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




 
                HEARING ON IDENTITY THEFT AND TAX FRAUD

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

                            JOINT HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                  and

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                 OF THE

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 8, 2012

                               __________

                        Serial No. 112-OS12/SS15

                               __________

         Printed for the use of the Committee on Ways and Means




                  U.S. GOVERNMENT PRINTING OFFICE
78-817                    WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  


                      COMMITTEE ON WAYS AND MEANS

                     DAVE CAMP, Michigan, Chairman

WALLY HERGER, California             SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas                   CHARLES B. RANGEL, New York
KEVIN BRADY, Texas                   FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
DEVIN NUNES, California              JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
GEOFF DAVIS, Kentucky                XAVIER BECERRA, California
DAVID G. REICHERT, Washington        LLOYD DOGGETT, Texas
CHARLES W. BOUSTANY, JR., Louisiana  MIKE THOMPSON, California
PETER J. ROSKAM, Illinois            JOHN B. LARSON, Connecticut
JIM GERLACH, Pennsylvania            EARL BLUMENAUER, Oregon
TOM PRICE, Georgia                   RON KIND, Wisconsin
VERN BUCHANAN, Florida               BILL PASCRELL, JR., New Jersey
ADRIAN SMITH, Nebraska               SHELLEY BERKLEY, Nevada
AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

                   Jennifer Safavian, Staff Director

                  Janice Mays, Minority Chief Counsel

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

             CHARLES W. BOUSTANY, JR., Louisiana, Chairman

DIANE BLACK, Tennessee               JOHN LEWIS, Georgia
AARON SCHOCK, Illinois               XAVIER BECERRA, California
LYNN JENKINS, Kansas                 RON KIND, Wisconsin
KENNY MARCHANT, Texas                JIM MCDERMOTT, Washington
TOM REED, New York
ERIK PAULSEN, Minnesota

                    SUBCOMMITTEE ON SOCIAL SECURITY

                      SAM JOHNSON, Texas, Chairman

KEVIN BRADY, Texas                   XAVIER BECERRA, California
PATRICK J. TIBERI, Ohio              LLOYD DOGGETT, Texas
AARON SCHOCK, Illinois               SHELLEY BERKLEY, Nevada
RICK BERG, North Dakota              FORTNEY PETE STARK, California
ADRIAN SMITH, Nebraska
KENNY MARCHANT, Texas


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of May 8, 2012 announcing the hearing...................     2

                               WITNESSES

The Honorable J. Russell George, Treasury Inspector General for 
  Tax Administration.............................................     9
Testimony........................................................    11
The Honorable Patrick P. O'Carroll, Jr., Inspector General, 
  Social Security Administration.................................    27
Testimony........................................................    28
Steven T. Miller, Deputy Commissioner for Services and 
  Enforcement, Internal Revenue Service..........................    34
Testimony........................................................    37
Nina E. Olson, National Taxpayer Advocate, Internal Revenue 
  Service........................................................    48
Testimony........................................................    50
David F. Black, General Counsel, Social Security Administration..    70
Testimony........................................................    72


                HEARING ON IDENTITY THEFT AND TAX FRAUD

                              ----------                              


                          TUESDAY, MAY 8, 2012

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                                   Washington, D.C.

    The subcommittees met, pursuant to call, at 10:00 a.m., in 
Room 1100, Longworth House Office Building, the Honorable 
Charles Boustany [chairman of the Subcommittee on Oversight] 
presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY

 Chairmen Boustany and Johnson Announce Hearing on Identity Theft and 
                               Tax Fraud

Tuesday, May 08, 2012

    House Ways and Means Oversight Subcommittee Chairman Charles 
Boustany, Jr., MD (R-LA) and Social Security Subcommittee Chairman Sam 
Johnson (R-TX) today announced that the Subcommittees on Oversight and 
Social Security will hold a hearing on tax fraud involving identity 
theft. The hearing will take place on Tuesday, May 8, 2012, in 1100 
Longworth House Office Building, beginning at 10:00 A.M.
      
    In view of the limited time available to hear from witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing. A list of invited 
witnesses will follow.
      

BACKGROUND:

      
    The Treasury Inspector General for Tax Administration (TIGTA) 
recently reported that criminals are stealing identities at an alarming 
rate to receive fraudulent tax refunds. For Processing Year 2011, the 
Internal Revenue Service (IRS) reported detecting approximately 940,000 
tax returns potentially filed by identity thieves and prevented issuing 
$6.5 billion in fraudulent tax refunds. Yet, TIGTA found that 
fraudulent refunds acquired through identity theft are significantly 
greater than the amounts detected. Recent media reports indicate 
criminals are engaging in previously unheard of levels of identity-
theft related tax fraud, including a Tampa, Florida ring that allegedly 
swindled taxpayers out of $130 million by using off-the-shelf tax 
preparation software and prepaid debit cards to fraudulently obtain tax 
refunds.
      
    One source of information for identity thieves is the Social 
Security Administration's (SSA) compilation of death records, which it 
uses to administer benefits. Since 1980, the SSA has made available for 
purchase by the public a file containing the Social Security numbers 
(SSNs), names, dates of birth and death, and zip code of those who have 
died. According to the Inspector General of SSA, this data file, known 
as the Death Master File (DMF), contains the personal information of 85 
million Social Security number holders who have died since 1936, as 
well as the information from about 1.3 million new deaths that are 
added each year.
      
    The DMF is useful to many organizations for fraud prevention and 
benefit administration. It has been purchased by other government 
agencies, financial institutions, life insurance companies, credit 
reporting organizations, data aggregators, medical researchers, 
genealogists and others; and purchasers are free to re-disclose the 
data they obtain. At the same time, criminals are able to exploit the 
availability of death information to submit fraudulent tax returns that 
include the decedent's SSN, including the SSNs of deceased dependent 
children. Only after the parents of the dead child have had their 
legitimate return rejected by the IRS do they and the agency discover 
the theft.
      
    According to the 2011 Annual Report to Congress by the National 
Taxpayer Advocate, the federal government facilitates tax-related 
identity theft by publicly releasing significant personal information 
of deceased individuals. The National Taxpayer Advocate has recommended 
legislative action to restrict access to the DMF. The Taxpayer Advocate 
has also reported a 97 percent increase in taxpayer identity-theft 
complaints in fiscal year (FY) 2011, on top of a 23 percent increase in 
FY 2010.
      
    In November 2011, SSA restricted the release of certain state 
records in the publicly-available file, resulting in the removal of 4.2 
million death records from the DMF, and since that time has also 
removed zip code information from the DMF. In addition, the 
Administration is developing legislation to limit the availability of 
death information.
      
    In announcing the hearing, Chairman Boustany said, ``Improper 
payments of tax refunds have cost taxpayers over $100 billion in recent 
years. This hearing will explore a major source of the problem - 
identity thieves who steal Social Security numbers to engage in tax 
fraud. We need to make sure that we have a complete accounting of the 
size of the problem, understand why it is getting worse, and explore 
what can be done to combat tax fraud so we can catch and put more 
identity thieves in jail.''
      
    In announcing the hearing, Chairman Johnson said, ``Worrying about 
a lost loved one's stolen identity is a burden no grieving family 
should bear. That's why I, along with a number of my colleagues, 
introduced H.R. 3475, the `Keeping IDs Safe Act of 2011,' to protect 
the Social Security number and other personal information of those who 
have died. With the bipartisan support of my colleagues and the 
Administration we will take steps to stop these heartless identity 
thieves and protect American taxpayers.''
      

FOCUS OF THE HEARING:

