Ms. Tucker. Let's see. I think, Mr. George, you have 
reported on this.
    Mr. George. One to 12.
    Ms. Tucker. Do you see how I like for my colleagues to help 
me out? So a very, very good return on investment.
    Mr. Connolly. Would $200 for every $1 we invest roughly be 
in that ballpark?
    Ms. Olson. Depending on how you look at it, sir. It is 
either $4 for every dollar you invest or $12 for every dollar 
you invest.
    Mr. Connolly. But in terms of tax enforcement, what 
happens?
    Ms. Olson. Well, that is the tax enforcement number. I 
think it is 250 to 1, if you look at all revenue that is 
collected by the IRS.
    Mr. Connolly. All right. So let's be conservative, four to 
one. So here is a Country struggling with its debt, breaking 
out in sweat over the fiscal cliff. This Subcommittee, our 
Chairman and Ranking Member have pointed out, for example, 
revenue left on the table every year. And, if I recall 
correctly, that number is roughly $135 billion of either 
unassessed but owed, or uncollected and assessed. Roughly 
right?
    Ms. Tucker. Yes, sir. The thing that we talked about 
earlier is our overall staffing is down because we have 
constrained the backfilling behind attrition, and as we have 
talked about, we believe a dollar invested with the IRS is a 
good investment because we are the funding arm for this 
Country.
    Mr. Connolly. Ms. Tucker, I just want to say I don't know 
how we, with a straight face, in Congress can decry this kind 
of problem that is a legitimate problem. I mean, my gosh, it 
has exploded. And to protect our public we need to do 
something. We need to invest in the IRS so it can do something. 
And that doesn't even begin to address the rate of return for 
every dollar we invest in terms of new revenue owed that can 
help us reduce the debt and maintain strategic investments, 
because we don't like government, some of us, apparently.
    We don't like the IRS, an obvious symbol and instrument of 
government. So we are willing to decry a debt, but not do 
anything about it when there is an answer that is readily at 
hand. It doesn't solve everything, but if you are right about 
$135 billion on the table every year, let's roughly say that is 
true, if we could make a dent, $135 billion a year times 10 
years is $1.35 trillion. That exceeds the sequestration amount 
entirely.
    We could do something. We could make a dent in that if we 
invested in you. But we are not willing to do it for 
ideological reasons, and that hurts the Country.
    With that, I yield back, after Mr. George has the last 
word, if the Chairman will indulge.
    Mr. George. Well, thank you. Thank you both.
    I just want to make it clear, though, there is no question 
that additional resources would allow the IRS to do more. That 
said, access to additional information would also assist the 
IRS in doing its job, without necessarily requiring additional 
resources. For example, the Department of Health and Human 
Services has what is known as the National Directory of New 
Hires. The IRS has some access to it, but it is limited. If 
this access were expanded, which would require statutory 
changes, it would allow the IRS to be able to better match the 
withholding and income information provided by a taxpayer to 
ensure that it is accurate.
    Most recently, the IRS gained access to the Social Security 
Administration's database that deals with 1099s, which has 
assisted it in helping to stem tax cheats in the Social 
Security arena.
    But I carry around with me a little card, and I think my 
colleagues are probably bored hearing me say this at every 
hearing, and I beg your indulgence. This third-party 
information. There is a very high correlation between tax 
compliance and third-party information reporting on income and 
withholding. The IRS estimates that individuals whose wages are 
subject to withholding report 99 percent of their wages for tax 
purposes. Self-employed individuals who operate non-farm 
businesses are estimated to report only 68 percent of their 
income for tax purposes. But the most striking number is self-
employed individuals operating businesses on a cash basis 
report just 19 percent of their income.
    So if Congress, and, again, it is not this Committee's 
jurisdiction, I realize that, but would require additional 
third-party reporting, I think, and this goes to the tax gap 
issue also, not just theft or identity theft, but it is just a 
global problem.
    Mr. Platts. Well, Mr. George, as you reflect, it is not our 
jurisdiction, but it is an opportunity for us to help educate 
our colleagues because of the data we gather through this 
Committee, and an example of this is Mr. Connolly and Mr. Towns 
and I, back, after our April hearing, had done a letter to the 
appropriator saying we need to give you more resources because 
of the conversation you just had with Mr. Connolly that it is a 
good investment and it is going to be a good return for 
taxpayers and it is going to mean we would have further victims 
to then have to assist.
    So while a number of these issues are outside of our 
jurisdiction, we have sought to try to educate, and I know with 
the April hearing, when we had similar data that we heard, that 
we did pass it on to our appropriator chairman and ranking 
member to say look at this. Now we have a CR, so who knows what 
the final appropriation is going to be for the coming year or 
the current year, really, but we have tried to make our 
appropriator colleagues aware of this, that this is a good 
investment; that if we want to help do right by the taxpayers, 
invest in your services.
    Ms. Tucker. If I might, because I think Mr. George did 
bring up something that I want to make sure we don't give the 
impression that because our staffing is down, we are waiting to 
take aggressive and significant actions. The third-party data 
issue is something that we have been focused on at IRS for many 
years, and specific to the issue we are talking about now, 
identity theft, some of the filters that we are using, and we 
are using successfully, and I agree with everything that has 
been said today, prevention is key here because the numbers 
that we have talked about and the assistance that the victims 
of this heinous crime are dealing with, that is where the pain 
points are.
    We are doing some, I think, very innovative testing, using 
third-party data earlier, and I think you have all heard former 
Commissioner Shulman talk about an initiative that we are 
looking at at IRS called Real Time, and that really, I think, 
gets to the heart of the matter, too. If we do have basic 
information documents available to us to match quickly, when 
that return comes in the door, that does stem a tremendous 
amount of this fraud that we are seeing perpetrated on innocent 
taxpayers. So that is something that we will be doing some 
additional testing on this upcoming filing season, to look at 
how we can get information documents into IRS more quickly and 
then use our data analytics, use the computing capabilities we 
have to stem additional identity theft more quickly.
