[Senate Hearing 113-234]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 113-234

                      TAX FRAUD AND TAX ID THEFT: 
                     MOVING FORWARD WITH SOLUTIONS

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 16, 2013

                               __________





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                          COMMITTEE ON FINANCE

                     MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
Virginia                             CHUCK GRASSLEY, Iowa
RON WYDEN, Oregon                    MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         PAT ROBERTS, Kansas
DEBBIE STABENOW, Michigan            MICHAEL B. ENZI, Wyoming
MARIA CANTWELL, Washington           JOHN CORNYN, Texas
BILL NELSON, Florida                 JOHN THUNE, South Dakota
ROBERT MENENDEZ, New Jersey          RICHARD BURR, North Carolina
THOMAS R. CARPER, Delaware           JOHNNY ISAKSON, Georgia
BENJAMIN L. CARDIN, Maryland         ROB PORTMAN, Ohio
SHERROD BROWN, Ohio                  PATRICK J. TOOMEY, Pennsylvania
MICHAEL F. BENNET, Colorado
ROBERT P. CASEY, Jr., Pennsylvania

                      Amber Cottle, Staff Director

               Chris Campbell, Republican Staff Director

                                  (ii)






















                            C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page
Baucus, Hon. Max, a U.S. Senator from Montana, chairman, 
  Committee on Finance...........................................     1
Hatch, Hon. Orrin G., a U.S. Senator from Utah...................     4

                               WITNESSES

Miller, Steven T., Acting Commissioner, Internal Revenue Service, 
  Washington, DC.................................................     6
Porter, Jeffrey A., chair of the Tax Executive Committee, 
  American Institute of Certified Public Accountants, and 
  founder, Porter and Associates, Huntington, WV.................     7
Olson, Nina E., National Taxpayer Advocate, Internal Revenue 
  Service, Washington, DC........................................     9
LaCanfora, Marianna, Acting Deputy Commissioner, Retirement and 
  Disability Policy, Social Security Administration, Washington, 
  DC.............................................................    11

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:
    Opening statement............................................     1
    Prepared statement...........................................    29
Hatch, Hon. Orrin G.:
    Opening statement............................................     4
    Prepared statement...........................................    32
LaCanfora, Marianna:
    Testimony....................................................    11
    Prepared statement...........................................    34
Miller, Steven T.:
    Testimony....................................................     6
    Prepared statement...........................................    41
    Responses to questions from committee members................    51
Olson, Nina E.:
    Testimony....................................................     9
    Prepared statement...........................................    62
Porter, Jeffrey A.:
    Testimony....................................................     7
    Prepared statement...........................................    91
    Responses to questions from committee members................   104
Wyden, Hon. Ron:
    Internal Revenue Service Office of Chief Counsel memorandum, 
      dated July 8, 2011.........................................   109

                             Communications

Consumers for Paper Options......................................   117
International Association of Jewish Genealogical Societies 
  (IAJGS)........................................................   122
LifeLock Inc.....................................................   129
National Conference of Insurance Legislators (NCOIL).............   132
Records Preservation and Access Committee (RPAC).................   138
Ryesky, Kenneth H................................................   146
Visa Inc.........................................................   150

                                 (iii)

 
                      TAX FRAUD AND TAX ID THEFT: 
                     MOVING FORWARD WITH SOLUTIONS

                              ----------                              


                        TUESDAY, APRIL 16, 2013

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:06 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Max 
Baucus (chairman of the committee) presiding.
    Present: Senators Wyden, Nelson, Cardin, Hatch, Grassley, 
Thune, and Isakson.
    Also present: Democratic Staff: Amber Cottle, Staff 
Director; Mac Campbell, General Counsel; Lily Batchelder, Chief 
Tax Counsel; Ann Cammack, Tax Counsel; Tiffany Smith, Tax 
Counsel; and Tom Klouda, Professional Staff Member, Social 
Security. Republican Staff: Chris Campbell, Staff Director; 
Shawn Novak, Senior Accountant and Tax Counsel; and Jim Lyons, 
Tax Counsel.

   OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM 
            MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order.
    Before we begin, I think I can speak for every member of 
this committee in saying our thoughts and prayers are with the 
victims of the Boston Marathon bombing and with the families of 
all those impacted by that horrible tragedy.
    We are also grateful for the brave first responders on the 
scene who undoubtedly saved countless lives. Acts of violence 
such as this clearly are not tolerated in our country, and all 
of us will work together to make sure the perpetrators are 
brought to justice, while we offer our condolences and sympathy 
to those who are more directly affected.
    The Czech writer and politician Vaclav Havel once said, ``I 
have preserved my identity, put its credibility to the test, 
and defended my dignity. What good this will bring to the 
world, I do not know. But for me it is good.''
    Our identity represents who we are. It represents our 
morals, our culture, our sense of worth. It represents, as 
Havel said, our credibility and our dignity. When stolen from 
us, it can have devastating consequences. Identity theft is a 
serious problem. It is growing at epidemic proportions, 
especially tax-related identity theft.
    According to the IRS Taxpayer Advocate, tax-related 
identity theft jumped more than 650 percent between 2008 and 
2012. Last year alone there were 1.8 million incidents of 
identity theft and fraudulent refunds. One of the latest 
victims is Kipp Saile, a 48-year-old horseback outfitter in 
Pray, MT, a tiny town just outside Yellowstone National Park.
    Like many Montana communities, everyone in Pray knows their 
neighbor. Doors are left unlocked, and the only threat of crime 
involves the possibility of a bear stealing your catch from the 
Yellowstone River. It is the last place you would expect to 
find a case of identity theft.
    Yet earlier this year, Kipp was in the process of 
refinancing his home when he got a call from his tax preparer. 
There was a serious problem, he said. When the preparer tried 
to submit Kipp's tax return to complete his refinancing, it was 
rejected by the IRS.
    According to IRS records, Kipp had moved more than 2,000 
miles to Maryland, taken up a new wife, and no longer cared for 
his kids. In reality, of course, Kipp lived on his 10 acres in 
Pray with his wife of 11 years, Heidi, and their three 
children. Someone had stolen Kipp's identity and filed a false 
tax return using his Social Security number.
    That is where the nightmare began. Kipp has since been 
forced to spend every day trying to repair the damage to his 
name and credit. Needless to say, it has been a stressful 
experience. It has cost Kipp many a sleepless night and quite a 
bit of money. The refinance has been put on hold, costing him 
an additional $500 a month he would have saved with the lower 
mortgage.
    Instead of helping Kipp clear up this mess, the IRS has 
made a bad situation even worse. Kipp has been told twice by 
IRS employees that he was not defrauded, the U.S. Government 
was. At least one IRS employee hung up on Kipp, cut him off, 
and was rude. He hung up on Kipp while he was trying to make 
his case.
    I find that outrageous, and I will not stand for a 
Montanan, or any American taxpayer, to be treated with that 
kind of disrespect by an IRS employee or any agency employee, 
employees who are supposed to be serving the public.
    I am going to say this very clearly, Mr. Miller: never 
forget that you and everyone else at the IRS work for Kipp 
Saile and all American taxpayers. Your job is to serve them. 
They are the employers; you are the employees. I certainly hope 
this was an isolated incident and does not reflect the type of 
service provided by the IRS. But there is no excuse for even 
one rude employee like this, and I intend to find out what you 
are doing to make sure this type of behavior is not repeated.
    It is critical that the IRS be ready and equipped to handle 
cases like Kipp's because they are increasingly common. We have 
all seen the stories in the newspapers and on TV about ID 
theft. Just last week, USA Today highlighted some of the most 
egregious examples of tax ID fraud, like a case where one 
address in Michigan was used to file 2,137 tax returns. There 
was another case where a single bank account was used to 
receive 590 direct deposit refunds from the IRS, totaling more 
than $900,000.
    In recent congressional testimony, the IRS reported that 
they had identified more than 900,000 fraudulent returns and 
stopped more than $6.5 billion in fraudulent refunds in 2011, 
but that was only the tip of the iceberg.
    The Treasury Inspector General for Tax Administration 
recently reported that another 1.5 million fraudulent returns 
went undetected in 2011, potentially allowing $5.2 billion in 
refunds to be paid. The IG estimated that if tax identity theft 
were not addressed, it could cost the IRS $21 billion in 
fraudulent refunds over the next 5 years.
    Enough is enough. It is time to act. Three weeks ago, 
members of this committee were briefed on tax reform options 
that included proposals to help combat tax fraud and tax ID 
theft. Senator Nelson, joined by Senators Cardin, Schumer, and 
Feinstein, introduced comprehensive tax fraud legislation last 
week. I commend them for that. I am pleased that the 
administration has included several significant tax fraud 
prevention proposals in its fiscal year 2014 
budget.
    This includes limiting access to death records and omitting 
Social Security numbers on wage statements, but there is still 
much more that can be done. We know tax fraudsters have easy 
access to taxpayers' Social Security numbers through online 
databases, hospitals, and other businesses that store personal 
information. We need tougher controls on access to private 
information, but it needs to be done efficiently without adding 
more paperwork to the process.
    We know that fraud is easier to detect when the IRS can 
match a W-2 filed by an employer to a tax return before issuing 
a refund. Right now that is not happening. We need to cut 
through the red tape and ensure this information gets to the 
IRS quickly.
    We also know that too often it can be the tax return 
preparers themselves who are the identity thieves. Proper 
oversight by the IRS can help prevent this, but we face 
obstacles. The IRS was handed a major setback recently when the 
Federal court ruled against their authority to regulate some 
tax return preparers. The case Loving v. IRS is ongoing, and I 
am hopeful that the IRS will succeed on appeal, otherwise 
taxpayers will not be able to know if they are using a reliable 
return preparer.
    I will be asking for an update on the status of this. We 
need to consider whether legislation is necessary to protect 
taxpayers from fraudulent preparers. This committee outlined 
several ideas recently to reimpose tax preparer regulations, 
and I encourage you to look at those ideas as part of our tax 
reform option papers.
    I also want to hear today how the IRS is utilizing the 
tools they already have. USA Today recently stated that the IRS 
is ``losing the identity theft fight'' and criticized the IRS 
for taking too long to resolve fraud cases. According to the 
National Taxpayer Advocate, it takes an average of more than 
180 days to close cases. That is unacceptable. The IRS needs to 
step it up and improve the way it handles tax ID theft once 
cases are identified.
    Victims of ID theft, people like Kipp Saile, are forced to 
put their lives on hold while their cases languish in red tape. 
IRS needs to speed up prosecution through better communication 
with Federal, State, and local law enforcement, and this 
committee is committed to protecting the American taxpayer. I 
am hopeful that we will be able to work together to move 
forward with legislation to stop tax ID theft.
    We owe that to Kipp Saile and all the victims of identity 
theft, and to all American taxpayers who pay their bills 
properly and on time and are obviously quite put out when too 
many others do not.*
---------------------------------------------------------------------------
    * For more information, see also, ``Present Law and Background 
Information Related to Selected Tax Procedure and Administration 
Issues,'' Joint Committee on Taxation staff report, April 15, 2013 
(JCX-9-13), https://www.jct.gov/
publications.html?func=startdown&id=4515.
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    [The prepared statement of Chairman Baucus appears in the 
appendix.]
    The Chairman. Senator Hatch?