      
    The Subcommittees will examine how identity theft contributes to 
tax fraud, and whether the IRS and the SSA are doing enough to protect 
SSNs and prevent and detect false returns filed by identity thieves.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``Hearings.'' Select the hearing for which you would like to submit, 
and click on the link entitled, ``Click here to provide a submission 
for the record.'' Once you have followed the online instructions, 
submit all requested information. ATTACH your submission as a Word 
document, in compliance with the formatting requirements listed below, 
by the close of business on Tuesday, May 22, 2012. Finally, please note 
that due to the change in House mail policy, the U.S. Capitol Police 
will refuse sealed-package deliveries to all House Office Buildings. 
For questions, or if you encounter technical problems, please call 
(202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word format and MUST NOT exceed a total of 10 pages, including 
attachments. Witnesses and submitters are advised that the Committee 
relies on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman BOUSTANY. The subcommittees will come to order. I 
would like to welcome everyone to today's joint Subcommittee on 
Oversight and Subcommittee on Social Security hearing on 
identity theft and tax fraud. I am very pleased to join 
Chairman Johnson again as our subcommittees focus on fraud, 
waste and abuse and how the Federal Government might better 
protect taxpayer dollars.
    The subject of today's hearing is not a new one, but 
evidence suggests it is a problem reaching unprecedented 
levels. Identity theft allows criminals to file false tax 
returns and claim thousands of dollars in refundable tax 
credits.
    In a recent case in Florida, identity thieves alleged 
obtained $30 million in fraudulent refunds and nearly obtained 
$100 million more before being caught. They spent the money on 
expensive cars, homes, living lavishly under the impression 
that they could steal from taxpayers with impunity. Recent news 
stories have also told of identity thieves so brazen that they 
hold seminars on how to steal identities and to commit tax 
fraud.
    In another case scam artists uploaded music video on 
YouTube showing cars they were able to purchase with stolen 
taxpayer dollars and instructing others on how they could do 
the same.
    Confronted with emboldened identity thieves and tax cheats, 
the American taxpayers expect the Federal Government to better 
protect identities, detect fraudulent tax returns, punish those 
engaged in these crimes and assist taxpayers who are 
victimized. Today we will explore how well the Federal 
Government is living up to this responsibility and how we can 
improve these efforts.
    This morning's hearing will seek to answer four questions. 
First, how does identity theft related tax fraud occur? 
Identity thieves often rely on public sources of sensitive 
information to engage in tax fraud, and the subcommittees look 
forward to hearing from the witnesses on how this information 
might be limited or better protected in a way that protects 
taxpayer identities.
    Second, how big is the problem? While the IRS has estimated 
identity theft related tax fraud costs taxpayers more than $6 
billion annually, we will hear testimony this morning that the 
true figure may be nearly double previous estimates.
    Third, what tools are needed to better deter, detect and 
punish this crime? Fruitful discussions of fraud, waste and 
abuse should include not just details of the problem, but also 
talk of potential solutions, and I look forward to hearing from 
our witnesses on that.
    And finally, this morning's hearing will focus on 
victimized taxpayers and what their experience is when they 
learn they have been victims of identity theft and how the 
government might better assist them in recovering from the 
crime and better protect their identities.
    I want to thank our witnesses and I look forward to this 
morning's discussion. Before yielding to the ranking member, 
Mr. Lewis, I ask unanimous consent that all members written 
statements be included in the record. Without objection, so 
ordered.
    Mr. Lewis, I now yield to you, sir.
    Mr. LEWIS. I want to thank you, Mr. Chairman, you and 
Chairman Johnson, for holding this hearing. I am pleased to 
have the Internal Revenue Service and the Social Security 
Administration before us today. These agencies are both 
entrusted with personal information and they should play an 
important role in preventing identity theft.
    Tax fraud and identity theft are growing problems for the 
tax administration. They harm the Federal Treasury, American 
citizens and their families. I commend the Internal Revenue 
Service for identifying and preventing over $14 billion in 
fraudulent tax refunds last year.
    I also thank the agency for its assistance to almost 
500,000 taxpayers who have been victims of identity theft. 
Despite this progress we need to do more, and we must do more, 
to help victims and stop the loss of billions of taxpayer 
dollars.
    I continue to have serious concerns about the effects of 
recent budget cuts on taxpayers and the agency's ability to 
serve them. In this area of budget cuts, hiring freezes and 
staff reduction, I am also concerned that the IRS cannot fully 
combat identity theft and tax fraud. This year the IRS expects 
to spend over $330 million combating fraudulent tax refunds 
when its budget was cut by over $300 million.
    In a most recent report to Congress, the National Taxpayer 
Advocate states that the most serious problem facing taxpayers 
is that the IRS is not adequately funded to serve taxpayers and 
collect taxes. We will see today that the IRS is not properly 
funded to handle the growing identity theft problem. We need to 
provide the IRS with more tools to combat identity theft today.
    I look forward to learning more about the recommendation to 
expand the agency's to access the National Directory of New 
Hires. The recommendation was initially proposed by the Bush 
administration in 2006. It has been in the Administration's 
budget proposal every year since then. It appears to be a 
common sense solution that will be a step in the right 
direction.
    Now the gentleman from Washington, Representative 
McDermott, and I have introduced a bill to expand the agency's 
access to this database. I ask my colleagues on both sides to 
join us on this bill.
    Mr. Chairman, in closing I would like to thank the 
witnesses for appearing before us today. I look forward to your 
testimony, and thank you again very much for being here. With 
that, Mr. Chairman, I yield back.
    Chairman BOUSTANY. I thank the ranking member of the 
Oversight Subcommittee, and now we turn to Chairman Johnson, 
chairman of the Social Security Subcommittee, for his opening 
statement.
    Chairman JOHNSON. Thank you, Mr. Chairman. Chairman 
Boustany, I want to thank you for holding the hearing regarding 
identity theft and its role in the growing crime of tax fraud. 
Earlier this year the Subcommittee on Social Security held a 
hearing on Social Security death records, including the so-
called Death Master File, a publicly available listing of the 
personal information of those who have died, including their 
Social Security numbers. We learned that the Death Master File 
serves as a readily available source of information identity 
thieves need in order to file fraudulent tax returns.
    We heard the heartbreaking story of the Agin family whose 
4-year-old daughter Alexis had her identity stolen shortly 
after she passed away. Only when their tax return was rejected 
by the IRS did the Agins learn that an identity thief had 
already filed a claim, claiming their child as a dependent. No 
grieving family should bear this additional burden. Yet when 
the Agins reached out to the community of grieving cancer 
parents, within the first hour they heard from 14 families who 
had lost a child whose Social Security Number was also stolen. 
Alexis' father, Jonathan Agin is in the audience today. He has 
joined us and I thank him for his tireless efforts to stop 
identity thieves from accessing the Death Master File. Thank 
you for being with us, sir.
    So why does the Federal Government make public the Social 
Security numbers and other personal information of those who 
have died? Turns out unless Congress changes the law, it is 
required. Social Security collects death information so it can 
stop benefits to those who have died and start benefits for 
their survivors. But a 1980 Freedom of Information Act court 
mandated settlement required Social Security to also make the 
information about deceased Social Security number holders 
available to the public. In response Social Security created 
the Death Master File. With 84 million listed individuals and 
1-1/2 million new individuals added each year, many groups now 
purchase the Death Master File from the Commerce Department, 
including government agencies, credit reporting agencies, 
financial institutions, law enforcement organizations, and 
medical and genealogical researchers.
    But the decades old practice of publishing personal death 
information that anyone can buy needs to end, and now. In the 
age of Internet identity thieves can all too easily get their 
hands on a Social Security Number and reap instant awards that 
no one, including the person whose number it is, knows what has 
happened until after the fact usually.
    ID Analytics, a fraud prevention firm, recently released a 
study comparing death information from the Death Master File to 
applications for credit products and cell phone services. The 
study found that the identities of nearly 2.5 million deceased 
Americans are used by fraudsters to commit identity theft each 
year.
    Identity theft is also a growing problem on the tax front. 
The Treasury Inspector General reports that IRS stopped 6.5 
billion in false refunds in 2011, but much more went 
undetected.
    Taxpayers who are victims of tax identity theft have to 
endure a long process of proving their real identities, 
submitting paper returns and waiting months to get their 
rightful refund. That is just wrong.
    To help stop this crime I, along with a number of my 
colleagues, introduced H.R. 3475, Keeping IDs Safe Act of 2011. 
Our bill ends the publication of the Death Master File, denying 
criminals easy access to the personal information of those who 
have died.
    Make no mistake, we will stop these identity thieves and in 
so doing protect the American taxpayers and prevent other 
families from having to go through what the Agins did.
    I want to thank all our witnesses for coming today and I 
look forward to hearing your testimony. Thank you, Mr. 
Chairman.
    Chairman BOUSTANY. Thank you, Chairman Johnson. Now we will 
turn to the ranking member of the Committee on Social Security, 
Mr. Becerra.
    Mr. BECERRA. Mr. Chairman, thank you very much. The 
Internal Revenue Service does a lot with a little, processing 
140 million tax returns in the span of just a few months while 
combating fraud and enforcing our tax laws. Congress needs to 
do its part too by providing adequate resources and enacting 
legislation that strikes the right balance between efficiently 
processing returns and preventing fraud.
    We are all concerned about tax fraud. Tax fraud increases 
the burden on honest taxpayers, it undermines compliance with 
our voluntary tax system, and it harms the U.S. Treasury. When 
tax fraud takes the form of identity theft, it hurts individual 
taxpayers more directly, as Mr. Jonathan Agin, who testified 
recently at our subcommittee hearing, and he is the father of a 
deceased child who was a victim of tax fraud, as he so 
eloquently testified when he appeared before us in this 
subcommittee.
    Mr. Chairman, the IRS needs both tools and resources to 
combat fraud. It needs not only to work together with Congress 
because it is not always easy to keep a step ahead of the 
fraudsters, but it also, we are going to learn today, needs to 
do something about having the right amount of funding to get 
things done. We are going to learn today about some of the more 
creative ways that individuals actually do perpetrate tax 
fraud.
    Unfortunately, budget cuts mean the IRS is struggling just 
to keep up with its core work. This year IRS's operating budget 
is $305 million less than it was in 2011, and it has 5,000 
fewer employees who can process returns, assist taxpayers and 
combat fraud.
    As a result, the IRS can barely answer the phone calls it 
receives from taxpayers. In fact this spring the large majority 
of callers to the special IRS phone line dedicated to assisting 
taxpayers with identity theft did not get through. For the most 
recent week measured, 75 percent of callers were unable to get 
through, and those that did get through waited 1 hour and 21 
minutes on hold before the IRS employee could assist them.
    The National Taxpayer Advocate has identified IRS's 
underfunding as the ``number one most serious problem'' in her 
annual report to Congress, concluding that the IRS ``is not 
adequately funded to serve taxpayers and collect taxes.''
    Combating fraud requires a balancing act. The IRS must 
balance the time it takes to conduct antifraud checks with a 
statutory requirement it has to process returns and issue 
refunds quickly for law abiding taxpayers. Each year under 
current procedures it takes months for the IRS to receive and 
process the nearly 250 million W-2 reports and 1.5 billion 
other third party reports that are submitted. This is on an 
annual basis. At the same time, the IRS aims to issue refunds 
within 7 to 10 days of receiving the return. As a result the 
agency does not wait to issue refunds until it is able to 
cross-check those returns against those other reports.
    I think we need to figure out a way to do a better job in 
the future, but there is no easy answer now on the horizon.
    Similarly, the question of the Death Master File also 
requires striking the right balance. The Social Security 
Subcommittee has received testimony over the years about the 
value of SSA's compilation of the death records it receives 
into the DMF. The DMF is helpful in administering benefits and 
combating fraud at both government agencies and in the private 
sector. At the same time we know that the widespread 
availability of the SSA's death information means it can also 
be used by identity fraudsters. We are going to learn more 
about the challenges of combating identity fraud in the tax 
world today.
    I commend SSA for utilizing its limited statutory authority 
to restrict death information. SSA recently removed zip code 
information from the DMF to make it harder for fraudsters to 
use, and promptly it received a Freedom of Information Act--a 
FOIA request--to reinstate it. SSA has also recently removed 
certain State death records which it were determined were not 
subject to a FOIA request from the publicly released DMF, 
resulting in the removal of over 4 million records from the 
file. However, SSA's longstanding legal opinion is that the 
Privacy Act and Freedom of Information Act do not allow SSA to 
keep its death records from the public. As a result, at our 
last hearing on the DMF and identity fraud SSA testified that 
the Administration was evaluating legislative options to 
restrict release of the DMF. I understand they have made 
significant progress and I look forward to receiving the 
legislative proposal.
    Mr. Chairman, I look forward to working with the 
administration and with my colleagues on both sides of the 
aisle as we try to move forward with a solution to this 
problem, and with that I yield back the balance of my time.
    Chairman BOUSTANY. I thank the ranking member for his 
opening statement and now I would like to welcome our panel. We 
have a distinguished panel with us today. This morning we will 
hear from the Honorable Russell George, Treasury Inspector 
General for Tax Administration. Welcome, Mr. George. We will 
also hear from the Honorable Patrick P. O'Carroll, Jr., 
Inspector General for the Social Security Administration. And 
thirdly, Mr. Steven Miller, Deputy Commissioner for Services 
and Enforcement for the Internal Revenue Service. Welcome, sir. 
Nina Olson, the National Taxpayer Advocate. Ms. Olson, welcome. 
And Mr. David Black, the General Counsel for the Social 
Security Administration.
    Welcome to all of you. We thank you for being here today. 
You each will have 5 minutes, as is customary, to deliver your 
oral statements, keeping in mind that your full written 
statements will be included in the record.
    Inspector General George, you may begin.

    STATEMENT OF THE HONORABLE J. RUSSELL GEORGE, TREASURY 
            INSPECTOR GENERAL FOR TAX ADMINISTRATION

    Mr. GEORGE. Thank you, Chairman Boustany, Chairman Johnson, 
Ranking Member Lewis, Ranking Member Becerra, and Members of 
the Subcommittees. Thank you for the opportunity to address the 
subject of identity theft and its impact on taxpayers and tax 
administration.
    Since I last testified on this subject in November of 2011, 
TIGTA is in the process of completing an assessment of the 
IRS's efforts to spot and prevent identity theft. While the 
final report will not be released until June, I will discuss 
some of our most cogent findings as well as those of a recently 
issued report on the assistance the IRS provides to victims of 
tax fraud related identity theft.
    TIGTA has reported previously a substantial number of 
individuals continue to submit tax returns reporting false 
income and/or withholding for the sole purpose of receiving a 
fraudulent tax refund. The IRS recently reported that of the 
more than 2 million tax returns that it identified as 
fraudulent approximately 900,000 tax returns with $6.5 billion 
in associated fraudulent tax refunds involved identity theft. 
However, the IRS does not know how many identity thieves are 
filing fraudulent tax returns or the amount of revenue being 
lost.
    TIGTA evaluated the IRS's efforts to identify and prevent 
fraudulent tax returns resulting from identity theft. As part 
of our assessment we identified and quantified potential refund 
losses. Our analysis found that although the IRS detects and 
prevents a large number of fraudulent refunds based on false 
income documents, there is much more fraud that it does not 
detect. We identified approximately 1.5 million additional 
undetected tax returns with potentially fraudulent tax refunds 
totaling in excess of $5 billion. If this is not addressed, we 
estimate the IRS could issue approximately $26 billion in 
fraudulent tax refunds resulting from identity theft over the 
next 5 years.
    As we previously reported, access to third party income and 
withholding information at the time tax returns are processed 
is the single most important tool the IRS could have to 
identify and prevent this type of tax fraud. Another important 
tool that could help the IRS prevent this type of fraud is the 
National Directory of New Hires. Again, as was pointed out 
earlier by Mr. Lewis, legislation would be needed to expand the 
IRS's authority to access the directory's wage information for 
use in identifying tax fraud.
    In those cases involving identity theft the fraudulent tax 
return is often filed before the legitimate taxpayer files his 
or her tax return. For tax year 2010 we identified more than 
48,000 Social Security numbers that were used multiple times as 
a primary taxpayer identification number. When the identity 
thief files the fraudulent tax return the IRS does not yet know 
that the individual's identity will be used more than once. As 
a result the tax return is processed and the fraudulent refund 
is issued. Once the legitimate taxpayer files his or her tax 
return the duplicate tax return is identified and the refund is 
held until the IRS can confirm the taxpayer's identity. These 
instances result in the greatest burden to the legitimate 
taxpayer.
    We recently completed an audit that evaluated the 
assistance the IRS provides to victims of identity theft. We 
found that the IRS is not effectively providing assistance to 
these victims. Moreover, processes are not adequate to 
communicate identity theft procedures to taxpayers, resulting 
in increased burden for victims. Of concern is the length of 
time taxpayers must work with the IRS to resolve identity theft 
cases which, as Mr. Becerra pointed out, could take more than a 
year to resolve. Resources have not been sufficient to work 
identity theft cases dealing with refund fraud and continue to 
be of concern. IRS employees who work the majority of cases 
also respond to taxpayer calls. As a result the average wait 
time for a taxpayer was approximately 1 hour.
    In conclusion, we at TIGTA continue to be very concerned 
about the scope of this problem and will provide continuing 
audit coverage of IRS's actions taken to stem tax fraud related 
identity theft and to provide prompt resolution to taxpayers 
who are victimized. In addition, we will continue to conduct 
criminal investigations of identity theft violations involving 
IRS employees, tax return preparers and individuals 
impersonating the IRS.
    I hope my discussion of our work assists you with your 
oversight of the issue involving the IRS. Chairman Boustany, 
Chairman Johnson, Ranking Member Lewis, Ranking Member Becerra, 
Members of the Subcommittee, thank you for the opportunity to 
address this important topic.
    [The prepared statement of Mr. George follows:]

    [GRAPHIC] [TIFF OMITTED] T8817.001
    
    [GRAPHIC] [TIFF OMITTED] T8817.002
    
    [GRAPHIC] [TIFF OMITTED] T8817.003
    
    [GRAPHIC] [TIFF OMITTED] T8817.004
    
    [GRAPHIC] [TIFF OMITTED] T8817.005
    
    [GRAPHIC] [TIFF OMITTED] T8817.006
    
    [GRAPHIC] [TIFF OMITTED] T8817.007
    
    [GRAPHIC] [TIFF OMITTED] T8817.008
    
    [GRAPHIC] [TIFF OMITTED] T8817.009
    
    [GRAPHIC] [TIFF OMITTED] T8817.010
    
    [GRAPHIC] [TIFF OMITTED] T8817.011
    
    [GRAPHIC] [TIFF OMITTED] T8817.012
    
    [GRAPHIC] [TIFF OMITTED] T8817.013
    
    [GRAPHIC] [TIFF OMITTED] T8817.014
    
    [GRAPHIC] [TIFF OMITTED] T8817.015
    
    [GRAPHIC] [TIFF OMITTED] T8817.016
    
                                 

    Chairman BOUSTANY. Thank you, Inspector General George.
    Inspector General O'Carroll, you may proceed.