    Mr. Platts. And incur that focus on prevention, protect 
taxpayers, and avoid victims. And then, also, that is again 
protecting taxpayers because of the amount of time you have to 
then spending the victims after they have been victimized. So 
prevention, and that actually brings me to kind of a follow-on 
to where I had asked in the first round. And I don't know if 
you have this data available, but it goes to the data 
collection issue and trying to identify what is more common to 
this type of fraud, these identity theft frauds.
    And two in particular, two issues, is, Mr. White, in your 
testimony, I think it is, you talk about a typical type of case 
if they file early. Is there any data now as far as, again, the 
ones that we know were identity theft, what percentage were 
filed, say, prior to February 1? My guess is it is a large 
percentage, but I have never seen any numbers. It is one of the 
questions I kind of keep asking, I guess.
    So do we have data now of how many of these cases that we 
know were identity theft were filed prior to, say, February 1 
or February 15th? And I say February 1 because most employees 
are just getting their returns. And while they may file quickly 
in February, they probably don't file before February 1.
    And then also a similar question is how many or what 
percentage are e-file? Because I think in the 1.5 million that, 
Mr. George, your office identifies potential, you estimate, I 
think, about 91 percent of that 1.5 were e-file.
    Mr. George. It is 1.4.
    Mr. Platts. So 1.4, 91 percent of that 1.4. So of the ones 
that we know were identity theft, do we know what percent were 
e-file?
    Ms. Tucker. So just a couple of things, if you will indulge 
me on the background here. Here is the difficulty in, I think, 
extrapolating the electronic filing number. The reality is well 
over 80 percent of all tax returns are filed electronically 
now, so I know there has been some discussion about is 
electronic filing the cause of this. Electronic filing is 
secure; it reduces cost to the Government for processing tax 
returns. I think we have talked with this Committee before 
about good government, and the reality is the paper return 
processing is extraordinarily expensive and the electronic 
filing is pennies on the dollar.
    Mr. Platts. And, Ms. Tucker, I am not suggesting we want to 
ever move away from it. I raise this specific issue as part of 
the big picture, meaning if we know what percentage, if 99 
percent were e-file, combine that with the second part of my 
question, and 95 percent were filed prior to January 31st, you 
start combining all those different filters or flags, that you 
get a pretty exact, if we get anybody that files e-file prior 
to February 1st with a change of address, with this, they are 
going to get bumped out.
    Ms. Tucker. Unfortunately, we had some conversation about 
this. The vast majority of early filers, legitimate early 
filers are refund filers, because folks that have worked hard 
all year are ready to come in the door, especially simple 
return filers, W-2 filers, folks that maybe have limited amount 
of interest income. So to slow down every return that comes in 
early simply because it is an electronically filed return with 
a refund on it and has a change of address.
    Mr. Platts. Again, you are limiting, I am using those as 
examples.
    Ms. Tucker. Right.
    Mr. Platts. But do we have that data to even try to do 
that?
    Ms. Tucker. Yes, we do know that we see early filing and 
refund perpetrators tend to go hand-in-hand. I don't have a 
number off the top of my head; we can go back and look at that 
for you.
    Mr. Platts. Like the February 1. I would be interested if 
they are that percentage. What percentage, again, of the ones 
that you know were identity theft from the previous year, what 
percent were filed prior to February 1.
    Ms. Tucker. So the other thing that I think is really 
critical here, the 13 filters that we put into play last filing 
season, coupled with two very, very important filters that we 
will have in place this filing season I think are going to get 
to the heart of some of this.
    Mr. Platts. And I don't want you to share those.
    Ms. Tucker. Well, but we have talked about these two 
additional filters that I think are critically important. One 
is that the deposit to the bank accounts, even though 
understanding that we can catch some legitimate taxpayers up in 
that; and then the second being returns that are filed using 
the same address, because we know that that has been a hole 
that some of these perpetrators have run to, and again 
underscoring the fact that there are legitimate taxpayers 
filing from the same location, whether it is a blended family 
living at one address or someone that legitimately is using a 
paid return preparer.
    The other thing that I would say, and I don't want to sound 
like a broken record, we are caught in the balancing act of a 
surge of filing early in the filing season from legitimate 
taxpayers who are looking to get their refund in a timely 
manner, and being able to nimbly use all of these different 
filters and the resources we have to try to screen the good 
from the bad, and it is a tough balancing act, Mr. Chairman.
    Mr. Platts. Absolutely.
    Ms. Olson. If I may insert here to sort of second something 
that Ms. Tucker is saying. In many tax administrations around 
the world, and I have put this in earlier testimony for this 
Subcommittee, they hold off issuing refunds until they have 
received all of the tax returns. They have a tax return filing 
period and people submit the tax returns and the agency has a 
period of time within which to go through and identify 
discrepancies, which could be simple errors, could be two 
people claiming the same child, could be identity theft, all 
sorts of things. And then they are able to check that before 
they issue a dollar out.
    That really is, if you really want to solve not just 
identity theft, but a whole bunch of other issues, including 
dealing with dependency exemptions, earned income credit, child 
credit, etcetera, that really is the global solution. It is a 
very radical solution for the United States because we have a 
culture in which we have grown up expecting these refunds as 
soon as we have filed, and then at the same time we have all 
these pressures about protecting bad refunds from going out.
    And I really think that in the context of comprehensive tax 
reform, which you all have to do, we need to also think about 
the administrative side of it and really think about the 
savings of sort of shifting that balance a little bit.