           OPENING STATEMENT OF HON. ORRIN G. HATCH, 
                    A U.S. SENATOR FROM UTAH

    Senator Hatch. Well, thank you, Mr. Chairman. I agree with 
your statement. Before I begin, I just want to say that my 
prayers go out to the city of Boston, especially for the 
families of those who lost their lives and have been very 
seriously hurt and injured. I wish everyone who was impacted by 
this tragedy a very swift and peaceful recovery, to the extent 
that that can happen.
    I also want to thank you, Mr. Chairman, for holding this 
important hearing. Each year the Finance Committee holds a 
hearing around the end of the tax filing season. In the past, 
these hearings have provided unique insight into the issues 
faced by the American taxpayers, as well as some of the overall 
problems we have with our Nation's tax system. The chairman has 
announced some of them.
    The subject of this year's hearing is the rapidly growing 
crime of tax fraud by identity theft. This is a serious matter 
and deserves our careful attention. Two of my colleagues, 
Senator Nelson and Senator Crapo, should be commended for their 
efforts in this area. Their subcommittee, the Subcommittee on 
Fiscal Responsibility and Economic Growth, has held two 
hearings on this topic over the last 2 years.
    In addition, this was an important topic of conversation at 
last year's tax filing season before the full committee. I 
share the concerns of many throughout our country regarding tax 
fraud by identity theft. From 2010 to 2011, the number of these 
crimes nearly tripled, going from about 440,000 to 1.1 million.
    Two senior members of my Finance Committee staff know this 
issue very well, as they have been victims of tax fraud by 
identity theft. In both cases, criminals obtained their Social 
Security numbers, filed fraudulent returns, and collected 
refunds.
    For both staffers, this began a nightmarish scenario in 
which they had to spend days on the phone and filling out 
paperwork just to be able to file their own tax return. In the 
end, they have to live with the fact that their Social Security 
numbers are out there, and they can only hope that they are not 
used to commit another fraud.
    So I want to thank our four witnesses for coming to talk to 
us today about this troubling issue, and I assure you we are 
listening very carefully.
    When it comes to dealing with tax fraud and identity theft, 
I understand that the IRS has adopted a 3-pronged approach. The 
first prong is prevention, which means stopping this type of 
tax fraud from being successful in the first place. Clearly, 
given the prevalence of this crime, much more work needs to be 
done in this area.
    The second prong is providing taxpayer services for those 
who have been the victims of identity theft. This is a 
significant focus of the IRS, but it appears that the agency is 
falling woefully short in some instances. For example, an audit 
by the Treasury Inspector General for Tax Administration 
sampled 17 different identity theft cases and found that the 
average time it took for these cases to be resolved was 414 
days. Now, that is simply too long a wait for taxpayers who 
have been the victims of identity theft, and I am hoping that 
we can discuss ways to cut that wait time down during today's 
hearing.
    The third prong of the IRS's approach is catching and 
convicting the criminals who have committed these crimes. This 
is a critically important step. If we can step up enforcement, 
many would-be criminals would likely decide that it is not 
worth the risk to commit these crimes. I think we ought to have 
very stiff penalties in these cases, and, frankly, they ought 
to be enforced.
    I am interested in hearing more about the IRS's efforts to 
follow this 3-pronged approach, what successes they have had, 
and what challenges they are still facing. I particularly 
enjoyed meeting with you, Mr. Miller, yesterday. It was a good 
meeting. That is why I am glad that we have you top IRS people 
with us here today. Acting Commissioner Steve Miller, we are 
grateful that you are here today. I know that you are taking 
this seriously.
    In addition, I want to know what other steps could be taken 
to prevent these crimes, assist the victims, and improve 
enforcement. I believe all of our witnesses here today will be 
able to address some of these questions. While tax fraud 
identity theft is the major focus of this hearing, we will also 
discuss general issues associated with the tax filing season.
    This year, as with every year, taxpayers face a number of 
issues and obstacles as they try to file their returns. We 
clearly need to do better in providing assistance during what 
can be a very difficult time for many of our citizens.
    For example, at last year's hearing I noted that the IRS's 
goal of answering 61 percent of taxpayers' service calls was 
unacceptable. I am glad to see this year that the IRS set a 
significantly higher goal. That said, I still think more can be 
done to improve taxpayer service.
    I hope we can have a full and informative discussion of 
these issues during today's hearing. Once again, I want to 
thank the distinguished Senator from Florida and others for the 
work that they have been doing in this area, and I want to 
welcome our witnesses.
    Mr. Chairman, I look forward to this very important 
hearing, and we appreciate you folks being here with us today.
    The Chairman. Thank you, Senator.
    [The prepared statement of Senator Hatch appears in the 
appendix.]
    The Chairman. I would like to introduce our four witnesses. 
First is Mr. Steven Miller. Mr. Miller is Acting Commissioner 
of the IRS. Next to Mr. Miller is Ms. Nina Olson, the National 
Taxpayer Advocate. The third witness is Mr. Jeffrey Porter, who 
is sitting next to Mr. Miller. He is chair of the Tax Executive 
Committee for the American Institute of Certified Public 
Accountants. Finally, we have Ms. Marianna LaCanfora, Acting 
Deputy Commissioner of Retirement and Disability Policy for the 
Social Security Administration. Did I pronounce your name 
correctly?
    Ms. LaCanfora. Yes. Thank you.
    The Chairman. Thank you.
    Mr. Miller, you are first. You know the drill. Speak for 
about 5 minutes. Your statements will be in the record.

 STATEMENT OF STEVEN T. MILLER, ACTING COMMISSIONER, INTERNAL 
                REVENUE SERVICE, WASHINGTON, DC

    Mr. Miller. Thank you, Chairman Baucus, Ranking Member 
Hatch, members of the committee. Thanks for the opportunity to 
update you today. Obviously, Chairman Baucus, the treatment 
that Mr. Saile got was not acceptable and not up to what we 
hope are our standards, and we will look into that.
    The Chairman. I appreciate that. Thank you.
    Mr. Miller. While I will spend most of my time today 
discussing the future, I first want to touch on where we are. 
The agency has more than 3,000 employees working on identity 
theft. Last year, we stopped $20 billion in fraud. You had 
talked about 2011. In 2012, $20 billion in fraud before it went 
out, up from that $6 billion the year before. Our ability to 
stop bad refunds has improved this year as well.
    In addition, the number of criminal investigations 
continues to rise, with more than 800 so far this year. 
Finally, we are making progress on getting victims their 
refunds. It is still slow, Mr. Chairman, but we are making 
progress. We have closed more than 200,000 of these cases since 
the beginning of this calendar year, and for the first time, 
over the last couple of months, we are closing more than we are 
getting in. So, our inventory is getting under control.
    All this is not without cost. We spent almost $330 million 
out of our declining budget on these matters in 2012, so in my 
mind we are better, but our work is not done. We need to get 
better still.
    What I would like to do now is walk through where we need 
to be to take the next major step in fighting identity theft. 
The barriers to get there include the proliferation in the 
theft and availability of SSNs, the sheer volume and complexity 
of the cases before us, available IRS resources--and in 
particular resources for technology updates--as well as third-
party information reporting, and our own business processes. We 
have started work in several of these areas, but much more 
remains to be done.
    Here is where we need to be in the future. To illustrate, 
let us follow how my return would move through our system. 
First, at the time of filing before the return enters our 
system, I should have to authenticate who I am in a robust 
manner, even before it gets in to the IRS. This should happen 
regardless of how I file. The issue is how to do this. Do we, 
for example, use out-of-wallet questions, personal information 
that is known to me but is tough for an identity thief to steal 
or track down?
    After authentication and as my return enters the system, 
the IRS has to employ a set of flexible filters and tools that 
allow a more informed decision on whether to issue a refund. 
That decision must be based on a wider array of information 
than is available to us today.
    Here, let us talk about intelligent matching. First, the 
IRS needs to validate that I am who I say I am. We need to do 
this by using all the data in our systems, as well as other 
data that is not currently available to us, on a timely basis, 
at least.
    So, for example, we need to look at my return and ask, do I 
look like the same Steve Miller who has filed in the past? Do I 
live in the same place, work at the same place, have the same 
family, et cetera? Is the information on my return consistent 
with other data we are receiving? So some of the data needed is 
historical, and some is current third-party data.
    Historical data we may have already, though it may not 
always be available to us on a timely basis. But in this future 
state, we also need to at least have some third-party data to 
validate both my identity and other items on my return.
    In this world, the IRS may have my W-2, certain 1099s, et 
cetera, at the time the IRS makes the determination of whether 
a refund is due to me and whether the amount claimed is 
correct. Issues to discuss here include the need for improved 
technology, the timing of data receipt, burden on reporting 
entities, and the need for some taxpayers to have a fast 
refund.
    Next in the future vision is how we deal with victims. 
Here, we need better coordination internally, and, more 
importantly, we need a better solution for those like Mr. 
Saile, who is the second one to file with us. Right now, second 
filers are forced to submit a paper return, and they face a 
long wait.
    We need to get to a point where we take that second filer 
in electronically and we prove the identity more efficiently, 
and we need to have an improved system to issue an Identity 
Protection PIN, which we could talk about. The key issue again 
here is technology. Existing technology does not get us there.
    There are other areas to discuss and many important, far-
reaching questions that merit discussion about the future and 
shape of tax administration. These questions should be 
considered not just inside the IRS, but with the tax community, 
law enforcement, as well as you in Congress and taxpayers.
    As I describe for you a preferred future for fighting 
identity theft, please recognize that improvements are neither 
immediate nor are they possible without resources. I will ask 
for your support for the 2014 budget which includes additional 
funding on this issue, as well as several important proposals 
on identity theft.
    Thanks again for the opportunity to be present.
    The Chairman. You bet. Thanks, Mr. Miller.
    [The prepared statement of Mr. Miller appears in the 
appendix.]
    The Chairman. Mr. Porter, you are next.