STATEMENT OF THE HONORABLE PATRICK P. O'CARROLL, JR., INSPECTOR 
            GENERAL, SOCIAL SECURITY ADMINISTRATION

    Mr. O'CARROL. Good morning, Chairman Johnson, Chairman 
Boustany, Ranking Member Becerra, Ranking Member Lewis, and 
members of the both subcommittees. Thank you for the invitation 
to testify today.
    As today's Death Master File, or DMF, makes the personal 
information of deceased people and sometimes the living 
available to the public, this creates a significant risk of SSN 
misuse and identity theft. I would like to share an OIG case in 
which available death data was used to obtain personal 
information and then commit fraud.
    In a recent national investigation my office identified 
about 60 retirement benefit applications that were submitted in 
the names of deceased people. The claims were filed with the 
name, the Social Security number, and the date of birth of 
these individuals. The suspects found this information on a 
genealogy Web site that published the DMF. Our agents and other 
law enforcement identified the suspects, executed search 
warrants, and made arrests. However, the main suspect in the 
case took his own life before he could be arrested. His two 
accomplices, both relatives, were indicted and pleaded guilty. 
A judge sentenced them to prison and ordered them to be 
deported. One also was ordered to repay more than $145,000 to 
the SSA.
    It is not only the personal information of deceased 
individuals that is at risk. In two recent reports our auditors 
identified thousands of living individuals who were mistakenly 
included in the DMF. These errors can have serious consequences 
for the affected individuals. Each month SSA erroneously 
includes about 1,000 living individuals in the Death Master 
File. That personal information could be used to obtain loans 
or credit, to apply for government benefits or to assume a new 
identity.
    My office has recommended limiting the DMF to only the 
information required by law and ensuring the file's accuracy. 
Such steps would minimize these errors and reduce SSN misuse in 
all forms, including tax fraud.
    We investigated a Colorado man who hired people to search a 
genealogy Web site for the names and SSNs of deceased 
individuals. After confirming this information against other 
data sources the man fabricated employment records and filed 
fraudulent tax returns. A judge sentenced the man to 4 years in 
jail for SSN misuse and making false claims. He was ordered to 
repay more than $282,000 to the IRS.
    Limiting the content or discontinuing the availability of 
the DMF is a legislative and policy decision for Congress and 
the SSA. In November 2011, Chairman Johnson introduced the 
Keeping IDs Safe Act. This bill would end the sale of the DMF 
to the public. Whether through legislative action or policy 
changes, my office strongly supports any effort to limit public 
access to SSA's death records. Pending such changes, we 
advocate limiting the information made available to the extent 
permitted by law, and we recommend a risk based approach to the 
distribution of the DMF.
    SSA's key uses in government and finance make it a valuable 
commodity for criminals. SSN misuse and identity theft remains 
significant threats and failure to take action creates 
unnecessary public risk. My office also urges citizens to guard 
their personal information. We encourage people to keep their 
Social Security cards in a safe place, shred personal 
documents, and be judicious in giving out an SSN in business 
transactions. We will going to continue to work with your 
subcommittees and SSA in these and future efforts to protect 
personal information and reduce tax fraud.
    Thank you again for the invitation to testify, and I will 
be happy to answer any questions.
    [The prepared statementt of Mr. O'Carroll follows:]

    [GRAPHIC] [TIFF OMITTED] T8817.017
    
    [GRAPHIC] [TIFF OMITTED] T8817.018
    
    [GRAPHIC] [TIFF OMITTED] T8817.019
    
    [GRAPHIC] [TIFF OMITTED] T8817.020
    
    [GRAPHIC] [TIFF OMITTED] T8817.021
    
    [GRAPHIC] [TIFF OMITTED] T8817.022
    
    [GRAPHIC] [TIFF OMITTED] T8817.023
    
                                 

    Chairman BOUSTANY. Thank you, Mr. O'Carroll.
    Mr. Miller, you made proceed.

STATEMENT OF STEVEN T. MILLER, DEPUTY COMMISSIONER FOR SERVICES 
            AND ENFORCEMENT, INTERNAL REVENU.S.RVICE

    Mr. MILLER. Thank you, Chairman Johnson, Chairman Boustany, 
Ranking Member Becerra, Ranking Member Lewis, Members of the 
Subcommittee. My name is Steve Miller and I am the Deputy 
Commissioner at the IRS.
    Over the past few years the IRS has seen a significant 
increase in refund schemes, particularly those involving 
identity theft. Identity theft and the harm it inflicts on 
innocent taxpayers is a problem that we take very seriously. We 
are confronted with the same challenges that face every major 
financial institution in preventing and detecting identity 
theft. We cannot stop all identity theft. However, we are 
better than we were and we will get better still.
    There is a delicate balance here. We cannot manually 
inspect 100 million refund returns to ensure all are correct. 
We must balance the need to make payments in a timely manner 
with the need to ensure that claims are proper and taxpayer 
rights are protected.
    Let me begin by describing our efforts at upfront 
prevention. In 2011, the IRS identified and prevented the 
issuance of more than 14 billion in fraudulent refunds. A great 
deal of that was identity theft. We estimate that at a minimum 
1.3 million returns were identity theft of the 2.2 million 
total returns that we stopped last year. This year we will stop 
even more.
    We have improved upfront screening filters to spot false 
returns before a refund is issued. As of mid-April we have 
stopped more than 2.6 million returns we suspect of being 
fraudulent. At this time we estimate that the returns we have 
worked a minimum of 750,000 are identity theft, and we are just 
underway in working through those cases. Until we complete our 
review of the returns we have stopped we don't have a precise 
tally of how much is identity theft or the total dollars that 
are involved. However, we suspect that the bulk of them are 
inventory, which is now 2.6 million and continues to grow, will 
be identity theft.
    More specific to this filing season we have also done the 
following. Despite substantial cuts in our budget we added 
hundreds of staff in this area and will add hundreds more. In 
fact we estimate that we are going to spend over $330 million 
on refund work this year, in the refund fraud area. Most of 
that is going to be specific to identity theft. We issued 
special identification numbers, so-called PINs, to expedite 
filing for those taxpayers whose identities have been stolen. 
There are 250,000 PINs that have been issued to date. There 
have been over 170,000 failed attempts to use an SSN associated 
with those PINs.
    We have also accelerated the matching of information 
returns to help stop fraud. We are taking a number of actions 
to prevent identity thieves from stealing Social Security 
numbers of deceased taxpayers. For example, when we receive a 
final return filed on behalf of a deceased taxpayer we are 
putting a special marker on those accounts since those 
individuals have no future filing requirement. And we are 
working with the Administration and the Social Security 
Administration on modifications to the practice of making the 
Death Master File public.
    There are new procedures to allow us to match returns on 
lists of taxpayer information that law enforcement officials 
believe may have been stolen, and we have improved 
collaboration with software developers and others to determine 
how we can better partner to prevent identity theft.
    In addition, our Criminal Investigation Division continues 
to increase its work on identity theft. In 2012 we will spend 
more than 400,000 hours of investigative work in this area. In 
my written testimony you will see details of this work, 
including a description of a week long sweep in January that 
led to more than 900 charges across 23 States.
    In addition, earlier this month we began a process for 
local law enforcement to obtain tax return data that is vital 
to their local enforcement needs. That is our work on 
prevention.
    We are also taking a number of actions to help victims of 
identity theft. We have implemented new procedures and, as 
mentioned, we have added staff to resolve cases faster and 
better respond to calls, and of course the PINs I spoke of 
earlier will assist identity theft victims in filing future 
returns. We have also trained 35,000 of our employees to 
recognize and help when they see identity theft situations.
    Let me conclude. Our work is critical. We can't be lax in 
stopping fraud and our treatment of those who have had their 
identity stolen. I can't tell you that we will beat this 
problem this year, but I can say that our work in 2012 
represents real progress but not the end of our efforts.
    I will be happy to answer any questions.
    [The prepared statement of Mr. Miller follows:]

    [GRAPHIC] [TIFF OMITTED] T8817.024
    
    [GRAPHIC] [TIFF OMITTED] T8817.025
    
    [GRAPHIC] [TIFF OMITTED] T8817.026
    
    [GRAPHIC] [TIFF OMITTED] T8817.027
    
    [GRAPHIC] [TIFF OMITTED] T8817.028
    
    [GRAPHIC] [TIFF OMITTED] T8817.029
    
    [GRAPHIC] [TIFF OMITTED] T8817.030
    
    [GRAPHIC] [TIFF OMITTED] T8817.031
    
    [GRAPHIC] [TIFF OMITTED] T8817.032
    
    [GRAPHIC] [TIFF OMITTED] T8817.033
    
    [GRAPHIC] [TIFF OMITTED] T8817.034
    
                                 

    Chairman BOUSTANY. Thank you, Mr. Miller.
    Ms. Olson, you may proceed.

    STATEMENT OF NINA E. OLSON, NATIONAL TAXPAYER ADVOCATE, 
                    INTERNAL REVENUE SERVICE

    Ms. OLSON. Chairmen Boustany and Johnson, Ranking Members 
Lewis and Becerra, and Members of the Subcommittees, thank you 
for inviting me to testify today about 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, however, identity theft 
continues to pose significant challenges for the IRS.
    I will highlight five points that I think deserve 
particular emphasis. First, I am concerned that the Federal 
Government continues to facilitate tax related identity theft 
by making the Death Master File, a list of recently deceased 
individuals that includes their full name, SSN, data of birth, 
date of death and the county, State, zip code, maybe, maybe 
not, of the last address on record. There is some uncertainty 
about whether the Social Security Administration has the legal 
authority to restrict public access to DMF records in light of 
the Freedom of Information Act. For that reason I strongly 
support legislation to restrict public access to the DMF. 
However, I believe the SSA has at least a reasonable basis for 
seeking to limit public access to the DMF under present case 
law under FOIA and if legislation is not enacted soon, I 
encourage the SSA to act on its own because everyday we delay 
taxpayers are harmed.
    Second, I am aware that some State and local law 
enforcement agencies would like to access the taxpayer return 
information to help them combat identity theft. I have 
significant concerns about loosening taxpayer privacy 
protections and believe this is an area where we need to tread 
carefully. But as I describe in my written statement, the IRS 
is piloting a procedure that would enable taxpayers to consent 
to the release of their returns in appropriate circumstances. 
In my view, giving taxpayers a choice strikes the appropriate 
balance.
    Third, I am pleased that this filing season the IRS has 
established a dedicated taxpayer protection unit to answer 
phone calls from legitimate taxpayers who have been caught up 
in our identity theft filters. However, for the week ending 
April 28th the level of service on this phone line was 24 
percent, meaning that only 1 out of every 4 calls was answered 
and those callers that did get through had to wait on hold an 
average of 1 hour and 21 minutes. More support for this unit is 
clearly required.
    Fourth, although my office has extensive knowledge about 
what victims of tax related identity theft experience as a 
result of handling tens of thousands of such cases, the IRS has 
been developing new initiatives in this area without seeking 
our input until late in the process. As a result the victims' 
perspective in several instances has not been given adequate 
weight in my opinion. For example, the IRS is moving away from 
using a single traffic cop to resolve identity theft cases, 
which may make the process more complicated for taxpayers to 
navigate and end up with cases falling into black holes.
    The IRS has also been very slow to develop procedures to 
assist victims of preparer fraud. Congress put the Office of 
the Taxpayer Advocate inside the IRS precisely to ensure that 
the taxpayer perspective is considered and when we are not 
adequately consulted the result is often that the IRS does what 
is best for the IRS rather than what is best for the taxpayer.
    Fifth, I note that even as the IRS is being urged to do 
much more to combat identity theft, taxpayers are clamoring for 
the IRS to process returns and issue refunds more quickly. 
While there is still room for the IRS to make improvements in 
both areas, these two goals are fundamentally at odds. If our 
overriding goal is to process tax returns and deliver refunds 
as quickly as possible for the vast majority of persons who 
file legitimate returns, it is inevitable that some identity 
thieves will get away with refund fraud and some honest 
taxpayers will be harmed.
    On the other hand, if we place a greater value on 
protecting taxpayers against identity theft and the Treasury 
against fraudulent refund claims, the IRS will need more time 
to review returns and the roughly 110 taxpayers who receive 
refunds will have to wait longer to get them, perhaps 
considerably longer. Alternatively, the IRS will require a 
considerably larger staff to enable it to review questionable 
returns more quickly. There really is no way around these 
tradeoffs.
    I appreciate the opportunity to testify today and would be 
happy to answer your questions.
    [The prepared statement of Ms. Olson follows:]
    Chairman BOUSTANY. Thank you, Ms. Olson.
    Mr. Black, you may proceed.

    [GRAPHIC] [TIFF OMITTED] T8817.035
    
    [GRAPHIC] [TIFF OMITTED] T8817.036
    
    [GRAPHIC] [TIFF OMITTED] T8817.037
    
    [GRAPHIC] [TIFF OMITTED] T8817.038
    
    [GRAPHIC] [TIFF OMITTED] T8817.039
    
    [GRAPHIC] [TIFF OMITTED] T8817.040
    
    [GRAPHIC] [TIFF OMITTED] T8817.041
    
    [GRAPHIC] [TIFF OMITTED] T8817.042
    
    [GRAPHIC] [TIFF OMITTED] T8817.043
    
    [GRAPHIC] [TIFF OMITTED] T8817.044
    
    [GRAPHIC] [TIFF OMITTED] T8817.045
    
    [GRAPHIC] [TIFF OMITTED] T8817.046
    
    [GRAPHIC] [TIFF OMITTED] T8817.047
    
    [GRAPHIC] [TIFF OMITTED] T8817.048
    
    [GRAPHIC] [TIFF OMITTED] T8817.049
    
    [GRAPHIC] [TIFF OMITTED] T8817.050
    
    [GRAPHIC] [TIFF OMITTED] T8817.051
    
    [GRAPHIC] [TIFF OMITTED] T8817.052
    
    [GRAPHIC] [TIFF OMITTED] T8817.053
    
    [GRAPHIC] [TIFF OMITTED] T8817.054
    
    [GRAPHIC] [TIFF OMITTED] T8817.055
    
                                 