    Mr. George. If I may, Mr. Chairman, this goes also to a 
point that Mr. Connolly made, access to timely information, it 
is almost like the bad guys are racing to file false returns 
before the legitimate taxpayer can, and the dilemma that the 
IRS has is that legally employers have until March to submit 
the withholding and income information, and yet taxpayers can 
start filing as early as January 1st, or whenever they receive 
their W-2s.
    So this is something if the IRS or if Congress were able to 
push to ensure that employers submit their information early or 
concurrent with the information they provide to the employee, 
that would assist the IRS in ensuring that no one is gaming the 
system and claiming more withholdings than they are entitled 
to.
    Mr. Platts. Mr. White?
    Mr. White. Mr. Chairman, there is no doubt that some of 
these long-term solutions would be big steps towards dealing 
with the problem. There are some things, though, on the short-
run that may not be as big a step, but that can be done. The 
key in the short-run is for IRS to get smarter. It is not just 
a matter of resources, but to get smarter about prevention. 
They are doing a lot with the filters, and so on, to move in 
that direction, but I do think that more can be done.
    And this gets back to the point you were making earlier, I 
think, about the importance of research to understand what is 
going on, more systematic research on cases that get through 
the filters to understand how they got through, and then use 
the findings from that research to design new filters, new 
approaches. And IRS is doing some of that, but I think that is 
an area where even more might be able to be done even in the 
short-run.
    Mr. Platts. And that is really my point. Using the example 
of the February 1 filing or the e-filing is that issue of 
analyzing to make sure that we have the hundreds of thousands 
of cases now, you know, from the previous year to say these got 
through, some factor, what were those common characteristics 
that we can try to respond to.
    Ms. Tucker. So if I might, and I think to Mr. White's 
point, even during a time of diminishing resources, we have 
made a significant investment in IRS in the Office of 
Compliance Analytics, and this is really, in some ways, the 
centerpoint for a tremendous amount of the work that we are 
doing in identity theft, where we have a team of folks working 
very closely with the Wage and Investment folks and with our 
Office of Privacy and Disclosure to take a look at patterns, 
trends, data analytics, bringing in third-party data, doing 
forecasting.
    I can tell you, as a proud 28-year employee of Internal 
Revenue Service, this is data analytics like I have never seen 
before. And not only are we using that data analytic to try to 
get in front of the problem of identity theft, I think this 
kind of data analytics is going to help us with overall 
voluntary compliance and dealing with emerging non-compliance, 
because I think we all know, as Mr. George alluded to, these 
criminals go wherever they can find the money, and we know that 
they are not only coming against the tax system, they are going 
against other federal agencies.
    So even having that kind of collaboration to say what are 
some of the common characteristics, because this is, I shared 
with you, it is like a balloon; we are pushing on one part of 
the balloon and it is popping up somewhere else. So data 
analytics is going to be key to helping devise unique 
strategies to try to stem this issue.
    Mr. Platts. I am going to ask, Ms. Tucker, just one final 
comment and then yield to Mr. Towns or Connolly for their final 
round. But if you could respond to Ms. Olson and the issue of 
when there is a victim and the concern about decentralizing, 
because I use as a casework, an office, we open about 4,000 
cases every year, constituent casework in the district office, 
and one of the keys to success is we have had our staff kind of 
specialize, so if you have a Medicare case, you are going to 
get with one of my staff and they are going to be with you from 
day one until we address the issue. Now, we will have a backup 
so if they are out, somebody is also trained as the backup if 
they are out on vacation.
    But that came through in her testimony here today and in 
her written testimony, and it is what we saw with our 
constituents, where they kept getting bounced around. And I 
know, in setting up the Taxpayer Protection Unit, where do we 
stand in that, that issue, specifically that that victim 
doesn't keep getting bounced around, that they get assistance, 
that they know, hey, I can call this person and get an update 
and I am really in good hands?
    Ms. Tucker. So we do have specialized units, and I think as 
my colleague, Ms. Olson, alluded to, it is our belief at the 
IRS that we have set up a structure that is going to provide 
the best resolution for the victims of identity theft. The bulk 
of the specialized units are sitting in our Wage and Investment 
Operating Division, where the bulk of the individual identity 
theft occurs, but we also know that there are some specialized 
identity theft issues that may fall out in our Small Business 
Self-Employed function or in other unique areas at IRS.
    The Taxpayer Advocate and I have lots of, I think, very 
candid and robust discussions about this, and I think my belief 
is that the process that we have implemented this year, which 
is different than what we had, actually, last time that we 
talked with you, that we are going to be able to get this right 
and provide good level of service to the victims of identity 
theft.
    But that said, it is incumbent on all of us to continue to 
analyze what is working and what is not, and I have no doubt 
that my friend and colleague, Ms. Olson, will be over in my 
office at any moment that we see that it is not working and 
that we need to do something differently.
    Ms. Olson. If I just might comment here. Taxpayer Advocate 
Service, in 2012, closed 46,000 identity theft cases. Those are 
what came to our office. And of those, 33,000 had more than one 
issue. The IRS doesn't track how many issues or how many 
multiple years a particular taxpayer has. So when Ms. Tucker 
says the bulk of the cases are in their Wage and Investment 
Unit, in Wage and Investment the employees work one issue or 
one year at a time; they don't have a sense of what the 
complexities of these cases or the pictures; whereas, my 
evidence demonstrates that the vast majority of the identity 
theft cases in fact have more than one issue and are going to 
bounce around between units.
    So I am very concerned. If you asked me what was the most 
significant issue that victims are going to be facing next 
year, it is that very issue, this decentralization without a 
traffic cop. We have a traffic cop right now that needs to be 
beefed up, the IPSU unit, and what I am afraid is that they are 
going to reduce the focus on that traffic cop that makes sure 
the case gets from the right specialized unit to the other.
