[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
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
----------
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Washington, DC 20402-0001
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland,
JOHN L. MICA, Florida Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee PETER WELCH, Vermont
JOE WALSH, Illinois JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida JACKIE SPEIER, California
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
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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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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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