 STATEMENT OF DAVID F. BLACK, GENERAL COUNSEL, SOCIAL SECURITY 
                         ADMINISTRATION

    Mr. BLACK. Chairman Johnson, Chairman Boustany, Ranking 
Members Becerra and Lewis, and Members of the Subcommittees on 
Social Security and Oversight, thank you for this opportunity 
to testify about identity theft.
    With the exception of an 8-month deployment to Afghanistan 
between 2010 and 2011, I have served as the General Counsel of 
the Social Security Administration since November 2007. I also 
serve as the senior agency official for privacy.
    The agency maintains sensitive and personal information on 
almost every American and takes seriously its responsibility to 
protect it. I can attest to the agency's tireless efforts to 
protect the personal information the public has entrusted to 
it.
    Let me begin by reiterating Commissioner Astrue's recent 
testimony before the Social Security Subcommittee that the 
Administration is committed to strike any balance between 
transparency that helps prevent fraud and protecting 
individuals from identity theft, which is consistent with the 
framework for Chairman Johnson's bill, H.R. 3475.
    Since Commissioner Astrue's testimony we have submitted to 
the subcommittee specifications for a bill that expresses the 
Administration's current thinking on how best to strike that 
difficult balance. We continue to stand ready to work with you, 
other agencies and interested organizations to advance a bill 
that promotes our common goals.
    We at Social Security do not generate death data. Rather, 
we collect it from a variety of sources so we can run our 
programs. We use death data to stop benefits and to determine 
eligibility for survivors benefits.
    Individuals and entities became aware that we were 
gathering this high value information. In 1978, Ronald Perholtz 
filed a lawsuit against us under the Freedom of Information 
Act, or FOIA, to gain access to the death information in our 
file. In 1980, the parties entered into a court-approved 
consent decree that required the agency to release to Mr. 
Perholtz the data requested in his lawsuit. The Department of 
Justice advised us that Congress had not provided an exemption 
to the FOIA or the Privacy Act that would justify withholding 
the data covered by the court-approved consent decree.
    In 1983, Congress added subsection (r) to Section 205 of 
the Social Security Act. This subsection requires us to collect 
death information from States to update our program records, 
provides the circumstances under which certain agencies may 
receive such information from us, and, notably, exempts the 
death information we receive from States from FOIA and the 
Privacy Act.
    However, Congress did not act to exempt from FOIA our 
release of death information we receive from other sources. In 
order for us to manage the demand for FOIA requests and for 
death information and because we had no legal basis to withhold 
the information, we created a file that we could make available 
to the public. That file is commonly known as the Death Master 
File.
    Since 1992 we have provided that file to the Department of 
Commerce's National Technical Information Service, or NTIS, to 
distribute because NTIS functions as a national clearinghouse 
for a wide array of government data. NTIS reimburses us for the 
file under a contractual arrangement. NTIS recovers its 
dissemination costs by making the Death Master File available 
to 630 entities, including banks, hospitals, universities, 
insurance companies, and genealogical services.
    In addition, NTIS makes the file available for online 
searching by many organizations with similar requirements, but 
who do not wish to load the raw data on their internal systems. 
The financial services community in particular expressed a 
desire for this ability when the Ways and Means Subcommittee on 
Social Security and the Financial Services Subcommittee on 
Investigations and Oversight held a joint hearing on the Death 
Master File in November of 2001.
    Our practice involving the Death Master File remains 
legally sound based on FOIA case law, the Department of Justice 
FOIA guidance, and OMB's Privacy Act guidance. Any attempt to 
limit disclosure of death information under current law would 
undoubtedly spawn additional litigation. More importantly, we 
see no new judicial interpretation of FOIA or the Privacy Act 
that would allow to us withhold data on deceased individuals. 
Accordingly, the administration is seeking congressional action 
to exempt this information from the FOIA to protect countless 
Americans from the threat of identity theft through abuse of 
the Death Master File.
    Thank you for the opportunity to testify.
    [The prepared statement of Mr. Black follows:]

    [GRAPHIC] [TIFF OMITTED] T8817.056
    
    [GRAPHIC] [TIFF OMITTED] T8817.057
    
    [GRAPHIC] [TIFF OMITTED] T8817.058
    
                                 

    Chairman BOUSTANY. Thank you, Mr. Black.
    Inspector General George, your testimony referenced 
identity theft related tax fraud that might go undetected, and 
we heard some figures, IRS reports $6.5 billion in identity 
theft tax fraud for fiscal year 2011. You had a different 
figure that you laid out in your testimony. Can you just 
describe again the total amount of fraud in 2011?
    Mr. GEORGE. Yes. The figure that the IRS identified we do 
not contest. We have had the benefit of being able to look at 
the issue subsequent to the IRS's release of their figure. A 
perennial problem, Mr. Chairman, that the IRS confronts in 
their worthwhile effort to expedite refunds to the taxpayers 
they do not have either the benefit of or, whatever term I 
would defer to Mr. Miller to describe, the time to wait until 
all third party reporting information has been received by 
them, meaning W-2, 1099 and the like. And so when we looked at 
this number we were able to benefit from the fact that we saw 
the W-2s and the 1099s and that an additional $5.2 billion was 
on top of the number that the IRS reported. So it is almost 
double the problem that they initially reported, sir.
    Chairman BOUSTANY. Mr. Miller, do you want to comment on 
that?
    Mr. MILLER. Yes, I would actually. We don't disagree with 
the number that General George and the Inspector General are 
utilizing. I would point out that we probably do disagree with 
the large number over a 5-year period because what--and we 
received the report last week--what we see is actually a good 
story, not a bad story. It is true that money got out in 2010, 
which is the year they were looking at. The Inspector General 
utilized four scenarios to try to look through the data. The 
Schedule C work that they suggested we are now doing. The work 
on Social Security income we now have fixes in place for that. 
Interest income, which was a third of their rules that they 
were utilizing, we have what they are suggesting being done 
there as well. So I will say yes, it is true in 2010. The 
fourth piece was the W-2s are missing, and I think that is 
correct. What we have done is moved up by as much as a couple 
of months when we can look at those W-2s, but it continues to 
be less than optimal not to have all the data that we need to 
look at as a return is in front of us in determining whether it 
is fraudulent or not. But I think what we would see is a much 
lower number today because of the efforts that we have done 
than with 2010.
    Chairman BOUSTANY. So are you suggesting that the Inspector 
General's number was based on a snapshot before you implemented 
certain things that will have an impact on that 5-year figure?
    Mr. MILLER. Absolutely.
    Chairman BOUSTANY. Okay.
    Inspector General George.
    Mr. GEORGE. I have no information to contradict what he 
states.
    Chairman BOUSTANY. Okay. The subcommittee is not only 
interested in the size of the fraud but also in how we might 
prevent it from occurring and continuing to occur. And I would 
like each of you to comment on what Congress needs to do 
legislatively. We are all aware of Chairman Johnson's bill. I 
think there seems to be broad agreement that it is a good bill 
that needs to move forward. But what more do we need to 
consider to assist your agencies to combat this growing 
problem?
    Mr. GEORGE. Mr. Chairman, the new hire directory would be 
an immensely helpful tool for the IRS for a variety of reasons, 
but some of it is the fact that it would give the IRS a tool to 
determine whether or not someone who is claiming deductions or 
income for which they would seek a refund if they didn't have a 
job in the previous year or the year prior to that, you know, 
it raises alarm bells that the IRS can use internally to 
determine whether or not the information that they are 
supplying seeking the refund is valid, suspect, what have you. 
And this again, as was pointed out by Mr. Lewis, is something 
that has been sought for by both the various administrations 
and various Secretaries of the Treasury.
    Chairman BOUSTANY. Thank you. Mr. Miller.
    Mr. MILLER. So if I could add to that, I think the new hire 
database would be a great add, a new tool in our tool box in 
this area, not a panacea, none of these are panaceas to be 
honest with you. But we could use all the help we can get and 
that would be a good one. Another one actually is the Death 
Master File which is the subject of discussion today. We need, 
the IRS needs maybe 2 years without having a decedent's Social 
Security number in the public domain because a decedent has a 
filing requirement, the executor must file on behalf of the 
decedent for the year of his or her death. So we need a little 
bit of time, we can't just lock the account when we understand 
someone has passed. We have to allow that person to file with 
us.
    I will go back to obviously the big one for us is the 
budget. We could use any help that you can give us in terms of 
bridging some of the gaps we are seeing right now on the 
budget.
    Lastly, I will mention there is a little known provision in 
Section 6103, the tax privacy rules, that has expired, and that 
allows us to share information with prisons. And that allows 
the prisons to utilize that information in disciplinary 
hearings on people who are prisoners who are cheating, and we 
have 1990,000 returns from prisoners that we believe are 
fraudulent. That would help as well.
    Chairman BOUSTANY. Despite IRS's creation of a centralized 
identity protection unit, the Taxpayer Advocate reports at 
least 28 different units within IRS are charged with helping ID 
theft victims and sit on a somewhat bureaucratic maze. 
Taxpayers sometimes work more than a year to resolve their 
identity issues, according to TIGTA. I would like you each to 
comment on how this affects taxpayers and what changes could be 
made to streamline that process and better serve the victims of 
these crimes.
    Mr. GEORGE. As you can imagine, if you call American 
Express or any credit card company and you are relating a 
problem to them and every time you are requested to give the 
same information you gave the first time you called and to 
explain the problem over and over again, how frustrating that 
can be. While Mr. Miller pointed out that the IRS is providing 
additional resources towards this, we noted in our research, 
Mr. Chairman, that during the height of the tax filing season, 
people who are normally assigned to address identity theft 
problems were actually taken away from that responsibility and 
reassigned to answer tax questions that any citizen who 
rightfully has a question and calls the 1-800 number expects to 
receive. And so the identity theft issue is actually set aside 
for a while and then assigned to someone who may not have any 
information at all regarding that particular case. And so again 
the taxpayer has to start anew. And we think they could readily 
institute policies where you have a single individual assigned 
to a case and almost as many police departments do with 
detectives and the like.
    Chairman BOUSTANY. Mr. Miller, has that been considered?
    Mr. MILLER. It is in some fashion, but let me rephrase sort 
of the question. We have, the vast majority of the identity 
theft work we are doing with victims is when the person files 
and they are blocked from going through because somebody has 
stolen their identity and it has gone through first. That work 
resides--and it is anywhere between 150,000 or more of those 
cases--resides with a unit specifically working on those cases. 
I don't think we have pulled people off, we may have, but I am 
unaware of that. What I can say is with the number of cases 
that we had, we were understaffed. And so there is no question 
about that in terms of working through these cases. They are 
difficult cases. They can take anywhere between 40 days and 
what the Inspector General has mentioned on average right now 
they are taking 280 days, and that is about 250 days too long 
in probably all of our view. That is a question of staffing. We 
started the year working those cases with 200 people. Now the 
filing season is over, we will have 1,200 people working those 
cases.
    What I am trying to do is make sure that by the end of this 
calendar year nobody who has been a previous victim has the 
chance of being a victim again. We want to work that inventory 
during the summer.
    Chairman BOUSTANY. Thank you. And one final question, are 
there any practices in the private sector that we at the 
Federal level might adopt that would both limit tax fraud or 
better assist victims? Briefly if you could comment on that.
    Mr. GEORGE. Mr. Chairman, yes. The short answer is there is 
something called shared secrets. If you call again a credit 
card company in addition to asking for your name and your card 
number, they will ask many times your mother's maiden name or 
date of birth. The IRS simply doesn't do that and that is 
something that they can easily do. But just to go back to your 
earlier point, sir, something that is somewhat perverse in that 
the victim of identity theft reaches the point where the refund 
was sent to someone else's account, the thief's account, bad 
guy's account, information that is later sent by the IRS to try 
to resolve the information is sent to the same address as that 
which the thief provided. And so there is still even more of a 
chance of the unwilling or I don't think intentional divulgence 
of privacy information, personally identifiable information. So 
the IRS, there are certain commonsensical actions that I think 
are needed that I don't think would cost a lot of money but the 
IRS simply hasn't done.
    Chairman BOUSTANY. Thank you. Mr. Miller.
    Mr. MILLER. Just a couple points. One, I believe 
statutorily we have to at least start with the address the 
record that we have, and if it is the wrong address 
unfortunately that is the address we probably will have to send 
it to. We do follow up and we work these cases. It is one the 
barriers we have.
    In terms of shared secrets I think it is a wonderful idea 
and we are working on it. I don't think it is cheap, quite 
frankly. We don't have a database sitting there waiting to be 
utilized for this. Part of our authentication process I hope to 
roll out before the next filing season, but it is not a small 
list to be honest with you.
    Chairman BOUSTANY. Thank you. I now yield to Mr. Lewis the 
ranking member of the Oversight Subcommittee.
    Mr. LEWIS. Thank you, Mr. Chairman. Let me thank each 
witness for being willing to testify and being here today. 
Thank you so much.
    Inspector General George, your written testimony states 
that the IRS has faced budget cuts, a hiring freeze, and staff 
reductions during the same time it has encountered a large 
surge in identity theft refund fraud. Is identity theft 
something that the IRS is fully able to combat given its 
resources and budget constraints?
    Mr. GEORGE. Notwithstanding and again obviously, sir, you 
understand the role that I play.
    Mr. LEWIS. I understand your role very well.
    Mr. GEORGE. Where they can make improvements. 
Notwithstanding all of my statements, I would have to give the 
IRS credit in this area. They are doing a better job in terms 
of assisting people who are victims of identity theft and in 
terms of improving processes, but they obviously could do a 
better job and there is no question that if they had additional 
resources they could do more and do it better.
    Mr. LEWIS. But do you have any suggestions or 
recommendations of what amount of additional resources would be 
helpful to the IRS?
    Mr. GEORGE. That I don't have at this time, sir.
    Mr. LEWIS. Mr. Miller, in your original testimony you 
stated that in some cases identity theft, the identity that is 
stolen may belong to a deceased individual. Why doesn't the IRS 
immediately turn off Social Security numbers of deceased 
individuals?
    Mr. MILLER. Mr. Chairman, Mr. Lewis, we can't do that. As I 
mentioned, a person who died in 2011 will have to have their 
executor file a tax return in their name, and so if I passed on 
the 1st of January, for example, all the way through the 
extension date of October 15th of the next year, there is a 
possibility that that decedent will have to use their Social 
Security number to file their return. We have filters in place 
to try to make sure that those returns coming in are not 
fraudulent, but it is impossible for us really to lock that 
account down until that final return has been filed.
    We are marking them as best we can at this point, but we 
can't just block that social until they no longer have a filing 
requirement with us.
    Ms. OLSON. If I might add, sir, if you are a surviving 
spouse, under the law you are able to file married filing 
jointly with your deceased spouse for the year of death, and I 
believe 2 years after the year of death, if you do not remarry. 
So that is really three, you know, the year of death, plus two 
more years that in certain instances, you would need the Social 
Security number to be live.
    Mr. LEWIS. Thank you, Ms. Olson. Mr. Miller, you further 
stated in your written testimony that the IRS has a significant 
increase in refund fraud involving identity theft. Given your 
budget cut, how do you address identity theft and keep up with 
your current workload? I understand that the telephone service 
is suffering with identity theft victims waiting over 1 hour to 
speak with someone. What else is suffering?
    Mr. MILLER. So it is a zero-sum game. We have a dollar to 
spend on various things, and we have gone from, our estimate 
would be maybe $190 million in 2011 to $330 million this year 
on these issues. So obviously, service is stretched; 
enforcement is stretched. We are making sure we fund what we 
need to fund to have a fair and equitable, balanced program of 
service and enforcement. But there is no doubt that we are 
stretched.
    And I would speak a moment on the line that everyone refers 
to. Nothing to be proud of for us, obviously. It is not a 
defensible position to have that low ability to answer the 
phone. We have taken steps to address it. We are right now in 
the 70s, because we have put another 100 folks on that line, 
but it took a while to do that. We had to wait for the filing 
season, to be honest with you, before we pulled people off and 
put them on that line. And that is the line, by the way, we 
should be clear, that is not the line that if I am the subject 
of identity theft, I pick up and the phone and call the 
service. That line, seven out of ten people are getting through 
and we are doing much better on. This is the line where we sent 
something to the person saying, your return is being held up, 
we have some questions. That is the line that we frankly were 
swamped on, and have now taken appropriate steps, late but 
appropriate steps to try to get past that backlog.
    Mr. LEWIS. Thank you. Now, Miss Olson in your testimony you 
stated that a broad perspective is needed on the IRS's overall 
mission, and the challenges and tradeoffs that a tax-related 
identity theft present. Please explain. Can you explain to us 
further? Can you inform and educate Members of the Committee?
    Ms. OLSON. We were trying to raise a really broad policy 
issue, which is the conflict between the fact that we have 80 
percent of our individual taxpayers getting refunds and they 
want them quickly, and then the need of the IRS to basically 
screen returns, and rout out identity theft or other refund 
fraud and make sure we are protecting the government fisc, and 
those two issues are inherently in conflict. And part of my 
raising this was to say we should perhaps consider, and this a 
very big issue, doing what many other countries do in their 
filing season, which is that they actually delay the date of 
issuance of refunds until after the return filing season is 
over. So you know that, you know if the return filing season is 
going to end on April 15th, and refunds are going to be issued 
on June 1st, or June 15th, then the IRS would have the time to 
do the matching with the information return documents, and 
things like that, and that you would be much more likely to 
have the legitimate refunds going out.
    That is a very big issue, but I think that is about the 
only way that you are really going to resolve these competing 
tensions, the need for refunds, and then the need to protect 
revenue.
    Mr. LEWIS. Thank you. Thank you, Mr. Chairman. I yield 
back.
    Chairman BOUSTANY. I thank the ranking member.
    Chairman JOHNSON.
    Chairman JOHNSON. Thank you, Mr. Chairman. Before I get to 
any of my questions I would like to briefly speak about a tax 
fraud issue I have been working on for over 2 years.
    Mr. Miller, the other week NBC Indianapolis, Station WTHR 
ran a report entitled: ``Tax Loopholes Cost Billions.'' 
According to the report, the IRS is handing out refundable 
child tax credits to illegal immigrants who are claiming 
children who don't even live in the United States.
    Without objection, I would like to submit that report for 
the record.
    Chairman BOUSTANY. Without objection.
    [The report follows, The Honorable Sam Johnson #1:]