    And I do think that having specialized units is a positive, 
because getting a group of people who see everything, see the 
identity theft cases in a concentration is much better than 
having one of 2,000 employees see a case once every three 
months.
    Mr. Platts. I guess the point that I was trying to 
emphasize is using my office, again, I will use INS. A lot of 
complexity with immigration; it is our largest area of casework 
and one of my senior LAs who just left took a new position with 
my departure became our expert. Now, she would deal with a lot 
of different entities within ICE and the various entities that 
deal with immigration, but she, for the constituent, they dealt 
with one person, her, and then she dealt with, and I think that 
is the point, Ms. Olson, that you make, that there may be 21 
different units, special units that have to be involved, but 
you can't expect the taxpayer to be trying to work through 
those 21.
    Ms. Tucker. No, absolutely. That is not how this system is 
designed; it's not intended that the taxpayer has to figure 
out, to navigate through. And just to comment on something Nina 
just mentioned. She and I have had ongoing discussion about how 
do we measure success, how do we continue to have dialogue 
about is the new structure working.
    Actually, sitting right behind me today are two executives 
that are really the cornerstone of the oversight and making 
sure that we have clean pass-offs. So I think this is one that 
the comment about the concern that we are going to reduce the 
strength of the IPSU, that is not in the plans. We know, to use 
a cliche, it takes a village to get this right, and IRS, with 
roughly 90,000 employees, we know we are going to have to 
continue to monitor, to train, and to ensure seamless 
resolution of these issues.
    Mr. Platts. And my colleagues have been very patient with 
me as I used more than my share of time, and I appreciate that 
because while I am very concerned about the loss of revenue, 
taxpayer protection, I don't want us to ever lose sight that, 
when we get to this point where we have identity theft occur, 
that there is a victim of a crime.
    And that is really why I kind of wrapped it up there, is 
that when that victim comes to us, the Federal Government, and 
they have been victimized, that we do right by them and that 
they don't feel, as in our testimony a year ago, that they were 
victimized a second time. And I know that is a priority, and I 
leave knowing that it is a priority of yours and a priority of 
Ms. Olson's and that we are in good hands, that you guys will 
make sure that we keep improving and working together to get to 
where we do right by every victim.
    With that, I am going to yield to Mr. Towns. I don't know 
if you have other questions.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me say that I think that we all have to do more, 
Congress as well, and you. I think we have to sort of make the 
case, because as I am listening I am beginning to become more 
concerned about what is happening because I am not sure that 
even when we prosecute that we are getting convictions. And 
there are a lot of reasons as to why I feel that way, because I 
think that the evidence that has been put in place, based on 
the fact that it is coming from folks that in many instances 
might not be trained fully to be able to put the information 
where it needs to go.
    So I am concerned about your relationship with local law 
enforcement. I am concerned about that, because when you cut 
staff, you eliminate folks that would go and be working with 
the local to be able to, because if a person feels that they 
can get away with this, they will encourage others to do the 
same and the situation will continue to exacerbate, and I think 
that is a real concern.
    And I am not just saying for you. I just think that those 
of us in the Congress that fully understand need to help you 
make the case. And I understand that some people don't catch on 
as fast as others around here. Some people get it right away. 
My son, who is the commissioner of housing in the State of New 
York, says, Dad, you have to understand, there is a thing all 
about individual differences. He says some people just get it 
right away. He said it takes two and a half hours to watch 60 
Minutes.
    [Laughter.]
    Mr. Towns. It doesn't mean they can't watch it, it just 
takes them longer.
    So I am feeling that somewhere or another we have to sort 
of make this case to other members of Congress what is going on 
here. And I understand you trying to put together units, but 
the point is that we are not really addressing the issue in the 
way that we need to address it; and in order to do that we need 
resources. But we also have to make the case that when we get 
the resources, that the Federal Government is benefitting from 
the resources. And at the same, people who are involved in 
criminal activities will eventually get the message. We need to 
buy a new tire and stop patching.
    Yes, Mr. George?
    Mr. George. It seems counterintuitive, Mr. Towns, but Title 
XXVI, Section 6103, in the wake of Watergate and the abuses 
that occurred during that period, provided a lot of protection 
for taxpayers, and rightfully so.
    Mr. Towns. Right.
    Mr. George. However, the unintended consequence of Title 
XXVI, it limits tremendously, both in terms of civil and 
criminal penalties, the way we, the IRS, the Federal 
Government, Congress overall handles taxpayer information. And 
the most surreal aspect of this is that there are times when we 
have, or the IRS has someone as the subject of an 
investigation, the alleged criminal, and you need to get their 
permission, in many instances, to gain access or to share the 
information that is contained in the allegation; and obviously 
if that person has an attorney or anyone who would say, no, I 
am not going to give you permission to share that information. 
And that is just one example of how Congress could readily 
change that, but who knows what the consequences are.
    Ms. Olson. I would have to differ a little bit with my 
esteemed colleague here. I have done extensive analysis of 6103 
and consulting with IRS chief counsel, and I think that there 
is ample ability within the constraints of 6103 today to be 
able to release information to the places where it is needed. I 
think there was a rightful culture of being conservative in 
doing that, and some of the identity theft stories have made us 
all sit and really look at the statute. And I think the example 
of what Ms. Tucker talked about, the sharing, and Congressman 
Diaz-Balart talking about the sharing of the information, we 
have come up with a procedure that both places in the victim's 
hands the decision to release their information from one 
government agency to another that does not have the protections 
of protecting that information as we do. And I think that is 
the right balance, to say there is an agency that wants the 
information; taxpayer, you are the victim, are you willing to 
give that? And that is all possible within 6103.