  STATEMENT OF JEFFREY A. PORTER, CHAIR OF THE TAX EXECUTIVE 
COMMITTEE, AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, 
       AND FOUNDER, PORTER AND ASSOCIATES, HUNTINGTON, WV

    Mr. Porter. Good morning, Chairman Baucus, Ranking Member 
Hatch, and members of the committee. My name is Jeffrey Porter, 
and I am the chair of the American Institute of CPAs Tax 
Executive Committee and a sole practitioner at Porter and 
Associates in Huntington, WV. On behalf of the AICPA, I am 
pleased to have the opportunity to testify today.
    An important issue of concern for our members is identity 
theft. In mitigation of this issue, the AICPA appreciates the 
IRS's recent issuance of proposed regulations which authorize 
filers of certain information returns to truncate a taxpayer's 
identifying number.
    However, unfortunately there are some statutory limits 
placed upon the Service's ability to expand their truncation 
initiative. For example, employers are required to provide 
employees a W-2 with their full Social Security number. We urge 
Congress to permit truncation of Social Security numbers on all 
copies of W-2s other than those filed with the Social Security 
Administration. We also urge Congress to consider expansive 
legislation to allow truncation of Social Security numbers on 
all types of tax forms and returns provided to a taxpayer, 
employee, or other recipient.
    Now I would like to share our feedback on this year's tax 
filing season. Overall, it was an extremely challenging and 
compressed filing season due to the late enactment of 
legislation and the resulting delay in the release of 31 tax 
forms.
    Since the IRS could not accept tax returns that included 
certain forms until February or early March, our members 
essentially lost the first half of their filing season. 
Nevertheless, we believe the IRS did an outstanding job under 
difficult circumstances. They maintained an open dialogue with 
stakeholders and were responsive to our concerns.
    Earlier this year, we submitted a letter to Acting 
Commissioner Miller on the delayed release of forms. Within 
days, the IRS issued a notice which provided critical relief 
requested from late payment penalties.
    Unfortunately, the filing season was also a challenge due 
to the late issuance of corrected 1099s. Generally, a 1099 must 
be furnished to taxpayers by February 15th; however, brokerage 
firms can amend a 1099 at any time. Over the last few years, we 
have noticed more brokerage firms issuing corrected 1099s, 
sometimes issuing multiple corrected forms on the same account. 
These forms create anxiety, confusion, and, for some taxpayers, 
an increase in tax preparation fees.
    As a result, many taxpayers now have a tendency to wait 
until they have received their anticipated corrected 1099s 
before providing records to the CPA. In order to streamline the 
tax return reporting process for both the government and 
taxpayers and to minimize the need for amended tax returns, we 
suggest you consider legislation that would permit taxpayers to 
report de minimus changes in their income from a corrected 1099 
in the year of receipt.
    Another area of interest for our profession is the IRS's 
tax return preparer program. The AICPA has always been a 
steadfast supporter of the Service's goals of enhancing 
compliance and elevating ethical conduct. We generally support 
their program, including the registration of paid tax return 
preparers and the issuance of preparer tax identification 
numbers; the expansion of Circular 230 over all paid preparers; 
the creation of a basic continuing education and competence 
program geared towards the unenrolled preparer community; and 
the IRS's mitigation of any taxpayer confusion regarding the 
qualifications of different paid preparers.
    Another important issue is the reform of penalties. Because 
the success of our system depends upon voluntary compliance, 
penalty provisions should be carefully crafted by Congress and 
sensibly administered by the Service to ensure that penalties 
deter bad conduct without deterring good conduct or punishing 
the innocent.
    Targeted, proportionate penalties that clearly articulate 
standards of behavior and are administered in an even-handed 
and reasonable manner encourage voluntarily compliance with the 
tax laws.
    On the other hand, over-broad, vaguely defined, and 
disproportionate penalties, particularly those administered as 
part of a system that automatically imposes penalties or that 
otherwise fails to provide basic due process safeguards, 
creates a perception of unfairness that is likely to discourage 
voluntary compliance.
    Finally, we appreciate the committee's important 
consideration of tax reform and potential solutions. We have 
consistently supported tax reform simplification efforts, 
because we are convinced that such actions will reduce 
taxpayers' compliance costs, encourage voluntary compliance, 
and facilitate enforcement actions.
    To name a few, we support the repeal of the Alternative 
Minimum Tax, the harmonization of education incentives, the 
enactment of consistent definitions in the code, the repeal of 
unused provisions, and the simplification of the kiddie tax 
rules. We also believe in the simplification and harmonization 
of retirement planning vehicles. We have more extensive 
thoughts on tax reform, tax reform due dates, and information 
reporting in the written comments submitted to this committee.
    Thank you again for the opportunity to testify. I will be 
pleased to answer any questions you may have.
    The Chairman. Thank you, Mr. Porter. I presume you 
submitted all those recommendations for simplification and 
changes to this committee as we work on tax reform.
    Mr. Porter. Yes, sir.
    The Chairman. We need lots of help, frankly, to make sure 
we do it right. All right. Thank you.
    [The prepared statement of Mr. Porter appears in the 
appendix.]
    The Chairman. Ms. Olson?

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

    Ms. Olson. Chairman Baucus, Ranking Member Hatch, and 
members of the committee, thank you for inviting me to testify 
today about tax-related identity theft. Before I begin, I want 
to commend you for the excellent tax reform options paper the 
committee staff compiled last month and urge you to move 
forward with comprehensive tax reform and a taxpayer bill of 
rights.
    I also want to make you aware of my concern that cuts to 
the IRS budget since 2010, including but not limited to 
sequestration, are impairing the IRS's ability to serve 
taxpayers and are self-
defeating as a deficit-reduction measure. Almost surely the 
reduction in revenue collection will ultimately exceed the 
short-term budget savings.
    On the subject of identity theft, let me start by 
emphasizing the most important impact for most victims: delayed 
refunds. Apart from the time and obvious frustration involved 
in having to prove one's own identity, a taxpayer generally 
will not receive his or her refund until the case is fully 
resolved.
    So far this filing season, 84 percent of all individual 
returns processed have resulted in refunds, and the average 
refund amount has been nearly $2,800, so longer case resolution 
times often translate into financial inconvenience, or even 
hardship. Some identity theft victims also experience 
consequences when other Federal agencies or private businesses 
rely on IRS data.
    For example, the IRS generally will not release account 
transcripts while an identity theft case is pending, so 
students applying for financial aid and homeowners applying for 
a mortgage or refinancing may face additional obstacles. That 
is why prompt case resolution is so important.
    Yet, cases are not being resolved promptly, nor do 
taxpayers have a single point of contact to work with, nor does 
the IRS even have a reliable way of measuring service-wide 
cycle time on identity theft cases.
    The IRS recently created 21 separate specialized units to 
handle different types of identity theft problems, which may be 
helpful, but, when a case involves multiple issues, one IRS 
entity should oversee the case to make sure the problems are 
handled in a coordinated manner. The IRS seems to believe that 
relatively few cases require involvement by multiple functions. 
I disagree. Within the Taxpayer Advocate Service, 94 percent of 
our identity theft cases have multiple issues.
    Similarly, TIGTA reviewed a judgmental sample of 17 
identity theft cases for an audit conducted last year and found 
that the IRS had opened 58 cases separately to resolve these 
victims' accounts, an average of nearly three and a half cases 
per victim. The average cycle time for those cases was well 
over a year.
    IRS data suggests its workload continues to grow at a rapid 
clip. The IRS had more than 1.25 million identity theft cases 
in inventory at the end of February, more than 5 times as much 
as a year ago when the volume was less than 235,000 cases. 
After years of so-called IRS reengineering efforts, victims are 
still experiencing unacceptable delays.
    From an administrative standpoint, there are several steps 
the IRS can take to improve victim assistance. The IRS should 
create a strong centralized unit so ID theft victims with 
multiple issues do not have to deal with multiple functions to 
get complex problems resolved. The IRS should analyze its 
procedures to identify ways to reduce cycle time.
    The Taxpayer Advocate Service generally is able to resolve 
identity theft cases in about 3 months, and there is no reason 
why the IRS should need from 6 months to over a year to do so. 
The IRS should do a better job of keeping victims informed of 
the status of their cases while they are in progress, and 
promptly issue refunds when it has identified the correct 
taxpayer, instead of waiting until case closing.
    From a congressional standpoint, I believe several steps 
could make a difference. First, I recommend that Congress 
consider what needs to be done to enable the IRS to receive and 
process information returns, like forms W-2, before it 
processes income tax returns and issues refunds. If the wage 
and withholding on a tax return had to match the numbers filed 
by employers on forms W-2, identity thieves would have a much 
harder time.
    Second, I recommend that Congress restrict access to the 
Death Master File which provides a means of access to taxpayer-
identifying information that can further tax fraud. Third, I 
recommend that you enact restrictions on the use and disclosure 
of taxpayer return information shared by the IRS with State and 
local law enforcement authorities.
    Finally, I have long advocated for the regulation of 
Federal tax preparers for many reasons, one of which is that it 
will reduce the incidents of fraud. If the Court of Appeals for 
the D.C. Circuit ultimately invalidates the Treasury's preparer 
regulations, I encourage this committee to do what it has done 
on two previous occasions and approve legislation explicitly 
authorizing the IRS to regulate in this area.
    I appreciate the opportunity to testify today and would be 
happy to answer your questions.
    The Chairman. Thank you, Ms. Olson.
    [The prepared statement of Ms. Olson appears in the 
appendix.]
    The Chairman. Ms. LaCanfora?