    [GRAPHIC] [TIFF OMITTED] T8817.059
    
    [GRAPHIC] [TIFF OMITTED] T8817.060
    
    [GRAPHIC] [TIFF OMITTED] T8817.061
    
    [GRAPHIC] [TIFF OMITTED] T8817.062
    
    [GRAPHIC] [TIFF OMITTED] T8817.063
    
                                 

    Chairman JOHNSON. It is outrageous that by all accounts the 
IRS is simply turning a blind eye to this type of fraud which 
is costing the American taxpayer billions. Now the IRS has said 
it doesn't have the authority to require Social Security 
numbers for this refundable tax credit. However, as you well 
know, one of the requirements for the child tax credit is for 
the child to actually live in America. Unfortunately, it does 
not appear that the IRS is enforcing this simple requirement, 
and I feel that is unacceptable.
    As you well know, I have got a common-sense measure to stop 
the IRS from giving out refundable child tax credits to illegal 
immigrants by requiring tax filers to provide their Social 
Security number. It is my hope that we will finally pass this 
into law. Until we do so, I fully expect and call on the IRS to 
do all it can to stop this, multi-million dollar fraud. I think 
the taxpayer deserves no less, and I think you agree with me.
    Mr. O'Carroll, criminals seem to always be one step ahead 
of us, particularly when the government makes it easy for them. 
Can you tell us more about the case in Puerto Rico and why 
obtaining Social Security numbers of those from Puerto Rico are 
so valuable?
    Mr. O'CARROL. Yes, Mr. Chairman. As you are saying, it is a 
commodity out there, the misuse of the SSNs, and SSN 
information, and what happened in Puerto Rico is that there was 
a theft of a lot of birth certificates and other identifying 
documents that went on to the black market and were sold and 
then were used for people to basically adopt identity and adopt 
identities of children from also school records that were taken 
from there, and both were being then used for identity theft 
and fraud. And we have been, again, very keeping, I guess the 
law enforcement community is informed of this and trying to 
keep as much information out there to keep it from becoming too 
widespread. And we think that probably through the sharing of 
information it has been contained.
    Chairman JOHNSON. Given your experience, are there other 
ways, in addition to ending the public availability of the 
Death Master File, that you could recommend for fighting tax-
related fraud resulting from identity theft?
    Mr. O'CARROL. Yes, I can. As I had said in my oral 
testimony, most of it is common sense on the part of 
individuals, not to be, you know, be phished into giving 
information out to people that you don't know, to safeguard 
your Social Security number. Don't carry it with you. Shred any 
personal information that has your identifiers on it so that it 
is not going to be, you know, picked up by something doing the 
dumpster diving and trying to get your personal information. So 
we try at every opportunity that we can when we talk to people 
at our hotline is to give that information out, is that it is a 
valuable commodity and to safeguard your Social Security number 
whenever you can.
    Chairman JOHNSON. Thank you. Ms. Olson, I know in your 
annual report to Congress you supported legislation to limit 
public access to the Death Master File, and you also suggested 
Social Security might have legal authority to limit access to 
the Death Master File, but when Social Security tried to simply 
remove the zip code from the file, the agency was besieged by 
inquiries and lawyers. Protecting personal information by 
limiting access is Congress' responsibility.
    Isn't eliminating the publication of the Death Master File 
as we propose the best way to make sure none of the information 
about the deceased is made public?
    Ms. OLSON. Sir, I support having a legislative solution to 
this. I think that that is the cleanest and least controversial 
approach, but my concern is, as I said in my oral testimony, 
every single day that we do not have that legislation taxpayers 
are being harmed. And my reading of the case law since the 
1980s, although there may be litigation over the Social 
Security withholding this information, my reading of the United 
States Supreme Court case law is that there are exemptions that 
would cover Social Security withholding that information, and 
Social Security would prevail. So that is my point, is that we 
could take administrative steps as we are trying to get the 
more perfect solution, which is legislation.
    Chairman JOHNSON. Thank you, ma'am. Thank you, Mr. 
Chairman.
    Chairman BOUSTANY. Mr. Becerra, you are recognized.
    Mr. BECERRA. Thank you, Mr. Chairman, and thank you all for 
your testimony. Let me first submit for the record a couple of 
matters, Mr. Chairman. I would like to submit a letter from 
April the 17th, 2012, by the United States Conference of 
Catholic Bishops opposing, as they say, our strong opposition 
to unfair proposals that would alter the child tax credit to 
exclude children of hard-working immigrant families, and a 
January 30th, 2012, New York Times editorial which also opposed 
the unfair proposal to target hard-working immigrant families 
on the child tax credit and it is titled: ``A Harder Squeeze on 
the Poor,'' for the record.
    Chairman BOUSTANY. Without objection.
    [The letters follow, The Honorable Xavier Becerra #1, The 
Honorable Xavier Becerra #2:]

[GRAPHIC] [TIFF OMITTED] T8817.064

[GRAPHIC] [TIFF OMITTED] T8817.065

                                 