    Ms. Tucker. If I might, I would be remiss if I didn't talk 
about the positive outcomes that we have seen in the past 12 
months, just as an example in proactively working with our 
colleagues in law enforcement, in particular, to try to get our 
hands around some of the more egregious criminal activity. So 
specifically the investigations the IRS has initiated, we have 
tripled that in the last 12 months. We closed the fiscal year 
with almost 900 CI investigations.
    Mr. Towns. How is the conviction rate?
    Ms. Tucker. So for the sentencing, I am the eternal 
optimist, we do have 223 sentenced, as compared to 80 last 
year. So still probably not large numbers as it compares to the 
overall size of the problem, but we are seeing increased 
numbers from a year ago. The other thing that, to follow up on 
Ms. Olson's point, the new process that we implemented in 
Florida earlier in the year and that we expanded last month, we 
do have great hope that that is going to lead us to additional 
cases, investigations, and prosecution indictments.
    Mr. Towns. Let me just ask one last question, Mr. Chairman.
    Let me ask are you satisfied with the agencies in terms of 
that report to give you the information that you need? Are you 
satisfied with Social Security giving it to you in a timely 
fashion? Because I am thinking in terms of other ways that we 
might be able to help you here in the Congress. What prevents a 
funeral parlor from reporting a form, the fact that this person 
has expired, which would be information that would go directly 
to you?
    Ms. Tucker. Well, I am thinking about from a logistics 
standpoint. It is much easier for IRS to take information in 
from centralized points, so we do receive the death master file 
information from the Social Security Administration. Several of 
my colleagues have talked about receipt of wage information 
either from Social Security or from the new hire database.
    So obviously the initiative that we are looking at right 
now, as it relates to Real Time tax administration, would be 
successful. The more quickly IRS is able to take in good 
validated data in large quantities and be able to then program 
our systems to basically ping against that information more 
quickly.
    Mr. Towns. I guess the reason I raise this is that Social 
Security has its problems too. That is the reason why I raised 
that. I am trying to figure out a way that you might be able to 
get additional information. Maybe the State could provide it. I 
don't know. But I think that we need to look at various ways 
that we could sort of cut down on that, I mean, this is just 
unacceptable.
    Ms. Tucker. If I might, and this is a kudo, actually, to 
the State of New York. We are engaged in discussions with our 
counterparts in State tax administration because I think, as 
Ms. Olson alluded to, we know that there are States, as well as 
other governments, that do make decisions on refund issuances 
and say we are not going to issue a refund until we have made 
ourselves comfortable that we have the right taxpayer or this 
is the right income amount.
    So part of what we are doing with Real Time tax 
administration in our testing is actually working with a 
handful of State tax agencies who will be giving IRS some data 
from State wage information that we will then use to say, gee, 
is this information valid earlier that we could maybe even use 
as an additional filtering. So kudos to the folks up in the 
State of New York Department of Finance; they have been 
terrific partners for us.
    Mr. Towns. Thank you. And I am happy to hear that positive 
statement about my State. Thank you.
    Mr. Platts. Mr. Connolly?
    Mr. Connolly. Thank you, Mr. Chairman. I just have, well, 
maybe two follow-ups.
    One is, Ms. Tucker, is I heard your statistics on 
convictions.
    Ms. Tucker. Yes, sir.
    Mr. Connolly. We had at least 1.2 million identity theft 
fraud incidents, and Mr. George thinks that is an 
understatement, and we had 280-something, did you say, 
convictions?
    Ms. Tucker. So we had----
    Mr. Connolly. No, no, just give me the number.
    Ms. Tucker. Eighty sentenced in 2011 and 223 this year.
    Mr. Connolly. That is pretty pitiful. I mean, if I am a 
criminal and I am looking at that probability, boy, I am going 
to expand my identity theft fraud activities, especially at 
IRS. Why wouldn't I?
    Mr. George. Mr. Connolly, in their defense, too, at the 
federal level they have thresholds in which they will accept or 
will not accept a case, and in the event that they decline to 
prosecute, they can attempt to seek justice at the State and 
local level.
    Mr. Connolly. Well, okay.
    Mr. Platts. Mr. Connolly, would you yield?
    Mr. Connolly. Yes, of course, Mr. Chairman.
    Mr. Platts. One clarifying point is, using the case like 
with Puerto Rico, where it could be one individual or six 
individuals, but with 100,000 cases.
    Ms. Tucker. With multiples, right. Correct.
    Mr. Platts. That is the one issue.
    Ms. Tucker. The other thing that I would be remiss if I 
didn't point out, and I appreciate Mr. George's backup on the 
fact that IRS develops cases and then we work with our 
counterparts to hopefully provide enough information to move 
those forward.
    Mr. Connolly. Wait a minute, counterpart? What do you mean 
counterpart? Who is your counterpart?
    Ms. Tucker. So the folks that we would work with with 
Department of Justice and the locals.
    Mr. Connolly. Okay. Thank you. This is where I was headed, 
if you will let me ask the question.
    Ms. Tucker. Absolutely.
    Mr. Connolly. How would you evaluate the level of 
cooperation and the seriousness with which the U.S. attorney's 
offices are taking this problem? Because, for example, it took 
a long time for us to get U.S. attorney's offices to take 
Medicare fraud seriously. It is now a huge part of their 
portfolio. We have 99 U.S. attorney's offices around the United 
States. Some of them are now engaged in multi-billion dollar 
recoveries and convictions of Medicare fraud. That is a good 
thing to try to stamp out Medicare fraud and to recover assets 
for taxpayers.
    So I am asking the same question of you, not to ding on IRS 
or anybody else for that matter, but how would you assess at 
this point that relationship with what you call your 
counterparts, but I would call, I hope, DOJ and U.S. attorney's 
offices, and how seriously are they taking that problem? Or do 
you think we still have some education to do there, like we had 
to do once on Medicare fraud?