 STATEMENT OF MARIANNA LaCANFORA, ACTING DEPUTY COMMISSIONER, 
       RETIREMENT AND DISABILITY POLICY, SOCIAL SECURITY 
                 ADMINISTRATION, WASHINGTON, DC

    Ms. LaCanfora. Chairman Baucus, Ranking Member Hatch, and 
members of the committee, thank you for inviting me to this 
important hearing on tax fraud, tax ID theft, and tax reform. I 
will discuss the death information that we maintain to 
administer Social Security programs and our role in the wage 
reporting process.
    I am Marianna LaCanfora, the Social Security 
Administration's Acting Deputy Commissioner for Retirement and 
Disability Policy. At Social Security, we are responsible for 
administering some of the Nation's most important and most 
successful programs. We take great pride in helping the 
American people obtain the benefits to which they are entitled. 
We are also committed to protecting the sensitive data that we 
collect and maintain.
    The President's fiscal year 2014 budget includes four SSA-
related legislative proposals that would enhance our ability to 
combat fraud, curb improper payments, and improve our wage 
reporting process.
    I would like to briefly explain the history behind one of 
these legislative proposals, which would restrict access to the 
Death Master File, or the DMF. Since Social Security began in 
the 1930s, we have collected death information from funeral 
homes, States, and other sources to timely stop paying 
beneficiaries who have died. Each year, we receive about 2.5 
million reports of death. When we receive this information, we 
update our records, stop benefits as appropriate, and, in some 
cases, start paying benefits to surviving spouses and young 
children.
    People eventually became aware of our collection of death 
records. In 1978, Ronald Perholtz filed a lawsuit under the 
Freedom of Information Act, or FOIA, to gain access to the 
death records in our files. The Department of Justice advised 
us that we could not withhold the data requested under FOIA.
    As a result, we entered into a court-approved consent 
decree requiring us to disclose death records regularly. In 
time, because we began to receive more and more requests for 
death information, we contracted with the Department of 
Commerce's National Technical Information Service to distribute 
the Death Master File.
    Recent media reports have stated that criminals use the DMF 
information to perpetrate tax fraud. While death data can be a 
very valuable tool to prevent fraud, we must strike a balance 
that allows legitimate uses of the data while also preventing 
misuse. That is why we believe the law should be changed to 
stop wrongdoers from obtaining our death information.
    The legislative proposal would delay the release of a 
deceased individual's information on the DMF for 3 years after 
he or she dies. Only private entities that the Commissioner 
certifies as having a legitimate need for the information would 
receive the DMF immediately.
    At the same time, the proposal would expand Federal 
agencies' access to death information for additional purposes, 
such as law enforcement and reducing improper government 
payments. We look forward to working with Congress on this 
legislation. This budget includes another proposal that would 
permit us to share our prisoner information to help other 
agencies reduce improper payments.
    I would like to briefly touch upon the wage reporting 
process. We collect wage reports to ensure that workers receive 
Social Security credit for their work. We also use this 
information to calculate benefit amounts. On a daily basis, we 
provide it to the IRS for tax administration.
    The President's fiscal year 2014 budget includes two 
proposals that would enhance the wage reporting process while 
also helping to prevent fraud and error. One proposal would 
require more employers to file electronic wage reports, which 
are far more accurate than paper. The second proposal would 
restructure the Federal wage reporting process by requiring 
employers to report wages quarterly rather than annually. 
Increasing the frequency and timeliness of wage reporting would 
enhance the ability to detect fraud and curb improper payments.
    Again, thank you for the opportunity to describe our 
efforts in this area. I would be happy to answer any questions 
you may have.
    The Chairman. Thank you, Ms. LaCanfora.
    [The prepared statement of Ms. LaCanfora appears in the 
appendix.]
    The Chairman. I have two questions, really. First is, with 
a 3-year delay in releasing the deceased Social Security 
numbers, can't the IRS have access to that information and 
match any refund requests or returns filed with the IRS against 
those to find out whether that person is actually alive? Maybe 
you, Mr. Miller, can answer that question.
    Mr. Miller. So, we do receive the Death Master File 
currently. We do mark accounts in two ways. Those who have 
recently passed, their estate has to file a tax return with us, 
so they have a filing requirement. We cannot simply lock that 
account.
    We do tag it so that we can judge whether it is a proper 
estate tax return or not, and we capture quite a few of those 
in our filters. With respect to those who have passed more than 
a couple of years ago, we do lock down their account so that 
people cannot use those. We have locked down more than 11 
million of those accounts.
    The Chairman. So how confident are you that people are not 
ripping taxpayers off by fraudulently using these Social 
Security numbers, that is, numbers of people who are deceased? 
How confident are you that there is not much leakage there 
anymore?
    Mr. Miller. I am quite sure there is some leakage, Senator.
    The Chairman. Where would it be? What is the flaw? Where 
are the cracks in the system?
    Mr. Miller. So--and I would open it to my colleague from 
SSA as well--the system is only as good as the reporting to SSA 
is, and only as timely as the reporting to SSA is. These are 
not necessarily all coming from the DMF. People are stealing 
from funeral homes, from hospitals, so they may be utilizing 
those numbers in advance of our ability to load them in our 
system.
    The Chairman. What about those other sources; what are you 
doing about that: funeral homes, hospitals, et cetera?
    Mr. Miller. So, we do not have the authority or the 
capabilities to police the use of Socials. All we can do is try 
to educate.
    The Chairman. If you had the authority, how important would 
that be to your enforcement?
    Mr. Miller. I do not know whether that would be the IRS 
that should have that authority or whether others should have 
that authority. It is clearly a gap in the system. Someone 
needs to educate and make clear that these Socials need to be 
protected. We are trying to do that, and we are also trying, as 
you heard, in terms of the administration's proposal, to try to 
get fewer of those SSNs floating around in the system.
    The Chairman. I would be interested in your reaction, and 
maybe others on the panel in my limited amount of time, to 
doing electronic filing. California is setting up a pilot 
program, as I understand it, where the State just sends you 
your return, and it is all filled out for you. I am trying to 
find some ways to use electronic systems to create more 
efficiency. So, if you could just comment a little bit on what 
we could do there.
    Mr. Miller. I think, if I am understanding the question, 
Mr. Chairman, we are talking about California's--what is called 
the Ready Return, or something of that nature.
    The Chairman. Yes. Right.
    Mr. Miller. You would have to talk to California about how 
well it is doing. My understanding is it works, but for a 
limited number of individuals. We have actually worked with the 
software community, and they are partners in doing this. I am 
not sure that that is an answer to identity theft. Whether we 
want to go that way or not is a different question in terms of 
burden on the taxpayer, but I am not sure at all that that is 
going to be----
    The Chairman. Just off the top of your heard reaction, is 
that something worth pursuing, the Ready Return approach?
    Mr. Miller. Depending on where it would be in line of my 
priorities, Mr. Chairman, but it is not at the top of my 
priorities, no.
    The Chairman. And why not?
    Mr. Miller. Because we have quite a few other things on our 
plate right now.
    The Chairman. Yes. Others? Is there potential? Let me ask 
Mr. Porter, Ms. Olson.
    Ms. Olson. Well, in my annual report, what we recommended 
for enforcement reasons is that the IRS needs to get W-2 and 
1099 data very early so it can do some of the protections for 
identity theft and fraud, and then, once we have that data, we 
should make that available to taxpayers so that they can 
download it into the software programs that they are purchasing 
or that they can give it to their preparers so we do not miss a 
1099 or a W-2 somewhere. Or we recommend that the IRS create a 
return itself whereby taxpayers could download that 
information. For a small category of taxpayers, that return 
would be it, because they only have W-2 information.
    The Chairman. Right. Right. My time is expiring.
    Ms. Olson. But for many others----
    The Chairman. My time is expiring. But, Mr. Miller, very 
briefly, what are your number-one and your number-two 
priorities?
    Mr. Miller. My number-one priority just finished up last 
night.
    The Chairman. Well, that is history then. What is it now? 
[Laughter.]
    Mr. Miller. Making sure those returns finish their winding 
through and people get their refunds, Mr. Chairman. That is 
number one.
    Number two is the other legislative things we have in front 
of us, including the foreign account work we have, the health 
care act work that we have, and identity theft. Those are all 
in the same category.
    The Chairman. All right. Thank you. Thank you.
    Senator Hatch?
    Senator Hatch. Thank you, Mr. Chairman.
    Ms. Olson, if a criminal has the taxpayer's name and Social 
Security number, it may be enough to file a fraudulent return 
seeking a refund. Now, identity theft victims now receive an 
additional layer of security to prevent the fraud from 
happening to them again. Would adding a similar, additional 
layer of security for all taxpayers be an effective way to 
prevent tax fraud related to identity theft?
    Ms. Olson. I think that that is something worth looking 
into. People who e-file already have to answer certain 
questions, information off the last year's return. What Acting 
Commissioner Miller was talking about, some of these out-of-
wallet questions, things that we are familiar with--what was 
the name of your elementary school, your first pet, et cetera--
are getting more accepted in doing business and may be easier 
for taxpayers to answer.
    I would also make a comment about something Mr. Miller 
referred to earlier about funeral homes and hospitals. I often 
wonder why they need Social Security numbers in the first 
place, why those numbers are available to these entities. Why 
are they asking for them? I think that that is something worth 