    Mr. BECERRA. Miss Olson, you are the Taxpayer Advocate. 
Let's make sure we are clear. That doesn't mean you are the 
IRS's advocate before Congress. It means you are the advocate 
for the millions of Americans who file voluntarily their tax 
returns to pay their taxes.
    Ms. OLSON. Yes, sir.
    Mr. BECERRA. So you are the eyes and ears for Americans who 
can't afford to be in D.C. to talk to Congress every day.
    Ms. OLSON. Right.
    Mr. BECERRA. Okay. You have said that the number one most 
serious problem facing the IRS is underfunding, or as you put 
it, the IRS quote does not adequately--``is not adequately 
funded to serve taxpayers and collect taxes.'' You have said 
that today. You have said it before.
    $300 million less in funding this year for the IRS than in 
last year's budget. IRS is dealing with workloads that are 
increasing with 5,000 fewer employees than it had before, so to 
combat fraud, take care of taxpayers' filings, fewer employees. 
Does anyone disagree with what Miss Olson has said that the IRS 
is not adequately funded to serve taxpayers and collect taxes? 
And I would actually ask the two IGs, Inspectors General, do 
you, either of you disagree with Miss Olson's statement that 
the IRS is not adequately funded? And I am not going to get 
into the whole thing, but I am just wondering, do you think 
they have got enough money or they don't?
    Mr. GEORGE. As was stated by Mr. Miller----
    Mr. BECERRA. Mr. George, I am going to run out of time real 
quickly. I can get into it more, but I am just wondering, do 
you concur or not with Miss Olson?
    Mr. GEORGE. No. I have not conducted an assessment as to 
the adequacy of IRS funding.
    Mr. BECERRA. So you can't pass judgment, that is fair. 
Okay, Mr. O'Carroll.
    Mr. O'CARROL. I am focusing more on Social Security's 
funding than IRS, so I am not going to weigh in there.
    Mr. BECERRA. Maybe we should ask the IGs to examine whether 
or not the IRS is adequately funded. Mr. Miller, you said that 
no doubt we are stretched. You just said that a few minutes 
ago, and so I think you would concur with Miss Olson that your 
budget is strained and you are trying to do as much as you can 
with what you have when you are answering only one out of every 
four phone calls from folks who are calling about identity 
theft, and those who do get their phone call answered are 
waiting more than an hour on hold. I suspect you are distressed 
having to deal with that type of outcome.
    Mr. MILLER. We are. That is a disappointment to us as well 
as to the taxpayer.
    Mr. BECERRA. Okay now, so let me ask this. I think Mr. 
George, it was in your testimony that you said that with $32 
million in additional funding to do some of this work on 
identity theft, we probably could collect some of the, or avoid 
paying out the $5.5 billion in refunds that were sent out based 
on fraudulent returns that involved identity theft. Is that 
correct?
    Mr. GEORGE. That is, yes, that is my testimony, sir.
    Mr. BECERRA. So for a tenth of the money that the IRS 
didn't get of the $300 million, they could actually get us back 
$5.5 billion?
    Mr. GEORGE. Yeah, the return on investment, you know, is 
something that in many of the activities that the IRS engages 
in would benefit them in terms of getting more of taxpayer 
dollars back to the Treasury. There is no question about that, 
sir.
    Mr. BECERRA. Is there a more clear definition of being 
penny wise and pound foolish than to cut the IRS millions of 
dollars and cost the taxpayers at the end of the day billions 
of dollars?
    Mr. GEORGE. There is no question that if the IRS received 
additional resources, it could do more.
    Mr. BECERRA. I appreciate that. Let me ask Miss Olson and 
Mr. Black to engage in a bit of a colloquy with me in the time 
I have remaining. Okay, Miss Olson, you said you think IRS has 
the ability to restrict some of the Death Master File 
information from getting out there without having to resort to 
Congress for a change in statute. Mr. Black, you say you don't 
believe that authority exists and you have to abide by the 
existing laws. And you also mentioned--I don't think you 
mentioned, but it seems like you would need to be defended if 
you were sued because you tried to restrict, as Miss Olson 
said, some of that information. The Department of Justice 
ultimately would have to take on your case and defend you in 
court if you were to restrict access to that information 
because someone, a consumer, a business, decided to sue you 
because all of a sudden you were restricting access to that 
Death Master File.
    Can I ask a question? Why not talk to each other? Why not 
ask Justice to sit in a room with you all instead of asking us 
to perhaps write a new law; can we find out if Justice first 
would defend you in court and say, yeah, I think there is a 
case here. If they say no, we wouldn't defend you, then I think 
it is clear, Miss Olson, that we need to have a new statute. 
But at the end of the day, every day that we don't restrict 
access, someone is using information to commit fraud, and it 
seems to me that it is almost--I hate to say this--but it 
almost would be worth testing how far we can take the existing 
laws on privacy to see if you can start restricting--give 
legitimate stakeholders, there are a lot of insurance 
companies, a lot of others--and I will conclude with this, Mr. 
Chairman--a lot of others who need to have access to the Death 
Master File so fraud isn't committed against them. I know an 
insurance company would say, wait a minute, if we can't have 
access to this information, fraud will be committed against 
consumers by people using it, without us having the correct 
information. So I think we have to be careful, but giving 
legitimate stakeholders access to the information. Let's test 
the limit so that we can avoid this and if ultimately we find 
that the statutes aren't sufficient to restrict access to 
private information, then Congress will be better guided. But 
would you be willing to reach out to Justice and perhaps report 
back to Congress on what conversations between IRS, Taxpayer 
Advocate, SSA, and the Department of Justice would turn up?
    Chairman BOUSTANY. Briefly.
    Mr. BECERRA. Yes. I apologize, Mr. Chairman.
    Mr. BLACK. It is difficult for attorneys to be brief, but 
yes, we would be happy to discuss this with Justice, but as 
both the chairman and yourself have pointed out, there is both 
positive and negative uses of the Death Master File.
    Mr. BECERRA. Okay.
    Mr. BLACK. We would prefer the legislative approach that 
strikes that balance between the two, and we would prefer to 
leave a decision like that made up to Congress as opposed to 
the courts determining what that proper balance is. I think the 
better approach is that Congress working with the 
Administration determines what that balance is about the 
appropriate access to the Death Master File versus the improper 
access to the Death Master File.
    Mr. BECERRA. And I probably should have added Mr. Miller 
since he is with the IRS as well, and I hope that Mr. Miller 
would be willing to work with Ms. Olson on that as well.
    Chairman BOUSTANY. The gentleman's time is expired. Ms. 
Jenkins.
    Ms. JENKINS. Thank you, Mr. Chairman. Thank you for holding 
this hearing and thank the panel for being here. And Mr. 
Miller, or in Mr. George's testimony, he states that their 
office has recommended that the IRS limit the number of tax 
refunds being sent to the same account, however, that IRS has 
not yet acted. And according to Mr. George, his office found 10 
bank accounts that had direct deposits of more than 300 tax 
refunds, which begs the question, you know, why hasn't it been 
fixed. So is it not possible for the computer system to flag an 
account after a threshold number of returns has been sent?
    Mr. MILLER. So I believe it is possible. It does make sense 
to look at that. There--I will start by saying it is not 
exactly the IRS that would be doing this, but FMS, but it is 
part of Treasury, so it can be done. The issue is a little more 
complex than just doing that, however, because there are 
numerous accounts that will receive multiple refunds, including 
tribes, for example, return preparers, so we would have to find 
a way to figure out who is whom in that area as we move 
forward. We did go down this road once before to a bit of a 
muddle, but we are going to look at it again, absolutely.
    Ms. JENKINS. Okay, thank you, and could maybe one or more 
of you just comment or explain the interaction between the 
Department of Justice, local law enforcement, and your agencies 
when identity theft-related tax fraud occurs and kind of walk 
us through a typical investigation and prosecution of how law 
enforcement interacts with one another when this occurs?
    Mr. O'CARROL. Ms. Jenkins, I will take this at least to 
start. We work very closely, or our office and our 
investigators work very closely with the Department of Justice 
and we are on 45 national task forces that are out there trying 
to, you know, on identity theft, bankruptcy, and through that 
we try to assist, you know, local law enforcement with the 
information on it. We are able to share a lot of our 
information with them. They share their information back. One 
of the things we have a little bit of a limitation on is 
anything in relation to IRS data we don't share and we can't 
share with law enforcement, but we share all of the information 
that we have from Social Security on it. We are very proactive 
with it. We try to work with U.S. Attorneys' offices, and get 
the word out there that there is punishment for identity theft.
    Mr. MILLER. So if I could add on to that, we also work 
really very hard in this area. I mentioned that 400,000 hours 
of our criminal investigators' time is spent on identity theft. 
We have, as the Inspector General mentioned, we have numerous 
task forces that we are on. We have some issues. We have some 
issues with local law enforcement because 6103 works in a 
fashion that allows us to share taxpayer data with State 
enforcement officials if the State enforcement official is 
working on State tax. If it is a tax charge that they are 
working on, and so in States like Florida, for example, where 
there is no State income tax, there is a gap in what we can do. 
What we have tried to do, and local law enforcement has been 
very vocal and annoyed with us, 6103 makes it difficult. We 
have just started a path forward that I think will help, and 
that is where you have been a victim and want to help local law 
enforcement we will go to you. We will say, do you mind if we 
share? Do you waive your right to 6103 privacy on behalf of the 
local law enforcement official? So far, very early to be able 
to tell whether that is going to work or not, but our attempt 
there is to help local law enforcement, but it is a difficult 
path.
    Ms. OLSON. I was going to say, if I might add, another 
thing that local law enforcement and the IRS are doing now 
including the--and also the Department of Justice, is where 
someone has identified a scheme and the IRS is not yet involved 
in it, and they get lists of people's numbers that have been 
compromised, the IRS now has a place for those lists to go to 
and, you know, the taxpayer accounts get an identity theft 
marker because we know that they are possibly compromised even 
if they haven't been actually yet with us. Again, that takes 
more resources, more people to enter those markers, and that is 
sort of on the bottom of the pile. But at least there is that 
protective device that is going on now.
    Ms. JENKINS. Okay, thank you, Mr. Chairman. I yield back.
    Chairman BOUSTANY. Mr. Stark, you may inquire.
    Mr. STARK. Thank you, Mr. Chairman, both chairmen for 
holding this hearing, and thank the witnesses for being with us 
today.
    Just my very first question would be directed towards Mr. 
Miller, and you could just send us a note. I would like to know 
during that hour and 20 minutes that I might have to wait what 
music you play, and do you pay your ASCAP fees on that? That 
would be helpful to know what days to call.
    On a more serious note, directed towards Mr. Black and Mr. 
O'Carroll. Something that we have talked about before, but 19 
States are stealing basically about $6,000 bucks a year per 
foster care child. What happens, those of us who have children 
who receive Social Security payments, my own case, my young 
three children, because of my age and that I am on Social 
Security. Many States unhappily, including our own State of 
California, take that money from foster care children and dump 
it into the State general fund, and they don't fill out the 
annual form that you require me to fill out saying what did I 
do with that money? Did I save it for the child? Where is it 
now? How much is saved? Did I spend it? What did I spend it on?
    You are not requiring the States to do that. And 
consequently, we have, as I say, I think it is about 19 States 
now that are taking the money that should be set aside. These 
kids when they turn 18 might very well have 15- or 20,000 bucks 
which they could buy a car, go to college, do a lot of things, 
and the State is just using it to pave potholes and pay the 
Governor's salary. That is unfair. And I would like to ask Mr. 
Black, what are you going to do to see that the States obey the 
law and fill out the form and return it to you so that you can 
see that those foster children, whose money that is, receive it 
when they mature out of foster care?
    Mr. BLACK. Congressman Stark, unfortunately I spent all of 
my preparation time getting into the ins and outs of the Death 
Master File, but when I return I will sit down with our policy 
folks, the Office of General Counsel will look at that issue 
and submit a response for the record.
    [The information follows, David F. Black]

    [GRAPHIC] [TIFF OMITTED] T8817.066
    
                                 

    Mr. STARK. Because it is the law, and it takes enforcement. 
And Mr. O'Carroll, you are also familiar with this.
    Mr. O'CARROL. Yes, I am because I met with you one time. We 
talked about it. And to be truthful on it, we haven't done our 
audit work on it. As a result of your bringing it up to me, it 
is on our list for our work plan for next year.
    Mr. STARK. It started with Mr. DeLay and myself. I mean, 
this is an issue, as I say, for the poorest of the poor, the 
kids who need it most. And as I say, I am sorry the States are 
doing this, but I want to see that they get what they deserve 
and receive the funds they should. So I can fill in any of my 
colleagues on the details of their own State, but this is 
something which I guess we have oversight on, and I would like 
to see that these children somehow get that money saved or the 
State does. Now, they may need mental health care, which would 
be a logical thing for this money to be spent on that, special 
hospitalizations, special treatments. Any of those things are 
valid ways to spend it, but I am afraid the States who assume 
the locus parenti for these kids don't do it. And I hope that I 
can encourage both of you to look into this more and see that 
these children get the savings and the funds they deserve.
    I am sorry to digress, Mr. Chairman, but it is an important 
issue for young kids. Thank you very much. I thank the 
witnesses.
    Chairman BOUSTANY. I thank the gentleman. Miss Black.
    Mrs. BLACK of Tennessee. Thank you, Mr. Chairman. Mr. 
Miller, I have a question for you. In Mr. George's testimony, 
he says that the office has recommended that the IRS limit the 
number of tax refunds that are sent to the same account. 
However, the IRS has not acted on that, and according to Mr. 
George and his office, they found that 10 bank accounts had 
direct deposits of more than 300 tax refunds.
    Do you have any idea about how you can fix this, or do you 
have plans for fixing this so that you might be able to make 
that determination and helping to make sure that that one 
account doesn't get that kind of refund?
    Mr. MILLER. Well, Congresswoman, I have previously touched 
on this, but it is something we are working on, and it is 
something we will look at. We have tried to do that once in the 
past with mixed results. What I have mentioned is that there 
are absolutely valid reasons why a single account can be the 
recipient of many refunds. At the short end of it, it can be a 
family account for several people, all the way up through the 
fact that certain Indian tribes maintain an account for the 
unbanked within their tribal membership, and also return 
preparers. So we would have to find a way to know that that 
account was an account that was going to be able to receive 
many refunds, and we are going to work on that.
    Mrs. BLACK of Tennessee. I think with the exception of, as 
you say, maybe an Indian account, I think 300 tax returns for 
even a family would seem to be quite excessive. I mean, that 
would have to be a mighty large family to get 300 tax refunds.
    Mr. MILLER. Agreed, but the return preparers are another 
issue.
    Mrs. BLACK of Tennessee. Okay. Thank you.
    Mr. GEORGE. Miss Black, if I may just, in addition, because 
I didn't address this during my oral testimony. In addition to 
the issue that you just raised, we are finding a growing 
problem with the use of prepaid debit cards, and having Federal 
refunds, not only in the realm of the IRS, but Social Security, 
and other governmental benefits going to these prepaid cards 
which people can literally buy at stores and bodegas and the 
like, and finding growing examples of fraud associated with 
that, with very little oversight being conducted by anyone on 
this area. And so again, I have to continue my response by 
saying tax policy is an issue that the Secretary of the 
Treasury has given solely to the Office of Tax Policy, so I am 
not in a position to give you any policy advice on this but I 
did want to make this committee aware of a growing problem in 
an area that is, you know, something that is beneficial, not 
everyone has a bank account, but at the same time it is being 
used inappropriately.
    Ms. OLSON. If I might comment on that, please.
    Mrs. BLACK of Tennessee. Sure.
    Ms. OLSON. My office has recommended in the past that just 
as you have a Social Security debit card to load benefits for 
the unbanked onto that, that the government should have a 
Federally funded, you know, card for people to get their 
refunds on, those unbanked individuals. And that card would 
only be available if they went into a financial institution and 
produced evidence of identity and things like that; rather than 
clicking a button on a software package, you know, software 
package that sent you a card without any identification 
information, and it just came to you in the mail. And I think 
that might be one way to reach the balance between trying to 
get the unbanked into the banking system, but also protecting 
us against identity theft in some way. We can learn from Social 
Security on that.
    Mrs. BLACK of Tennessee. Mr. George?
    Mr. GEORGE. Yes, Mrs. Black. There is no question that the 
IRS and Treasury should be working with financial institutions 
to develop policies. This is an issue that is of importance, as 
Ms. Olson just noted, and it is something that is resolvable. 
It is something that we think can be addressed, but just simply 
isn't being done so.
    Mr. MILLER. And if I could just add on a little bit. We are 
working with financial institutions. I do not want to give the 
subcommittee the view that the debit card companies and that 
the financial institutions are not working with us. They 
absolutely are and they have been very helpful. We are not as 
far as we need to be yet, but they are working with us.
    Mrs. BLACK of Tennessee. And Mr. Miller, is there any idea 
about when, I mean, I hear you say you are working on this, but 
obviously time is of the essence, because there is so much of 
this going on. Do you have any idea about when you might be 
able to come up with some resolution that would help us, 
because we are obviously at tax season and I can just imagine 
how much is happening right now.
    Mr. MILLER. Well, it has happened already, Congresswoman, 
so we have a little bit of time but not that much time to 
prepare for the next filing season.
    Mrs. BLACK of Tennessee. Yeah.
    Mr. MILLER. But as I have mentioned I think to the 
subcommittees, there is no panacea here, and really should 
not--absent some ability of the community to act in a fashion 
that doesn't allow a Social Security number to be stolen, the 
service will always be working in small places to do things to 
stop this. There is no one single thing that we can do to stop 
identity theft.
    Mr. GEORGE. But if I may just close on this. The exact 
problem that you noted regarding 300 refunds going to a single 
account, you are having-- while I don't have an exact number, 
but we do know that many additional tax refunds are going to a 
single debit card, so it is really, it is a mirror image of the 
problem.
    Mrs. BLACK of Tennessee. Sure. Thank you, Mr. Chairman. I 
yield back.
    Chairman BOUSTANY. Mr. George, let me put on the record 
that over a year ago, a letter to, I think it was Secretary 
Geithner, expressing major concerns about the debit card issue 
and the potential for fraud, and the responses have been very, 
very slow on that and we are still pushing to get further 
information on the potential problems with the use of these 
debit cards.
    Mr. GEORGE. I was unaware of that. Thank you, Mr. Chairman.
    Chairman BOUSTANY. We will get a copy of the letter to you.
    Mr. GEORGE. Thank you, sir.
    Chairman BOUSTANY. Thank you. Mr. Paulsen, you are 
recognized.
    Mr. PAULSEN. Thank you, Mr. Chairmen. I want to thank you 
and the ranking members for holding our hearing today. And the 
topic of identity theft is certainly very important and we need 
to be doing all that we can to combat the problem. I remember 
last week in Minnesota, actually I held an identity theft 
seminar with the Minnesota Financial Crimes Task Force for 
seniors, and I will tell you the object was to give them 
insight on how to better protect themselves, and it was a 
packed house. The line was overflowing out the hallway. In 
fact, they were so interested in getting information that they 
hung around for an extra hour, so we ran over time. And I think 
one way we can help protect, certainly seniors, is to remove 
that Social Security number from that Medicare ID card. And I 
am cosponsor of Chairman Johnson's legislation. I thank him for 
bringing that forward and working on that issue.
    But I do want to turn for a moment, if I could, to fraud 
and ID theft in the area of tax returns, in particular, and 
Miss Olson, in your 2011 report to Congress, you gave that 
outline on an issue regarding tax fraud where the tax preparer 
fraudulently alters a completed tax return and then retains the 
illicit benefit without the knowledge of the taxpayer even. And 
you recommended an increase in the penalty to give greater 
incentive to go after these fraudulent preparers, and so today 
actually, along with Mr. McDermott and both the chairmen and 
the ranking member of the Oversight Subcommittee, we are 
introducing legislation, the Fighting Tax Fraud Act, which 
essentially doubles the current penalties, giving greater 
incentive for prosecutions against this type of theft.
    So Commissioner, I want to thank you and your office for 
your diligence and being a great resource to not only myself 
but my staff throughout the drafting process, and I am just 
wondering if you could talk a little bit more about what you 
saw that encouraged you to add this as one of your top 10 
recommendations, essentially.
    Ms. OLSON. Well, the IRS is seeing many more of these 
schemes coming in involving return preparers that are filing 
tax returns, after the taxpayer has approved the return and 
they actually have a copy of what they think is going to be 
filed, the preparer alters the return in some way and then uses 
the split refund procedure to get the difference in the 
additional refund deposited into their account. The taxpayer 
doesn't find out about this until much later. They get the 
refund that they are expecting and it is only until the IRS 
comes out trying to collect this erroneous refund from the 
taxpayer that they find out that the return has been altered. 
And what we learned was really to go after the preparer you 
have some very-low dollar civil penalties that are really about 
negligence, and then you have a very expensive route, which is 
to try to build a case to get to the Department of Justice to 
bring a prosecution and get restitution for the dollars that 
are lost to the public fisc, and what we tried to propose was 
some sort of civil penalty that would really serve as 
restitution, where you could build the case that the preparer 
had, in fact, committed this act. It was fraudulent. It was 
willful and fraudulent and then the preparer would be 100 
percent liable for the amount that was erroneously taken out. 
So it fills a gap in our ability to recover what the public 
fisc is out, and it also heightens the risk to the preparer in 
engaging in this activity.
    Mr. PAULSEN. And so in these cases, as you mentioned, the 
taxpayer doesn't really know that he or she has been defrauded 
at all until they get the notice from the IRS letting them know 
that their returns were faulty, and this means that they are 
unaware that anything took place, actually for quite some time. 
So part of the problem in cases like this is that the return is 
going to two separate bank accounts, essentially?
    Ms. OLSON. It can go to two bank accounts, or as, you know, 
Commissioner Miller was saying, it can go to the preparer, the 
preparer could set up a bank account, and then distribute, have 
the return go to that bank account and then send to the 
taxpayer the amount that they are expecting. But either way, 
the taxpayer won't know that this is happening.
    Mr. PAULSEN. And other than doubling penalties to enhance 
the crackdown, or for enforcement of this, do you have any 
other ideas or suggestions on helping raising the flags earlier 
in the process to identify where the problems are? Do you have 
any idea what the prevalence of this type of a fraud activity 
might be out there?
    Ms. OLSON. It is very hard to know about this, but just 
recently the State of Illinois brought some actions against a 
large return preparation firm that also operates in many other 
States where they had identified some alleged fraud, and in 
fact, they contacted my office, and we all worked together with 
the IRS, myself, and the Illinois AG to develop a message for 
taxpayers who might be impacted by this.
    And I think to your point about a town hall, we would be 
more than happy to provide some information to all of the 
Members of Congress so they could go out in their town halls 
and alert taxpayers to this risk.
    Mr. PAULSEN. Good. Thank you, Mr. Chairman. I yield back.
    Chairman BOUSTANY. I thank the gentleman. Mr. Smith, you 
are recognized.
    Mr. SMITH. Thank you, Chairmen Johnson and Boustany, for 
holding this hearing and thank you to our witnesses. I do have 
a news article from my district that I would like to ask for 
unanimous consent to submit for the record.
    Chairman BOUSTANY. Without objection.
    [The news article follows, The Honorable Adrian Smith]