    Ms. Tucker. I think we have had excellent cooperation, and 
let me give you a specific example. Florida, where the 
Congressman talked about so much of the identity theft is 
taking place, we have had multiple meetings locally with 
Department of Justice, with the U.S. attorney's office, with 
local law enforcement. We have that going across the Country. I 
think one of the things that we are seeing is that a lot of 
these departments, they are dealing with the same things we 
are, multiple competing challenges. But I have nothing but 
positive things to say about the level of support, as well as 
the recognition of how heinous a crime this is.
    Mr. Connolly. So you are not finding any reluctance, when 
you deal with them, to pursue it?
    Ms. Tucker. No. I think within the bounds of the resource 
limitations they face, as well as their tolerances.
    Mr. Connolly. Good. Good. I mean, that is heartening to 
hear. That is really heartening to hear.
    You would concur, Mr. George?
    Mr. George. I would, but, in all candor, it depends on the 
jurisdiction.
    Mr. Connolly. Yes.
    Mr. George. And in all honesty, too, the squeaky wheel gets 
the grease.
    Mr. Connolly. Yes.
    Mr. George. So a case in Florida, very egregious, it got a 
lot of attention and so, yes, the U.S. attorney's office is 
being very aggressive. We have also, my organization, too, when 
we prosecute IRS employees, we find that certain jurisdictions, 
for example, Fresno, California, the U.S. attorney 
extraordinarily cooperative. And when you get into larger 
jurisdictions, New York, Chicago, it varies because they have 
other issues they are contending with.
    Mr. Connolly. Sure. It is a really good point you are 
making.
    Mr. Chairman, it might be something we do as a swan song 
for the Subcommittee, in terms of formally thinking about 
imploring Attorney General Holder and his colleagues to ramp 
this up and to maybe issue explicit instructions to all 99 U.S. 
attorney's offices to redouble our efforts; not to single 
anyone out for praise or criticism, but we need their help and 
they have to take this seriously. And I think if they hear from 
Congress that we take it seriously, it might be a thought.
    And my final question goes to you, Mr. White. You have been 
remarkably laconic, if not silent, and I want to give you an 
opportunity to comment on some of the topics we have been 
covering here, because I would like to know what GAO's views 
are about the need for more resources; the efficacy of more 
resources; the deployment of such resources; how much maybe, as 
Ms. Olson has pointed out, without intending, we have 
collectively put some burdens on IRS and others that actually 
contribute, making it easier for this identity theft; and, I 
don't know, anything else you want to share with us before the 
holiday.
    Mr. White. Thank you. First of all, IRS has done a lot in 
this area. They have been innovative; they have put in place a 
number of new initiatives; in terms of tracking the performance 
of those initiatives, they implemented our recommendation from 
2009. One example of what you learn from doing that is on the 
PIN program, for example, they have been tracking pretty 
carefully the way that program has worked.
    One of the things they have learned from that is that they 
handed out hundreds of thousands of PINs; tens of thousands of 
people lost them or misplaced them and had to be reissued. So 
by tracking performance that way, you learn something about how 
well these efforts are working, and then you can tweak the 
design to make them even more effective. So they are doing 
that.
    In the short term, again, I come back to the point I made 
earlier, and IRS is doing some of this, but more systematic 
efforts to learn from cases that get through the filters, to 
then use that knowledge to, in turn, redesign the filters and 
try to make progress. It is incremental, it is hard work to do 
this, but it is one way to make progress in terms of preventing 
these cases up front. At the back end it gets very expensive 
and very difficult to resolve the cases for the taxpayers and 
to try to track the crooks down after the fact.
    Mr. Connolly. Any views about the wisdom of Congress 
actually increasing, instead of cutting, the IRS budget in 
terms of efficacy of return?
    Mr. White. I think that budgets matter, obviously. You all 
have to make decisions about how to trade off across agencies. 
I would emphasize the importance of not just giving IRS 
additional resources, but making sure that they are working 
smarter with whatever level of resources they have got. And, 
again, they are doing, I don't want to imply that they haven't 
been working in that direction.
    Mr. Connolly. But, Mr. White, that is easy to say; they 
should be smarter, it is not always just a matter of resources. 
But as Ms. Tucker pointed out, we have cut their budget $350 
million. You can be smart all you want; that is a real cut. 
That means they are handicapped in terms of the resources 
probably they need to have a critical threshold to be dealing 
with this subject in an efficacious way, or not.
    What do you think, GAO? Because otherwise you are inviting 
us, you don't mean to, but the inference could be drawn from 
what you just said, well, good, let's merrily keep on cutting, 
because they just need to be smarter. And at some point they 
can't meet their core mission. I mean, at some point we do less 
with less, do we not?
    I mean, I agree with you that up to a certain point the 
denial of resources can make people more efficient and smarter, 
and actually have to figure out new ways of doing business, and 
that could be inefficiency. But at some point that is not what 
we are talking about. And I am deeply worried that in the case 
of the IRS, out of ideological opposition, it has nothing to do 
with somebody, a priori, saying I want to make them more 
efficient, that is why I am doing this painful surgery.
    No, I don't like the IRS. I don't like their mission; I 
don't like what they do. I think they are emblematic of the 
kind of intrusive role of government that I, ideologically, 
don't like, and if they go away tomorrow it would be a good 
thing. I don't like paying taxes, while I am at it.
    And we are dealing with that up here and I just caution 
that it is good to urge that we be more efficient and that 
sometimes big flat blow to budgets, of course, aren't the 
answer, that is true. But, on the other hand, if we treat where 
we are headed right now in this Congress, in terms of the 
denial of resources, I am deeply worried that we can have all 
the hearings we want about problems like this that need to be 
managed, and managed by the IRS, and we are blowing smoke, 
because we are engaged in a fiction because the thing not said 
is I am not willing to give you the resources to do what I am 
baiting you up about. And I am very concerned about that, and I 
would hope GAO would be too, because the Congress relies on you 
for objective analysis, and sometimes even unwelcomed 
recommendations, but recommendations nonetheless.