looking at, the proliferation of people asking for Social 
Security numbers where there is no overriding tax need, for 
example, for giving that information.
    Senator Hatch. All right. Thank you.
    Mr. Miller, are refundable tax credits an element of the 
income tax system that make it easier for criminals to obtain 
fraudulent refunds, and are they more susceptible to fraud than 
non-
refundable credits?
    Mr. Miller. I do not think we can crowd all refundable 
credits into one pile, Senator. I think that it is clear that 
where a refundable credit represents a large hunk of money, 
that that becomes a target, a natural target for thieves.
    That would be true of any credit, but especially of a 
refundable credit where there is no natural break on its 
utility. It really depends on the nature of what information we 
have to validate that credit at the time. I think that is more 
important than whether it is refundable or not.
    Senator Hatch. Well, as you know, some have advocated a 
return to more paper filing as a way to combat tax fraud 
through identity theft. However, would going to more paper tax 
return filings really reduce this crime?
    Mr. Miller. We do not think so, Senator. First, we still 
see a goodly amount of fraudulent returns coming in on paper. 
Second, whether they come in on paper or whether they come in 
electronically, those returns and that information are going 
through the same system.
    So what we would have is a delta between something that 
costs us about 17 cents to process, that is an electronic 
return, and $3-plus for a paper return for, in our mind, not 
necessarily much benefit in terms of cutting down on fraud.
    Senator Hatch. I see.
    Mr. Porter, as a longtime professional tax practitioner, 
you have undoubtedly dealt with many cases where the IRS has 
assessed penalties. Penalties can be waived in some cases where 
the taxpayer can demonstrate ``reasonable cause.'' Do existing 
reasonable cause exceptions adequately protect both taxpayers 
and the government, and where is there room for improvement in 
this area?
    Mr. Porter. Well, we have concerns about areas where there 
is not reasonable cause, where the reasonable cause exception 
is not allowed. So that is one area we are concerned about. Our 
concerns in the area where there are reasonable cause 
exceptions deals with really the subjectivity with which the 
rules are applied. As we all know, the tax code is extremely 
complex, and taxpayers many times will make foot faults that 
are unintentional, so we just believe that the subjectivity 
issue of how we decide whether they are or are not abated is 
the issue.
    Senator Hatch. All right.
    This is for all three of you. The IRS's planned regulation 
of paid tax return preparers is currently on hold. The IRS lost 
on its appeal in a recent District Court case that ruled that 
the IRS does not have the authority to regulate tax return 
preparers.
    How important is the IRS's ability to regulate tax return 
preparers in the battle to combat tax fraud, tax refund fraud 
for instance?
    Mr. Miller. If I could start out, Senator. We think it is 
remarkably important. First, we have worked with the Department 
of Justice, and we are appealing the District Court case. We 
hope to get an answer this calendar year. Yes, we think it is 
vital. We think it is vital to our ability to allow the public 
some confidence that the return preparer whom they are 
selecting meets certain basic competencies. So, we find it very 
important.
    Senator Hatch. Mr. Porter?
    Mr. Porter. We have consistently supported the IRS and 
their program to register tax return preparers and provide ID 
numbers, and the expansion of Circular 230. We agree that we 
think it provides the taxpayer a level of confidence to know 
their preparer has at least a basic level of competence, and it 
allows the IRS the ability to track preparers and to see the 
type of returns that they are preparing and potentially be able 
to spot fraud issues early on.
    Senator Hatch. All right. Ms. Olson?
    Ms. Olson. I personally have over 50 taxpayer assistance 
orders sitting on my desk that are in the process of being 
issued to Mr. Miller over there on my right, where the 
taxpayers have been the victims of preparer fraud.
    The preparers have taken their identity or filed 
unauthorized returns and had the refunds of significant amounts 
of money--as much as $5,000--deposited into their personal 
accounts. We are dealing right now with the fall-out of the 
legitimate taxpayer trying to file a second return, a real 
return, and getting their refund back from us.
    When I see return preparers in massage parlors and return 
preparers in dog grooming locations, I am not saying that they 
should be shut down, but I am saying that they should be 
required to demonstrate their competency to prepare returns. 
That is the environment that we have today, absent this 
regulation, that folks are just hanging up their shingle 
without any qualifications whatsoever.
    Senator Hatch [presiding]. All right. Thank you all.
    Senator Grassley?
    Senator Grassley. Yes. Mr. Miller, recent reports indicate 
that the IRS has taken a position that it can access taxpayer 
e-mails without warrant under the Electronic Communications 
Privacy Act. While that law does allow Federal agencies to 
obtain electronic communications from a remote computing 
service without a search warrant, provided that they are older 
than 180 days, this position is contrary to the 6th Circuit 
decision in Warshak.
    In that case, the court held that the search warrant is 
necessary to obtain any content of an e-mail, regardless of 
age. It is my understanding that the Department of Justice has 
extended this policy to all circuits. So my question is, why is 
the IRS taking a more aggressive posture under that law than 
the Justice Department has applied for all agencies, or applied 
to all circuits?
    Mr. Miller. Well, Senator Grassley, the short answer is, we 
are not taking that position. We follow Warshak. In the 
criminal context, we seek a search warrant in advance of going 
to an ISP, Internet Service Provider, for e-mail content. On 
the civil side, we do not have a policy that has us going to 
them anyway. We are going to clarify that in our procedures. We 
think that is currently the case in any event, but, in short, 
we are following Warshak.
    Senator Grassley. Well then, I think I can go on to my next 
subject. Well, maybe one other follow-up. Is the same standard 
going to be applied to civil and criminal investigations?
    Mr. Miller. My understanding--and you are not talking to a 
criminal lawyer here--is, we cannot get a search warrant in a 
civil matter, only in a criminal matter, so we would not be 
going to the ISP for content of e-mails on the civil side. So 
it is in conformity with the statute, and it is in conformity 
with the 6th Circuit opinion in Warshak.
    Senator Grassley. All right.
    Would this apply also to Facebook and Twitter?
    Mr. Miller. You are probably moving out of my range of 
ability to answer. I will come back to you on that.
    Senator Grassley. All right. Well then, why don't you 
respond to that in writing?
    Let me go on to my next and last issue, again to you. You 
probably know that, a few months ago, I sent a letter to you 
expressing my concern about the proposed whistle-blower 
regulations. Chief among these were that they will hamstring 
the program by limiting awards and discouraging knowledgeable 
insiders from coming forward.
    Last week, the IRS held a hearing on proposed regulations. 
A number of whistle-blowers and attorneys made their concerns 
with the proposed regulations loud and clear. If the whistle-
blower program is going to be as effective and successful as it 
can be, the final regulations ought to address those concerns.
    Unfortunately, it appears that the concerns expressed by me 
and others may be falling on deaf ears, because, at last week's 
IRS hearing, a whistle-blower attorney asked those attending to 
raise their hands if they thought the proposed regulations 
would encourage future IRS whistle-blowers to come forward.
    It is my understanding that the only persons to raise their 
hands were the IRS panel members. It is difficult for me to 
understand how anyone, particularly anyone with knowledge of 
the concerns expressed by me and others, would not raise their 
hand.
    So do you agree that the IRS panel members are correct, 
that the proposed regulations will actually encourage whistle-
blowers to come forward? I would like to have an explanation of 
why or why not.
    Mr. Miller. Let me do a few things here, Senator. First--
and I hope you know this--I am supportive, and the Service is 
trying to be more supportive, of the whistle-blower community, 
with continued contact and discussion with them, of getting 
information in from them, because there are blind spots for us 
in reporting. So, in the offshore area and other areas like 
that, they are vital. We are trying to do what we can. I would 
say the proposed regulations are just that: they are proposed.
    We are talking to people about what changes are necessary, 
what changes can be made. I think we would also welcome a 
chance to discuss with you what we can do, what we cannot do, 
and what might require legislation. So that is sort of where we 
are.
    To the extent we can make whistle-blowers more comfortable 
and communicate with them more along the way, I think that is a 
positive. There are a couple of provisions in the 
administration's 2014 bill that you may know about that are 
going to help here. One of them will allow us to release more 
information, I think, to the whistle-blower towards the end of 
the process. That also has the detail of requiring them to 
treat it as 6103 information.
    The other piece that you may be aware of and that you have 
pushed for, Senator, is to have the False Claims Act reprisal 
rules put into title 26 as well. So I would welcome a 
conversation, a continued conversation on this, and we are 
still working on it.
    Senator Grassley. I welcome that conversation, because I 
think it is a situation that is similar to the False Claims Act 
that you just talked about, which has brought in $33 billion to 
the Federal Treasury since 1986. I did not anticipate that 
would ever happen.
    I think we have more of a gold mine here if we start 
listening to these whistle-blowers. I think we have already 
seen benefits potentially of at least $600 or $700 million, and 
probably billions of dollars out there that have already been 
identified. So I will submit some other questions along this 
line, but I do welcome your talking to me.
    I yield the floor.
    Senator Hatch. Thank you.
    Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman.
    Mr. Miller, on this privacy issue, I want to be clear on 
it, because this has triggered enormous concern. Are you saying 
that the agency has not obtained electronic communications 
without a warrant? That is a ``yes'' or ``no'' answer.
    Mr. Miller. I am sorry, you are going to have to repeat 