    [GRAPHIC] [TIFF OMITTED] T8817.067
    
    [GRAPHIC] [TIFF OMITTED] T8817.068
    
                                 

    Mr. SMITH. Thank you. Mr. O'Carroll, on the piece I 
submitted, and I assumed that you----
    Mr. BECERRA. Mr. Chairman, I hate to interrupt the 
gentleman, but could the gentleman identify the article, so 
we----
    Mr. SMITH. I am getting there. Thank you. It has to do with 
a student whose Social Security number was utilized by someone 
fraudulently.
    Mr. BECERRA. I thank the gentleman.
    Mr. SMITH. The Article I submitted has to do with a young 
man from my district, Corbin Russell, actually. He found when 
he went to apply for some student loans that he was denied 
because someone else had used his Social Security number to 
file a death claim in South Carolina over 2 years ago. And so 
now Social Security says that everything is fine with them, but 
with other agencies it is not yet. And so there is a lot of 
time that may need to pass before it is clarified or rectified. 
And so I was wondering why isn't there the automatic red flag 
on a tax return when the name and Social Security number do not 
match?
    Mr. O'CARROLL. I will take the first crack at it. In terms 
of, I am well aware of that, with the identity theft that was 
taken by your constituent, and again, we are concerned on SSA's 
information on it, when they get the--in this case we realized 
that it was falsely reported as death on it. SSA changed the 
record on it and from our standpoint, with SSA, I think we 
rectified his problem, which again now leads over to the tax 
issues, which I will----
    Mr. SMITH. Well, would SSA further take any action with 
other agencies, credit bureaus, and so forth, to correct that?
    Mr. O'CARROLL. I guess no, is the short answer on it, is 
that what SSA will do is, we will--and I will from, I guess 
advice to the individuals, they will give it to them. They will 
tell them how they can go about it. They will give them the 
record from SSA that can be used to be taken to other 
locations, but SSA isn't proactive in terms of going out to the 
credit bureaus and the financial institutions and even other 
government agencies on sharing any of the identity theft. It is 
probably a good concept in the future of sharing that type of 
identity theft, but we are not involved in it now.
    Mr. SMITH. Okay, anyone else wishing to comment?
    Mr. MILLER. Only to say that we do a name check with the 
Social as it comes into us on the return.
    Mr. SMITH. Okay. Mr. Miller, you have mentioned that the 
multiple refunds are mailed to tax preparers. Could you outline 
a scenario where that would be commonplace?
    Mr. MILLER. I think we are talking direct deposits, which 
would not be a mailing at all actually.
    Mr. SMITH. Okay, but transmitting multiple deposits to one 
entity?
    Mr. MILLER. So there are split refund accounts. My 
understanding is, and I can get back to the subcommittees on 
this, but, yeah, there are return preparers who have an account 
that receives sometimes the refunds of the clientele.
    Ms. OLSON. Sir, if I might. There is--preparers are barred 
from negotiating a check or a deposit for the taxpayer. There 
are serious penalties about that, but where taxpayers are 
unbanked, there may be an account set up where the refund can 
be direct deposited into it on behalf of the taxpayer, and 
then--and my understanding is, it is actually an account, or a 
subaccount for that taxpayer in particular, but it may be a 
larger account number and that might be where the problem is. 
But again, there are preparers, as I described earlier, who are 
actually violating the law, using the account, their account to 
receive the taxpayer's funds and then distribute it out.
    Mr. GEORGE. Mr. Smith, if I may, my office investigates 
many allegations such as what Miss Olson just outlined, where 
tax preparers have directed refunds from legitimate clients for 
their own benefit, in effect stealing money from their clients.
    Mr. SMITH. Thank you. Also, Ms. Olson, in your earlier 
testimony, you talked about perhaps holding refunds until the 
end of the filing season. Is the filing season basically 
January through the middle of April, or how would you define 
filing season?
    Ms. OLSON. Yes, January through April 15th, and I realize 
this is a radical suggestion, but I am trying to point the 
contrast, you know, the tension out between our dual 
responsibilities here. So, and it is basically the model that 
is followed by most large tax administrations that give out 
refunds in the world. They allow themselves time to do these 
reviews, you know, even waiting to see what kind of duplicate 
returns we get in. So the first to file isn't always the one 
that gets the refund. And then we freeze all the later ones.
    Mr. SMITH. Okay. Thank you, Mr. Chairman.
    Chairman JOHNSON. Mr. Chairman, I would like to submit for 
the record my letter to the editor to the New York Times 
editorial earlier submitted for the record, in response.
    Chairman BOUSTANY. Without objection.
    [The letter to the editor follows, The Honorable Sam 
Johnson #2]

[GRAPHIC] [TIFF OMITTED] T8817.069

                                 

    Chairman JOHNSON. Thank you, Mr. Chairman.
    Chairman BOUSTANY. Mr. Reed, you are recognized.
    Mr. REED. Thank you very much, Mr. Chairman, and thank you 
to the witnesses. Essentially, to everyone or anyone who would 
like to respond, in preparing for the hearing today, I was 
reading about the ability for the IRS to lock accounts on 
deceased tax filers. And I can appreciate that ability, because 
of the reports of millions of dollars worth of checks going to 
deceased folks and the issues that it represents in regards to 
waste, fraud, and abuse. And I was just wondering, is it 
working from any of your points of view, and would a more 
ambitious approach using tools such as that one help? Can 
anyone offer any----
    Mr. MILLER. So if I could start on that, Congressman. We do 
lock accounts of the deceased. As I have mentioned, there is a 
whole group of folks who have died within the last couple of 
years or even 3 years that still a filing requirement, so we 
can't really lock their account. We can run them through our 
filters.
    Mr. REED. But isn't that a filing number off the estate? 
Doesn't the estate have to get the taxpayer identification 
number rather than the Social Security number?
    Mr. MILLER. Right now they will be filing as an estate 
entity, and they will be filing as the last year of the 
decedent.
    Mr. REED. Okay, please continue. I am sorry.
    Mr. MILLER. And so locking accounts, marking accounts is 
what we are doing, running them through, running them through 
the filters, and we have caught like 90,000 questionable 
returns in the traps, is something we are pursuing now, and we 
will get better at it, but that is really where we are at this 
point. I think locking of accounts and getting smarter about 
filters is our best approach going forward.
    Mr. REED. So just so I am clear, when you lock that 
account, that is reported to the Treasury, so that if there is 
a refund due or anything like that, I know it is a little 
outside of the purview of the committee today, but does the 
Treasury still issue refunds when that account is locked?
    Mr. MILLER. No. The locking of the account means that 
basically that return is going to come in and it is not going 
to be able to be filed with us.
    Mr. REED. Okay. So now if there is an erroneous reporting 
on that filing, on that locked out account, what are the steps 
that you take specifically to make sure that that gets 
corrected, and what is the time frame upon which that 
correction occurs?
    Mr. MILLER. Sir, I don't know about the time frame. The 
approach would be, a person would call in and say you are not 
letting me file. I need to file. Generally what would happen at 
that point is we would ask them to file on paper and we would 
take a look at that return. And that will take a while, but 
that is the approach that we are taking at this point.
    Mr. REED. Because I believe Mr. George had mentioned that 
it can take IRS more than 1 year to resolve an identity theft 
case, right? So that is not what we are talking about here.
    Mr. MILLER. Could be, but, and if it is, it will take a 
while for us to work through that case. These coming in through 
paper are worked, I think, a lot faster especially if there is 
no first return that has come in.
    Mr. REED. Okay, so just looking forward, what could you 
offer to us, or what would be your best recommendation as to 
how to better enhance your ability to solve this issue or what 
would be the kind of the prioritization of additional tools 
that you could use in order to address the concerns?
    Mr. MILLER. So is this for decedents or for identity theft 
in general?
    Mr. REED. Let's do both if we could, decedents. I have got 
plenty of time.
    Mr. MILLER. I will roll through the list.
    Mr. REED. See, oh, there is the buzzer now. See look it, 
now we wasted some more time.
    Mr. MILLER. So obviously, we have talked about our budget, 
which is stretched pretty tight right now.
    Mr. REED. And I hear that one, I should--whenever I ask 
that question of any panel from the--I always hear resources, 
and need for money and people. Beyond that, because we have no 
money, and obviously, if you have no money you can't hire any 
people, so . . .
    Mr. MILLER. Well, if we have no money and we can't hire 
people then we aren't going to be able to do the IT things that 
I need either, Congressman, and that is going to be a very 
difficult place for the Internal Revenue Service to be.
    Mr. REED. Okay, so with the staff that you have, what 
authority, what tools could you be given to make your job more 
efficient so you could do it within the resources that you do 
have?
    Mr. MILLER. We have obviously talked about the Death Master 
File here, and we have talked a little bit about the new hires 
database. Both of those would be incremental improvements to 
what we do. There is also some expired statutory language 
around sharing with prisons taxpayer information so that we can 
do a better job of letting those prisons do disciplinary action 
with respect to prisoners. Those are sort of the things that we 
would be looking for, and to be honest, simplification would be 
a good thing for us and for taxpayers as well here.
    Mr. REED. Simplification of the actual----
    Mr. MILLER. Of the Code.
    Mr. REED. Excellent. Any other suggestions anyone had on 
either on death or identity theft cases? Mr. George, how about 
you?
    Mr. GEORGE. I would just note, and because this hasn't been 
discussed today, a lot of victims of identity theft don't know 
they are victims because they don't have filing requirements. 
And so that is something where I don't know whether it is the 
IRS or whether it is Congress needs to take a closer look at in 
terms of informing people who do not have a requirement to file 
a tax return, that they may need to check their credit records, 
or whether the IRS has a way of alerting them to something that 
they should be aware of, but that is an issue that needs to be 
looked at.
    Mr. REED. That is a great point. I appreciate you bringing 
that up, because eventually, hopefully, they will have to file 
because--in that position, and times will get better for them 
and then they can head off a lot of problems that they 
otherwise would have to deal with at that point in time.
    I see my time has expired, Mr. Chairman. I do appreciate it 
and I yield back.
    Chairman BOUSTANY. I thank the gentleman. Mr. Marchant, you 
are recognized.
    Mr. MARCHANT. Thank you, Mr. Chairman. Recently I had a 
phone call from a constituent that asked me to come over to his 
office. I went over there and sat down with him and he showed 
me next door where there was a storefront that, literally, 
there were people streaming into this storefront on a constant 
basis for the entire hour that I was there, in the middle of 
the day.
    And I asked him what his concern was, and he said, you 
know, this goes on for day after day, after day, after day, and 
in this case it was primarily Hispanic families. And he said, 
we share a common block of mailboxes. And he said, I, from time 
to time I will go to the mailbox to open my box up, and 
inadvertently the postal worker will have put some of the mail 
from this place next door into my mailbox. And then I look 
through it to see which is my mail and which is not my mail. 
And he says that there are dozens and dozens of IRS checks that 
are made out to various different people. And I have listened 
to the testimony today, and I don't know that I was able to 
decipher what this particular problem was but they were all 
using this same address of this tax preparer in this case. He 
asked me to look into it. Frankly, I did not know where to 
start in looking into it. I did not know where, what 
governmental agency to start with. The first was the IRS, but 
then after listening today to the panel, can you suggest to me 
what a Congressman should do when a constituent cares this much 
about how the system is being played and what action I might 
take, and then describe to me what possible fraud is going on 
in this case?
    Mr. Miller.
    Mr. MILLER. So if I could start, Congressman. So I would 
recommend that you do contact us. The postal inspector as well 
has lines that do this, and we work very well with the postal 
inspector. You know, in any given case I have no idea whether 
it is fraudulent or not because it may be that that is their 
mailing stop. That is where they are receiving their refund and 
they come back and grab it. It also is possible, obviously, 
that it is a drop for fraudulent returns that are being 
procured. So we wouldn't know in any given case. It certainly 
would raise our antenna, as it did yours, and we would look at 
it. So I would recommend coming to us. The postal inspector 
works with us very closely looking for exactly this sort of 
pattern and stopping a whole lot of these things.
    I will mention one other thing since we are talking about 
mail, and we have talked about debit cards and the problems on 
debit cards, but there is one thing I do want to make sure 
everyone is aware of. That debit card, when it goes out, when 
you order it online or however you are ordering it, it doesn't 
go out with money on it. So if we stop that refund, it never 
has money on it. That money goes into an account with sub-
accounts, as the Taxpayer Advocate mentioned, but it may be 
when you see these rows of cards that they are devoid of money 
on them. So that is another thing I will mention.
    Mr. MARCHANT. You mentioned earlier that a person can use 
pretty much any mailing address for his address for his return?
    Mr. MILLER. Generally not. I will have to come back. That 
is a specificity I don't have at my fingertips, so I will have 
to come back on that.
    [The information follows, Steven T. Miller]
    [GRAPHIC] [TIFF OMITTED] T8817.070
    