    Mr. White. Well, let me say this. IRS, across the board, 
over the last 15 years, has made substantial efficiency gains 
based on a lot of innovations. In spite of those efficiency 
gains across the board, it is the case that in a number of 
areas, when you look at IRS, not just in identity theft and 
IRS's ability to keep up with the identity theft workload, but 
across the board at IRS, you do see IRS falling behind; that in 
terms of telephone service to taxpayers, for example, they are 
falling behind.
    In terms of their ability to keep up with correspondence 
they are falling behind. Identity theft, we have said today, is 
another case where IRS has done a lot, they have devoted more 
resources to the issue, they have made a lot of innovations, 
but the problem is still growing. They seem to be falling 
behind.
    Ms. Olson. If I may add. You all charged me with submitting 
a report to Congress every year, every December, to identify 
the top 20 problems of taxpayers, or at least 20 of them, and 
in my 2011 report last year I identified as the number one most 
serious problem of taxpayers the fact that the IRS had too much 
work and too little funding with which to do that work.
    And Mr. White has identified a number of areas, and I think 
Ms. Tucker and Mr. George have both talked about the fact that 
although the IRS has built up the number of employees that are 
dealing with identity theft, it is a finite universe, so those 
employees are removed from doing other work that taxpayers 
desperately need done.
    And the diminution of taxpayer service in our budgets has 
been, I am able to speak without the constraints that maybe Ms. 
Tucker has or Mr. White, partly because of the authority you 
all have vested in me, that from my perspective the taxpayer is 
really being harmed by the diminution of taxpayer service 
funding to the IRS; and that will come back in reduced 
compliance, reduced collections, and general frustration not 
just at the IRS, but at Federal Government as a whole, and that 
is not a very good recipe for good administration, much less 
good tax administration.
    Mr. Platts. Ms. Olson, we appreciate the frank assessment, 
and it is an important part of your duty and the charge you 
have had.
    We have been joined by the full Committee chairman, Mr. 
Issa from California.
    Mr. Issa. Well, I will be brief.
    First of all, I haven't come to a lot of your hearings 
because there has been no need to. I have a colleague that I 
came into Congress with 12 years ago, and you will be 
departing. I understand this will be potentially your last 
hearing. I may schedule another one, though, Todd.
    And speaking of Mr. Towns, the former Chairman of the full 
Committee and my friend, and I do have a couple of quick 
questions, but I really came to thank both of you for your 
friendship and your leadership. In fact, back when Mr. Towns 
was Chairman of the full Committee and for all the years that 
you and I have worked together, since we came in together, you 
are not people that need to be watched. Your efforts to go 
after waste, fraud, and abuse in government will stand the test 
of time around here. As a matter of fact, Mr. Connolly is 
trying to figure out how to catch up to the good work that you 
guys have done when you are gone.
    So I wanted to thank you and take this opportunity to say 
that you should have a portrait here sitting next to Mr. 
Towns'. It is not in the rulebook, but in my heart you will.
    Mr. Platts. Well, Mr. Chairman, I appreciate the kind 
words. One, if I was going to have a portrait here, I would 
want it to be a duet that Mr. Towns and I would be together in 
the portrait, because we have been linked for so many years.
    Mr. Issa. Well, you know, there is a holiday party coming 
up. We can take that picture.
    [Laughter.]
    Mr. Platts. And I did nominate Mr. Connolly as the new 
ranking member of these issues in this Committee and whatever 
the new structure is, so he will be a great one to follow on on 
our efforts.
    Mr. Issa. Thank you. And I will be brief. I realize I 
haven't been here for most of the hearing; I have been tied up 
with a couple other things in another hearing. It turns out 
that the 6 million people and their families afflicted with 
autism are very concerned about our hearing today, rightfully 
so.
    Ms. Olson, if you were asked, just tell me if it is already 
in the record, but as we are balancing the new demands under 
the Affordable Health Care Act with these shortages, how do you 
view our role in essentially urging you to prioritize? Because 
I think what you said, very rightfully so, is if we are taking 
from these roles of identity theft and so on, which is more 
important to the American people, being basically done under 
Obama Care or having their money not essentially stolen from 
them?
    Ms. Olson. Well, I actually have to say I would not be able 
to choose between those two.
    Mr. Issa. Well, you wouldn't without congressional action.
    Ms. Olson. If you forced me to choose, I wouldn't know how 
to make that choice. I think that the single greatest risk in 
the administration of the Affordable Care Act is that IRS not 
be funded adequately to administer it. That is where the risk 
is. I am in agreement with Mr. White on the way that we can use 
data to improve our protection, our identity of our 
protections, but there is just the simple fact that we need 
more bodies in the IRS as a whole on the taxpayer service side 
to deal with the victims.
    Mr. Issa. Well, oddly enough, Mr. White, you were my next 
question. All of us on the dais here voted for the Data Act, 
which would include the ability for the IRS to have, if 
appropriate, unfettered access to government-wide data in a 
format that would allow them to search without, if you will, 
significant overhead of new people writing programs, because 
the metadata would be there so that, in fact, particularly for 
identity theft and things of that sort, you would be able to 
see the link behind, if you will, the operation of the thieves, 
where they go from what they have done, where else they have 
hit.
    How would you view, from an accountability and cost 
standpoint, the access? In other words, how much of what we 
don't succeed in doing is because we don't have the tools to 
quickly identify these repeat offenders? Identity theft is not 
a one-time event of one identity; it is very often a gang 
activity that hits thousands, or even millions, of individuals.