that one.
    Senator Wyden. Has the agency obtained electronic 
communications without a warrant, yes or no?
    Mr. Miller. Not to my knowledge.
    Senator Wyden. All right.
    Now, your lawyers say that you can. Mr. Chairman, I would 
ask unanimous consent to put into the record a memo outlining 
why the IRS lawyers have taken the view that Americans' e-mail, 
Facebook messages, and Twitter communications which are older 
than 180 days can be obtained by the IRS without a warrant.
    Senator Hatch. Without objection.
    [The information appears in the appendix on p. 109.]
    Senator Wyden. Thank you, Mr. Chairman.
    You indicated, Mr. Miller, to Senator Grassley that you 
would go back and look at this. When will we actually get a 
public statement that the agency will not seek to obtain 
electronic communications without a warrant? When would we get 
that actual public statement?
    Mr. Miller. I think the point I had was that the raising of 
the issue of Facebook and Twitter--you have that statement from 
me today, earlier today, Senator Wyden. We are not doing it. 
What I have said is, in the criminal context, we use search 
warrants, and we are not going to the ISPs in the civil context 
for content e-mail, with or without warrant, because we cannot 
get a warrant in that context in any event.
    I will say that there is certain public information out 
there on Facebook, on Twitter. This is why I sort of want to be 
more nuanced in the discussion. There is certain public 
information that we might look at in terms of a collection 
action, in terms of an examination. That is a different sort of 
situation, and I would be glad to come back and sort of work 
through that for you. But that is public information, not 
private information.
    Senator Wyden. The public has recently learned, Mr. Miller, 
that the IRS legal counsel believes that Americans enjoy no 
general privacy to their online communications that are older 
than 180 days. That is why people are so troubled. So you have 
said, and it is certainly helpful to hear that today, that this 
has not been done in the past. I think it is very important 
that the agency clarify its policy with respect to the privacy 
rights of Americans and do it promptly.
    Mr. Miller. And we intend to do that.
    Senator Wyden. When will you do that?
    Mr. Miller. I would hope to have that done--I do not have a 
date, but it is----
    Senator Wyden. Can you commit today to have this done 
within 30 days, that the agency will clarify----
    Mr. Miller. I will use my best effort, Senator. I think we 
can do that, yes.
    Senator Wyden. All right.
    Ms. Olson, what is your reaction to this question about the 
IRS's position with respect to the privacy of tax information? 
I mean, we are always trying to find ways to boost tax 
compliance. Here we have--and I put it in the record--the 
general counsel of the IRS saying that Americans enjoy no 
general privacy to their online communications that are older 
than 180 days. That is not something that was made up by some 
whistle-blower, that was from the IRS general counsel.
    My sense is, the two issues are going to be related: 
taxpayer compliance and the privacy of Americans' tax 
information. Section 6103 of the Internal Revenue Code was 
written by the Congress to ensure that taxpayers' tax 
information is private. What is your sense about memos like 
this, the one that I just quoted from, undermining the 
expectation that Americans have in section 6103?
    Ms. Olson. Well, regrettably that memo was not shared with 
me prior to it being made public, nor was it circulated for my 
comments. My experience with memos such as that is, when they 
are actually circulated and people within the IRS, such as my 
office and myself, have an opportunity to raise concerns about 
them, that you get a much better quality work product, and it 
might have looked different had the voice of the taxpayer had 
an opportunity to comment on that.
    I think that it is vitally important to people's 
willingness to comply with the laws that they feel like they 
are being treated fairly by the tax administration, just as the 
tax administration is asking them to behave properly with their 
tax filing obligations.
    Not having a full and robust discussion internally is one 
sure way of coming out with guidance such as that, so that then 
it needs to be said, ``We are not going to follow that.'' I 
just have to say that the Chief Counsel often issues memos in 
answer to very narrow questions, and, when you have a greater 
discussion, you are able to place that in context and get a 
better product.
    Senator Wyden. My time is up, Mr. Chairman. I would just 
note that, as a general rule, having worked with Ms. Olson over 
the years, the public is better protected when Ms. Olson is 
consulted. I think that we have learned that again, and I hope, 
Mr. Miller, that that lesson is one of the take-aways of this 
discussion. Thank you.
    Senator Hatch. Thank you, Senator.
    Before we turn to Senator Nelson, let me just ask you, Mr. 
Miller, what are the criminal penalties for a person who 
commits identity fraud with regard to the IRS; do you know?
    Mr. Miller. I am probably the wrong one to address that 
question to.
    Senator Hatch. Does anybody know there on the panel?
    Mr. Miller. I will say there are two things that are being 
proposed as part of the 2014 budget that you all should be 
thinking about. One is, a specific penalty on the civil side of 
$5,000 for each filing of a false return by reason of identity 
theft. That would be new. There is also an additional 2-year 
sentencing guideline that would be brought to bear, or possibly 
brought to bear. In a tax case where there is an aggregated 
identity theft rule on the books that does not apply to tax 
cases, this would put that in.
    Senator Hatch. Sure. If you would, I would like to have you 
folks make recommendations of what type of a criminal penalty 
there should be for people who engage in these type of 
practices. I think it ought to be pretty stiff, myself.
    Ms. Olson. Sir, there is, for preparers in particular, a 
criminal penalty if they use or disclose taxpayer information 
without the taxpayer's consent. So, when you have a preparer 
who is using that information to file a return that the 
taxpayer did not authorize, I think we do have some tools. We 
have not used that authority, to my knowledge.
    Senator Hatch. I am more interested in the actual tax fraud 
that is being perpetrated.
    Senator Nelson, you are next. I apologize for interrupting.
    Senator Nelson. First of all, I have been heartened by the 
commentary that we have heard from the witnesses with regard to 
either the overall impact of the legislation that we have filed 
or the parts of it they have testified to.
    I would like to pursue just a couple of comments here that 
will further, I think, give credence to the need for this 
legislation. I would appreciate, to the chairman and the 
ranking member, if you all would seriously consider moving this 
legislation. I think the testimony today has brought out parts 
of it.
    I want to thank Mr. Miller. For example, for some reason we 
have seen a concentration of this fraud in Tampa and Miami. 
Senator Isakson came in. There has been a concentration in 
Georgia as well as Florida, of taking identities and filing 
false returns and getting a refund. This has such an impact, 
and we have had a hearing before in this committee a couple of 
years ago. I just recently had another hearing in my capacity 
as chairman of the Aging Committee.
    What happened in Tampa is that street crime has suddenly 
dropped because the criminals are using a laptop instead of a 
crowbar. The drug traffic on the corners has diminished because 
they found a new way that is a lot easier and a lot less risky 
to get somebody's money. In this case, it is the United States 
taxpayers' money.
    Mr. Miller, you said you had spent something like $330 
million going after ID theft, but you said you had prevented 
$20 billion of theft. That is a pretty good return on your 
investment. At the same time, there is still, according to your 
figures, $5.2 billion that is lost to the taxpayer. So I would 
be curious, Mr. Miller. Why do you think it is happening in 
concentrated places like Tampa and Miami?
    Mr. Miller. I do not know that, but where it seems to work, 
people begin to use it. We really have not gotten behind that. 
We really do not understand why. It did, in fact--Florida was 
the beginning of this. You are absolutely right: you still are 
suffering the greatest amount of this in those two areas.
    Senator Nelson. Well, I want to thank you. Working real-
time with the local police--here is a good example of 
government working. They cannot share information. That is 
prohibited. But we worked it out where, with the victim, the 
taxpayer giving their consent, that they, the IRS, could share 
the tax information with the local law enforcement so that it 
would help them bolster their ability to go after the bad guy.
    Now, another way, Mr. Chairman, that they get around this 
is that they have the tax return money come to a pre-paid debit 
card, and then there is no identifying information so that the 
police can go after the bad guy. What do you think about that, 
Mr. Miller?
    Mr. Miller. I do very much appreciate your comments on our 
improved work with local law enforcement. We did not start out 
doing as good a job as we needed to there, and, with your help 
and the help of Florida authorities, I think we are doing much 
better.
    On debit cards, they were proliferating. I am not sure 
where they are today. There have been some changes in the rules 
about, know your customer and the application of those rules to 
debit cards. We may see a different result now than we did 
earlier, but it is something we should be talking about.
    Senator Nelson. Well, each one of the people, including Ms. 
LaCanfora from Social Security, has pointed out the problems. 
Now, they are constrained because they can only do so much with 
Social Security numbers. But we know it is a problem on the 
Death Master File. We need to delay the publication.
    As she said, the Commissioner of Social Security can go in 
and make available to legitimate interests, like life insurance 
companies, the Social Security numbers, but stop publishing 
them on the Internet. Otherwise, it is like shooting fish in a 
barrel. If you have the number, somebody is going to go and 
file a false return. So, Mr. Chairman, with the utmost of 
urgency on the day after tax day, I would urge you and Senator 
Hatch to get this legislation moving.
    Thank you.
    Senator Hatch. Would the Senator yield?
    Senator Nelson. Of course.
    Senator Hatch. I would like to be on his bill with him. We 
understand there is an Ancestry.com problem that we need to 
resolve. If we can resolve that, I think I would go on the bill 
with you.
    Senator Nelson. Of course.
    Senator Hatch. And I would like to support it and push it.
    Senator Nelson. And it is legitimate users.