                                 

    Mr. MARCHANT. But a preparer could designate that the 
person's mailing address be the preparer's mailing address?
    Mr. MILLER. Yes.
    Mr. MARCHANT. Okay, thank you.
    Mr. GEORGE. Mr. Marchant, I would just point out that 
because there is some overlapping responsibilities here, the 
Treasury Inspector General for Tax Administration, which was 
once the inspection service within the IRS, we have primary 
oversight of an IRS employee who is accused of committing some 
type of tax or other criminal wrongdoing, a preparer who steals 
their client's information or someone who is using the IRS's 
symbol. It could be anyone, but if they mimic the IRS eagle and 
attempt to defraud a person or an entity, that is primarily our 
jurisdiction.
    Whereas, the Criminal Investigations Division, which is 
within the IRS itself, truly has the primary responsibility to 
investigate in a matter such as the example you gave along with 
the Postal Service, which would also have the postal inspector 
who would also have some responsibility. And then there are 
instances where the overlap to would be an IRS employee who 
sells the information about a taxpayer to a bad person and that 
bad person then engages in the tax fraud. So that is where 
there would be some overlapping jurisdiction among other 
examples.
    Mr. MARCHANT. Thank you very much. Yield back.
    Chairman BOUSTANY. I thank the gentleman. Mr. Berg, you are 
recognized.
    Mr. BERG. Thank you, Mr. Chairman. And I thank the panel 
for being here. I want to also recognize Mr. Black, who also is 
from North Dakota. There are so few of us, we have got to stick 
together when we get together. He is actually from Rugby, which 
is the geographical center of North America. So sometimes 
people are not sure where North Dakota is. It is the 
geographical center of North America.
    You know, as we look at this issue, as I think about it, 
obviously, there is not unlimited money, not unlimited people, 
and so it is kind of a tradeoff, it's a tradeoff between how do 
we get these things processed and get them out quickly versus 
how much time do we take verifying Social Security numbers, 
verifying addresses, and verifying those types of issues.
    So I kind of have a question for the whole panel 
individually, but really as you look at that balance, that 
tradeoff between getting the returns out quickly versus being 
more thorough and more investigative, my question is, are we at 
that right balance or do you think it should be shifted one way 
or the other?
    Mr. GEORGE. Let me start by quickly saying, as you are 
aware, sir, the IRS recently released its most recent figure on 
what is called the tax gap, the amount of money owed, not paid 
on time by the taxpayer in full, without the IRS having to take 
some compliance action. That is estimated at $400 billion per 
year, and I submit to you that that is a low ball estimate 
because it doesn't include other aspects, meaning international 
dollars involved, tax dollars involved and the like. So while 
we are talking billions here, and in my mind that is still a 
heck of a lot of money, much more needs to be done, much more 
can be done. As we discussed during the course of this hearing, 
some require legislative fixes, others are just, we believe, 
procedural/policy decisions, changes that the IRS can make. 
Some need to be done in conjunction with other agencies, as was 
pointed out by one of the members earlier. It is so 
disconcerting, so frustrating for someone to have their 
identity stolen and not be able to get a student loan, and yet 
the IRS is not in a position to help resolve that aspect of the 
problem.
    So there needs to be more, you know, mutual interaction 
between Federal agencies, and again, using common sense as we 
have discussed during the course of this hearing.
    Mr. BERG. Thank you.
    Mr. O'CARROLL. Mr. Berg, just--probably the one thing I 
always like to always remind when we are talking here about the 
benefits as opposed to the returns, on the benefits side, we 
are always saying that stewardship and using risk-based 
approaches to make sure that the right person is getting the 
benefit for it; that their information isn't being taken and 
their benefits are being diverted to the wrong, you know, 
through fraud or whatever. So we always say that the biggest 
issue with the Social Security is that balance between service 
and stewardship. And our biggest one is that you always have to 
focus on the stewardship, no matter what the budgets are or 
anything else, is just to make sure that due diligence is out 
there so that the right people are getting the right benefits.
    Mr. MILLER. Congressman, in terms of the balance, I don't 
know whether it is the right balance at this point. That is 
exactly, we are on the cusp of having that discussion, and we 
should have that discussion. I will say a couple of things a we 
think about that discussion.
    If you think that we have 2.6 million fraudulent returns to 
date, that is against a very large number of returns, you know, 
the 90 plus million refund returns, so far. And so we have to 
think about that. And we also have to think about the fact that 
some people really do, I mean, when their refunds are late, 
these people are relying on them for some, at the lower end of 
our income spectrum, these people are--it is the largest 
payment they receive in a year. And to change their 
expectations around that is not--is no small thing. And those 
are things we are going to have to think about and talk about, 
and I would welcome you all to be a part of that discussion, 
obviously.
    Ms. OLSON. I agree with what Mr. Miller said. I think that 
it is a very delicate decision, and that is really why I was 
raising it. I think that the IRS in the filing season can do 
better talking to taxpayers and explaining to them the risk of 
identity theft, and explaining to them through releases and 
conversations the steps that we are taking and why there might 
be delays. And I think if we educate taxpayers better, we can 
tamp down a little bit that hysteria, that clutching in the 
throat, you know, about if their refund gets caught up in 
there.
    I think the IRS is taking a lot of steps that are very 
positive in this, and I think some of the work that they are 
doing trying to get the W-2 information earlier in the process 
in a form where they can process returns going, you know, that 
as they come in, against this information, also helps us 
protect things without creating too much more of a delay. So I 
think there is some things that they are doing in the right 
direction before we have gotten the balance that we need.
    Mr. BERG. Thank you.
    Mr. BLACK. I will take the balance of your time and thank 
you for recognizing me as a native from the great State of 
North Dakota. As the IG from SSA recognizes, the Social 
Security Administration also struggles with this balance of 
getting the right benefit to the right person at the right 
time, and we have tried to balance that approach with better 
use of technology to do that work, as well as a better use of 
technology to match data with other agencies so that we can 
prevent things like fraud from happening up front.
    Mr. BERG. Thank you. Mr. Chairman, I yield back.
    Chairman BOUSTANY. I want to thank all the witnesses for 
coming here today and providing your testimony. This has been a 
very helpful hearing for us. I want to remind each of you that 
members may have additional questions that they will submit or 
may submit and that those questions and your answers will be 
made part of the official record. And with that, this hearing 
is now adjourned.
    [Whereupon, at 12:01 p.m., the subcommittees were 
adjourned.]

Member Submissions For The Record

                     The Honorable Sam Johnson #1 

[GRAPHIC] [TIFF OMITTED] T8817.059

[GRAPHIC] [TIFF OMITTED] T8817.060

[GRAPHIC] [TIFF OMITTED] T8817.061

[GRAPHIC] [TIFF OMITTED] T8817.062

[GRAPHIC] [TIFF OMITTED] T8817.063

                                 

                     The Honorable Sam Johnson #2 

[GRAPHIC] [TIFF OMITTED] T8817.069

                                 

                      The Honorable Adrian Smith 

[GRAPHIC] [TIFF OMITTED] T8817.067

[GRAPHIC] [TIFF OMITTED] T8817.068

                                 

                    The Honorable Xavier Becerra #1

[GRAPHIC] [TIFF OMITTED] T8817.064

                                 

                    The Honorable Xavier Becerra #2 

[GRAPHIC] [TIFF OMITTED] T8817.065

                                 

                     Witness Inserts For The Record
                           Steven T. Miller 

[GRAPHIC] [TIFF OMITTED] T8817.070

                                 

                            David F. Black 

[GRAPHIC] [TIFF OMITTED] T8817.066

                                 

                      S6621Questions For The Record

                    The Honorable J. Russell George 

[GRAPHIC] [TIFF OMITTED] T8817.071

[GRAPHIC] [TIFF OMITTED] T8817.072

[GRAPHIC] [TIFF OMITTED] T8817.073

[GRAPHIC] [TIFF OMITTED] T8817.074

[GRAPHIC] [TIFF OMITTED] T8817.075

[GRAPHIC] [TIFF OMITTED] T8817.076

[GRAPHIC] [TIFF OMITTED] T8817.077

[GRAPHIC] [TIFF OMITTED] T8817.078

[GRAPHIC] [TIFF OMITTED] T8817.079

[GRAPHIC] [TIFF OMITTED] T8817.080

                                 
                The Honorable Patrick P. O'Carroll, Jr. 

[GRAPHIC] [TIFF OMITTED] T8817.081

[GRAPHIC] [TIFF OMITTED] T8817.082

[GRAPHIC] [TIFF OMITTED] T8817.083

[GRAPHIC] [TIFF OMITTED] T8817.084

                                 
                            Steven T. Miller

[GRAPHIC] [TIFF OMITTED] T8817.085

[GRAPHIC] [TIFF OMITTED] T8817.086

[GRAPHIC] [TIFF OMITTED] T8817.087

[GRAPHIC] [TIFF OMITTED] T8817.088

                                 
                             Nina E. Olson 

[GRAPHIC] [TIFF OMITTED] T8817.089

[GRAPHIC] [TIFF OMITTED] T8817.090

[GRAPHIC] [TIFF OMITTED] T8817.091

                                 
                   Public Submissions For The Record
                                 IAJGS

[GRAPHIC] [TIFF OMITTED] T8817.092

[GRAPHIC] [TIFF OMITTED] T8817.093

[GRAPHIC] [TIFF OMITTED] T8817.094

[GRAPHIC] [TIFF OMITTED] T8817.095

[GRAPHIC] [TIFF OMITTED] T8817.096

[GRAPHIC] [TIFF OMITTED] T8817.097

[GRAPHIC] [TIFF OMITTED] T8817.098

[GRAPHIC] [TIFF OMITTED] T8817.099

[GRAPHIC] [TIFF OMITTED] T8817.100

[GRAPHIC] [TIFF OMITTED] T8817.101

                                 
                            Kenneth Ryesky 

[GRAPHIC] [TIFF OMITTED] T8817.102

[GRAPHIC] [TIFF OMITTED] T8817.103

[GRAPHIC] [TIFF OMITTED] T8817.104

[GRAPHIC] [TIFF OMITTED] T8817.105

[GRAPHIC] [TIFF OMITTED] T8817.106

[GRAPHIC] [TIFF OMITTED] T8817.107

[GRAPHIC] [TIFF OMITTED] T8817.108

[GRAPHIC] [TIFF OMITTED] T8817.109

[GRAPHIC] [TIFF OMITTED] T8817.110

[GRAPHIC] [TIFF OMITTED] T8817.111

                                 
                                  NGS

[GRAPHIC] [TIFF OMITTED] T8817.112

[GRAPHIC] [TIFF OMITTED] T8817.113

[GRAPHIC] [TIFF OMITTED] T8817.114

[GRAPHIC] [TIFF OMITTED] T8817.115

[GRAPHIC] [TIFF OMITTED] T8817.116

                                 