    Mr. White. I think it is clear to all of us, I think, that 
part of the long-term solution to the problem, a big part of 
the solution in the long term is better access to information. 
If IRS can match, before issuing refunds, if IRS can match 
taxpayers' tax returns to information returns that come in 
about their income and expenses, and have access to other 
information like the Social Security death file, that would 
prevent----
    Mr. Issa. Or even expanded census information and all the 
other things that might give you a heads-up that this 
individual is not that individual.
    Mr. White. Yes. Yes. How useful each piece of information 
is, each type, remains to be seen, but there is no doubt that 
being able to match to useful information before issuing 
refunds would prevent a lot of the problem. That is long-term, 
but that is clearly the direction to move.
    Mr. Issa. And, Mr. George, as we know, regrettably, 
sometimes these activities are in the system, not outside the 
system. What would, in fact, be the tool that Congress could 
mandate, essentially that OMB and others execute on, that would 
help you more quickly have the tools at your disposal to, I 
want to be accurate in saying that, do the work you already do, 
but do it with a fraction of the time that it often takes your 
men and women?
    Mr. George. Chairman Issa, relaxation, to some extent, of 
the restrictions imposed by Title XXVI, Section 6103, which is, 
again, within the mandate or jurisdiction of the Ways and Means 
Committee in the House, Finance Committee in the Senate.
    Mr. Issa. Well, we are all good friends here, so we can 
work that part out.
    Mr. George. Thank you, please. But it really does, in many 
ways, tie one hand behind our back in terms of getting 
permission, sometimes from the accused or the perpetrator, to 
share information with local and other law enforcement types. 
That is the immediate answer that comes to mind.
    Mr. Issa. So very targeted legislation related to identity 
theft that would expand that sharing, if and for that purpose 
only, would be sufficient to crack open some of your needs?
    Mr. George. It would give us more leeway, sir.
    Mr. Issa. Okay. We look forward to working with you on 
that.
    I guess, Ms. Tucker, lest you think that I am not going to 
ask one more question, Mr. Connolly, who I am afraid has 
departed, and I will be working Monday on legislation for the 
next Congress that would define the CIO once and for all as a 
single individual per entity. There are about 23 entities in 
the government, independent entities; there are over 100 CIOs. 
So how many chief information officers do 23 entities need?
    From a standpoint of operational support, the whole 
question of the IRS, the use of its database, its centers, and 
getting meaningful information that everybody on the dais 
wants, would a single point of authority and accountability 
within your jurisdiction, would that help you and would it help 
you in a meaningful way, or today having multiple CIOs in 
multiple places where multiple assets are controlled, is that 
good enough?
    Ms. Tucker. I probably don't have enough insight into the 
issue to fairly consider and respond.
    Mr. Issa. And I could ask it in the reverse way. Do you 
know who you go to for single point accountability on 
information that the entire system needs today? And, if not, 
would it be better to have that?
    Ms. Tucker. So, at IRS, obviously, we do have multiple data 
exchange agreements with Social Security Administration, with 
basically any agency. We do have folks that are assigned to 
give the care and feeding to those particular exchange 
agreements. In my way of thinking, there are a lot of things 
that are made more cumbersome by multiple points of contact. Do 
we make it work? I think that is what all of us in government 
are about right now, trying to find ways to piece things 
together.
    Mr. Issa. Well, I might say that when I started flying 
commercial airlines, there were five people in the cockpit to 
get me from one end of the world to another. Today there are 
two. That is because, really, automation doesn't require you 
have a radio operator and you have a navigator and you have a 
flight engineer. So I might ask if you think of any examples 
where you think streamlining could occur, we would love to see 
it, because I know that Ms. Olson would love to see the freeing 
up of those dollars and slots, assuming that the benevolence of 
Congress and the President doesn't give you just a new pot of 
money. And it is a real shame because all the money flows 
through you; you just don't get to keep it, you have to ask for 
it back.
    [Laughter.]
    Mr. Issa. Mr. Chairman, I want to thank you for your 
indulgence. I went quite a bit over time. And thank you for the 
hearing and, once again to both of you, you will be missed 
until, well, I don't know about you, Todd, for sure, because 
you are within driving distance, but I expect, Mr. Towns, when 
he is going between his Florida home and his New York home, to 
stop in and see us.
    I yield back.
    Mr. Platts. Thank you, Mr. Chairman. I certainly appreciate 
your participation and allowing me the privilege of chairing 
the Subcommittee for the past two years.
    As this is our last one, I want to first thank our 
witnesses. You have each been with us previously and I know you 
will continue to work with whoever sits in these chairs in the 
coming term, as well as with staff.
    A final comment, with this being our last one, is I know I 
speak for Mr. Towns and myself, that we couldn't do what we do 
without a tremendous staff, and as you and your staffs have 
worked very closely with the Committee staff on both sides of 
the aisle, that is really where, day in and day out, the work 
gets done. So I want to make sure I put on the record to 
Republican and Democratic staff, those who are here with us 
today and have worked with us over many years, we are 
personally indebted to them and wish them great success as we 
move on and they continue to hold down the fort here with the 
Subcommittee.
    We will keep the record open for seven days for any other 
materials, and again thanks to the witnesses and, Mr. Towns, it 
has been quite a privilege. I look forward to continued 
friendship. And as I gavel this closed, I am going to do it on 
behalf of you and me, as Chairman, Ranking Member now, and 
throughout the years Chairman and Ranking Member.
    Mr. Towns. Thank you very much, Mr. Chairman. I would like 
to associate myself with your remarks in reference to the 
staff. Thank you so much.
    Mr. Platts. This hearing stands adjourned.
    [Whereupon, at 12:15 p.m., the subcommittee was adjourned.]

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