    Senator Hatch. But you only add 2 years' criminal penalty 
on to the current penalty. Do you know what the current penalty 
is?
    Senator Nelson. Oh yes, sir. The current penalty is only 3 
years. The bill takes it up to 5 years. The current fine is 
only $100,000. The bill takes it up to $250,000.
    Senator Hatch. Well, I think the criminal penalties ought 
to be higher than that so that people realize there is a 
substantial penalty for doing this type of stuff to their 
fellow citizens. I just want to commend the Senator for working 
on this. I would like to be on it. Let us work out that 
Ancestry.com thing so that it works, and I will be happy to 
work with you.
    Senator Nelson. Of course.
    The Chairman. Thank you, Senator.
    Senator Nelson. Thank you.
    The Chairman. Senator Cardin?
    Senator Cardin. Thank you, Mr. Chairman. I thank our 
witnesses.
    On a regular basis, I talk to my staff people who handle 
case work to see what they are spending most of their time on. 
Identity theft is a major issue in my Senate office, and I 
would say probably in every Senate office. It is a growing 
problem. The number of people affected by identity theft, 
including the IRS issues that we are talking about today, is 
increasing, and the cases are becoming more complicated.
    People are waiting to get refunds who thought their refunds 
would come in, and it is taking a longer time. The number of 
people who have been compromised is increasing. So, Senator 
Nelson, I want to thank you for your leadership on this. I am 
proud to be a co-sponsor of your bill. You deal with some of 
the core issues to prevent identity theft, and the careless use 
of Social Security numbers as an identifier clearly has to 
change.
    I am reminded that, today, I believe the instruction from 
the IRS is to put your Social Security number on your check, on 
your returns. I do not know why you need that. That check, 
after it is--who knows where it is going to be seen or used? It 
just adds another area of abuse. So I would just urge us to 
follow Senator Nelson's leadership to minimize the use of the 
Social Security number much more than we use it today.
    I also applaud Senator Nelson for recognizing that we have 
to work together, the local law enforcement with IRS and 
Federal authorities, in a much more efficient way to deal with 
this issue. Our number-one objective is to prevent identity 
theft. Obviously, once it has occurred, our responsibility is 
to make sure that those who have been victimized are treated 
fairly, including getting access to their refunds in a timely 
way.
    As Senator Hatch has pointed out, those who have committed 
the crime need to be held accountable for their actions so they 
understand that we will not tolerate this type of crime, which 
I believe is the fastest-growing crime in America today.
    So let me ask, particularly Mr. Miller and Ms. Olson, a 
question. Any one of you can respond. Basically, what resources 
do we need in order to accomplish this objective? We talk about 
tight budgets. What do we need?
    A second issue I hope you would address is that we all are 
very proud that refunds are sent very promptly by the IRS to 
those who have refunds due. But if it is sent to the wrong 
person, you are not helping that individual at all. Should we 
be considering greater audit or greater scrutiny of a tax 
return as to where the checks are being mailed, or I guess 
where they are being transmitted, to make sure that we--is 
there something we can do that maybe will delay the refunds by 
a day or two, or three or four, but cut down the number of 
checks that are being sent to wrong accounts on a fraudulent 
basis?
    Mr. Miller. So let me start in the response. In particular, 
I will start with the budget. Thank you for asking the 
question, sir. The IRS, in the last 2 years, is down about $1 
billion, 8 to 10 percent, including the $600-million cut we 
took in sequestration. As I mentioned, we are spending about 
$330 million in identity theft at this point. It is clear we do 
need more resources. We need technology dollars, and we need 
additional employee dollars as well.
    The 2014 budget that has come up here has both. It has $100 
million for identity theft and 800 FTE, full time 
equivalencies, as well as some other dollars in the IT area. 
That is a start. It is not by any means, as you can tell, a 
full reimbursement of what we are doing, but that is a start. 
We do need resources, there is no question about it.
    Again, I have said this before. I would say if you had a 
dollar to give me and there was a choice between giving that 
dollar for an employee or giving it to me for IT improvements, 
I would take it for IT improvements because, ultimately, that 
is what we need here, to be better at processing these returns, 
at matching the information.
    Moving to your second area on refund speed, I think it is a 
discussion we should have. We should have that, whether it is 
the ability to get W-2s earlier, 1099s earlier, which we are 
trying to do, but let us face facts. The answer here is that 
the IRS has as much information as we possibly can at the time 
we make the decision about issuing a refund. So, I think there 
are discussion points we ought to have around that.
    We also should have discussion points around the other 
issue you raise, which is, whether it is a debit card or 
whether it is a direct deposit, there are currently rules 
elsewhere as to what level of diligence needs to be had between 
those making the payment into that account and those 
maintaining the account as to the identity, and do those 
identities match. That is a discussion that I would welcome, 
but it is not an IRS discussion. It is not what we regulate. 
But that is an area fertile for discussion.
    Ms. Olson. If I may. I am aware of the time, but if I may 
make some comments here. I do believe I named the funding of 
the IRS a most serious problem for taxpayers, and I think, on 
the taxpayer service side, which is where identity theft falls, 
that we are very much suffering. I do believe that there is a 
lot that can be done with the internal procedures right now 
that would improve service to the taxpayers.
    I think that the larger discussion is this whole refund 
culture. We have started sort of raising that as an issue. Many 
other tax administrations in the world actually do not issue 
refunds until the filing season is over and they have an 
opportunity to compare the data that they get in with the 
returns that they are getting.
    That does not just go to identity theft, but all sorts of 
just mere errors on the returns that they have an opportunity 
to correct, and then they issue the refunds a month after the 
filing season is over. I think that is part of the serious 
discussion we need to have.
    With respect to validating the accounts, it used to be 15 
years ago that the IRS would get bank information, and the 
banks would actually verify whether the name on the account 
matched the name of the check that it was going into. I think 
direct deposit sort of made that more difficult.
    We have gotten various answers about what banking law 
permits and what it does not, so I think that is something that 
would be a good subject of study for this committee and other 
committees as to whether there is a conflict in the law that 
would prohibit us from being able to do that kind of 
verification process.
    Senator Cardin. Thank you, Mr. Chairman.
    The Chairman. Mr. Miller, what are you doing about employee 
sensitivity training? You know, that example. Clearly it is 
unacceptable that IRS employees hang up on the Kipp Sailes of 
the world.
    Mr. Miller. It is. It is. It is no way for us to behave. We 
have trained people. We do train people. We train our CSRs. In 
fact, we have trained probably 37,000 folks on how to deal with 
an identity theft situation and to recognize that it is 
happening, to be sensitive to the folks on the phone who have 
been victimized. We are trying. We are trying. I think we do 
well. There are obviously instances where we fail, and we need 
to work at getting better at that.
    The Chairman. I mean, it really is not difficult at all. 
Just, anybody who answers the phone has to keep his or her head 
screwed on straight and remember that they are there to serve 
the person calling.
    Mr. Miller. Agreed.
    The Chairman. It is not hard. It is pretty simple. I have 
staff just in my office who take a lot of telephone calls from 
a lot of people. I marvel at how well they handle all these 
telephone calls. Do you take calls yourself?
    Mr. Miller. I do take some calls, yes.
    The Chairman. Why don't you go over and sit in one of those 
offices for a day so they can watch what a good job you do?
    Mr. Miller. I have sat with CSRs, the people who take the 
phone calls. It is not an easy job, Senator. It is something 
that they do very well. But there are going to be instances, 
unfortunately, with 12,000 to 15,000 people, where you have 
slip-ups and you have failures, and we have to get after those, 
there is no question.
    The Chairman. When you hire people, they go through 
training?
    Mr. Miller. They absolutely do.
    The Chairman. Before they get hired?
    Mr. Miller. Well, not before they get hired.
    The Chairman. I am asking, before they get hired.
    Mr. Miller. Do they get training before they get hired?
    The Chairman. No, no, no, no, no. I am just saying, when 
people apply, do you look at these qualities in an applicant 
before you decide whether or not to hire them?
    Mr. Miller. We do try to assess whether they are the type 
of person who could be on the phone and will keep their cool.
    The Chairman. It is better to hire uppers than downers.
    Mr. Miller. Yes. That is why I will never be on the phone.
    The Chairman. You hire uppers, people who are positive, 
upbeat, they are going to be good employees and they are more 
likely to treat taxpayers appropriately than if you hire a 
downer, who is more likely to treat them inappropriately.
    Mr. Miller. Right.
    The Chairman. So what do you think, Ms. Olson? What can be 
done to increase more appropriate IRS employee response to 
taxpayers who are calling in, appropriately upset that someone 
has stolen their ID, and appropriately upset if the Service is 
not helping them, if the Service thinks, oh, that is not your 
problem, it is the Service's problem?
    Ms. Olson. I think that it is very difficult when you 
receive lots of calls in a day to remember that the taxpayer is 
a human being and not a widget or a case. I think in my own 
organization what we try to remind my employees of on a regular 
basis is just that. And the kind of training that we have been 
trying to do, both in the domestic violence area, where you are 
working with victims of domestic violence, and moving into the 
area of identity theft or even just people in economic 
extremes, is to make employees understand, even if people are 
angry with you, that it is not personal and that there are ways 
of ramping down and dialing down the conversation and the 
