[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
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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.
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For questions, or if you encounter technical problems, please call
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Note: All Committee advisories and news releases are available on
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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:]
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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:]
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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:]
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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.
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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:]
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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:]
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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:]
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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]
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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]
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[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]
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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
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The Honorable Sam Johnson #2
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The Honorable Adrian Smith
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The Honorable Xavier Becerra #1
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The Honorable Xavier Becerra #2
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Witness Inserts For The Record
Steven T. Miller
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David F. Black
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S6621Questions For The Record
The Honorable J. Russell George
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The Honorable Patrick P. O'Carroll, Jr.
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Steven T. Miller
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Nina E. Olson
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Public Submissions For The Record
IAJGS
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Kenneth Ryesky
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NGS
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