emotions. Saying ``you are not a victim'' is not one of those 
ways.
    So I really think it goes to the nature of training, and it 
is not a one-time thing; you have to reinforce that message to 
your employees. You also have to give them a chance to de-brief 
and to deal with their own stress, because I cannot emphasize 
enough how difficult it is to be on the phones and listen to 
people's cases, and it is very easy to try to steel yourself 
against that pressure.
    So, as a manager, I think constantly of how to keep my own 
employees' morale up even as I am trying to encourage them to 
listen to the taxpayer, not take it personally, and be 
empathetic. I cannot emphasize enough that last word.
    The Chairman. I am sure it helps for employees to rotate so 
they are not sitting in that same place all the time. I mean, 
for short periods, go off and do something else and then come 
back again, get refreshed.
    Mr. Miller. I could not agree more. Our difficulty is the 
number of people we have on the phone and the level of service 
we try to apply and get to. It is very difficult.
    In a better world, I would be taking people off and letting 
them work paper to decompress. That is not the world of our 
filing season right now, sir. We do not have the bodies to be 
able to do that and provide the level of service that is 
necessary for the American people during tax filing season. So, 
in particular, this time period is difficult.
    The Chairman. Do you have any goals, benchmarks, that are 
quantified as to a certain date you would like to see refund 
waiting lists shortened, or a certain number of days, and the 
same with ID theft, get it cut down to a certain number of 
taxpayers whose identities are stolen? Are you working down to 
approaching zero on the last category?
    Mr. Miller. We track virtually everything we do, Senator. 
We certainly do track the efficiency we have. Our difficulty 
with identity theft is what we need to do is, I agree, get our 
cycle time down to what is much more reasonable than it is 
right now. We are getting there. We are closing, again, more 
cases than we are getting, and that is pretty key.
    The Chairman. But do you have a number? What is it now? 
What is the cycle time now?
    Mr. Miller. The cycle time is around 180 days.
    The Chairman. Are you trying to get it down to 120?
    Mr. Miller. I would like to get it down to 90.
    The Chairman. I know you would. But you have to get to 120 
before you can get to 90. Do you have a date by which you are 
going to get to 120, another date when you get to 90, another 
date when you get to 60, another date when you get down to 30?
    Mr. Miller. I do not think I am going to get to 30. One 
will always have these cases, unfortunately, I believe.
    The Chairman. I am just asking, do you have standards? I 
mean, do you have numbers that you are aspiring to?
    Mr. Miller. I am aspiring to 90 days by the end of this 
calendar year.
    The Chairman. Ninety days at the end of this calendar year?
    Mr. Miller. Yes. But that is aspirational, and it depends 
on the number of cases we get in.
    The Chairman. All right. Let us do it this way. It is 180 
today?
    Mr. Miller. Roughly.
    The Chairman. So you want to cut it in half by the end of 
the year?
    Mr. Miller. Yes.
    The Chairman. And this is April. So let us do a little 
midway test the 1st of September to see where you are, and let 
us know.
    Mr. Miller. All right.
    The Chairman. All right. Thanks.
    Senator Thune?
    Senator Thune. Mr. Chairman, thank you. I want to thank 
Commissioner Miller for the penalty relief that you are 
providing to filers who have been impacted by storms in the 
south and the Midwest over the past few days.
    I can speak from personal experience. In South Dakota, we 
have had a lot of people without power in our largest community 
in our State and a few other places, and a lot of damage from 
recent storms. So, we appreciate your willingness to work with 
us. I do not know what that extension is going to be, and we 
look forward to working with you to try to address as best we 
can the need that people will have to perhaps have a little bit 
of additional time to get their returns filed.
    Let me, if I might, come back to the issue of fraud and ask 
this question, because I think there are a lot of Americans who 
would be surprised to know that the IRS does not currently 
match W-2 information against information reported on tax 
returns so as to prevent the identity theft-related fraud.
    So I am wondering maybe if you can explain why this is the 
case and what, if anything, the IRS is doing to fix the 
problem. My understanding is that using W-2 information before 
a tax refund is issued is one of the recommendations that has 
been made by the National Taxpayer Advocate, so why is a match-
up not done?
    Mr. Miller. The W-2 comes to Social Security, they do a bit 
of transcription--and my colleague from Social Security can 
speak to this--then it comes to us rather quickly. We actually 
have moved it up, and we are doing some matching, but we are 
not doing matching as of the 1st of February, which would be 
when we would first begin to make those decisions on refunds. 
We are doing it a little later in the year. So we are getting 
better at it.
    There is a discussion in the President's budget about going 
quarterly for wage information or, in our case, we also have a 
test going on of some State wage data, and we can use that 
because that is earlier also. So there are other ways to do 
this. The fact of not having the W-2s is a function of when 
they come in to the government, and that is a question of 
burden on both large and small employers.
    Second, when we have to start the filing season, that is a 
question of how fast people want their refunds. Those are 
pretty big discussion points that we ought to have as we decide 
where to go here.
    Senator Thune. Ms. Olson, that was a recommendation from 
the Taxpayer Advocate. Do you want to add anything to that?
    Ms. Olson. Well, we really think that there needs to be a 
review of the requirements, the due dates, given 21st-century 
technology of e-filing and availability of data, and can that 
be moved up so Social Security and the IRS get the information. 
We have always wondered why it is that the IRS does not get the 
information first, and we have proposed a pilot for the IRS, 
which does its own scrubbing of numbers, to determine if it is 
as good as Social Security in identifying any errors in the 
data so we do not need to wait that time.
    But I think the real thing is, you have to look at the 
dates, the due dates, of the start of the filing season and the 
due dates of the 1099 and W-2 information. How soon can you get 
a reasonable amount, the bulk of these W-2s in, so that you 
would have them available to match with the returns?
    I think you have to pull in the 1099s on the interest and 
dividends, because people make little mistakes on that, and it 
would be great to get them up front rather than dealing with 
them after the fact for filing. That is more a taxpayer service 
benefit, but, if you are doing one, you might as well do the 
other.
    Senator Thune. All right. Thanks.
    Ms. LaCanfora, this is a little bit off of this particular 
subject, but I wanted to just ask this question because I posed 
this question to your predecessor, or I should say I raised the 
question, I think, before with the Commissioner. But it has to 
do with last year's annual report on the financial status of 
Social Security by the trustees of that program.
    We obviously know the challenge that the program faces in 
the long term, but it indicated that you are going to have the 
Social Security trust fund exhausted by 2033, and the 
Disability Insurance trust fund facing bankruptcy by year 2016. 
So you have the issue of significant benefit cuts perhaps 
happening automatically for beneficiaries.
    That is why this issue, I think, bears on that other one, 
and that is why I think it is so concerning, the reports of 
fraud in the SSDI program. The Wall Street Journal had reported 
on some potentially fraudulent practices on the part of law 
firms such as Binder and Binder, representing claimants for 
disability benefits before the Social Security Administration, 
particularly in the appeals process where administrative law 
judges adjudicate claims.
    I guess I am curious as to what actions the Social Security 
Administration has taken to address allegations about this law 
firm and their material representations to the Social Security 
Administration, and how are you prioritizing the Social 
Security Administration's program integrity functions within 
your existing budget to ensure that there is a proper response 
to fraud claims in the SSDI program.
    Ms. LaCanfora. A lot of questions there. First, let me just 
make one comment about the prior discussion with Ms. Olson 
about the time it takes us to process wage reports. I just 
wanted to say that, if an employer files a wage report 
electronically with the Social Security Administration, we turn 
that around to the IRS within 24 hours, generally speaking, so 
there really is no delay. That has improved significantly over 
the past 10 years. I just wanted to put that out there for the 
record.
    With regard to the Social Security Disability Insurance 
program, there are a lot of things we could talk about there, 
probably the subject of a whole series of other hearings. But I 
will say, with respect to any suspicious or fraudulent 
activity, we have many mechanisms in place to try to combat 
fraud. I will mention just a couple.
    One is our Cooperative Disability Investigation Units, 
which are units around the country in which we partner with 
both the Inspector General and local law enforcement to 
investigate any allegations of fraud and abuse. We do thorough 
investigations in collaboration with local law enforcement.
    In addition to that, we have the mechanism, of course, of 
our own Inspector General. Our employees around the country, 
who deal with benefit applications every day, have the ability 
to refer any suspicious activity to the Inspector General. We 
believe that with all of the mechanisms we have in place, the 
fraud in the program is still extremely low. We put it at less 
than one-half of 1 percent of all claimants who file benefit 
claims with us.
    Senator Thune. How about specifically the allegations about 
this law firm and their material representations to the Social 
Security Administration?
    Ms. LaCanfora. From our perspective, we have not 
substantiated any harm, abuse, or misuse with respect to that 
law firm.
    Senator Thune. All right. Well, there has been a 
significant amount of reporting to the contrary, but I 
appreciate your looking into it and hope you will continue to 
stay on top of it. Thank you.
    Thank you, Mr. Chairman. Mr. Chairman? There is nobody 
here. [Laughter.]
    All right. Well, I guess this hearing is adjourned. Thanks.
    [Whereupon, at 11:35 a.m., the hearing was concluded.]















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