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Identity Theft: IRS Still Has Issues to Resolve

Identity Theft: IRS Still Has Issues to Resolve 

Expanded identity theft detection efforts at the Internal Revenue Service (IRS) are helping to identify fraudulent tax returns, however, billions of dollars of potentially fraudulent refunds continue to be paid, according to a report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA). 

At the same time, TIGTA identified weaknesses in the ability of the IRS to help victims of identity theft.

“Identity theft continues to be a serious problem with devastating consequences for taxpayers and an enormous impact on tax administration,” said J. Russell George, Treasury Inspector General for Tax Administration.  “Undetected tax refund fraud results in significant unintended Federal outlays and erodes taxpayer confidence in the Federal tax system,” he added. 

TIGTA’s report is a follow-up to a July 2012 report that found billions of dollars were being lost to identity theft in 2010.  This report’s objective was to determine whether the IRS has improved its procedures to identify and prevent fraudulent tax refunds resulting from identity theft. 

TIGTA’s analysis of Tax Year 2011 returns found that approximately 1.1 million undetected tax returns that were filed using a Social Security Number have the same characteristics of IRS- confirmed identity theft tax returns.  Potentially fraudulent tax refunds issued total approximately $3.6 billion in 2011, which is down by $1.6 billion compared to the $5.2 billion TIGTA reported for Tax Year 2010. 

Problems identified by TIGTA in previous reports—notably, delayed access to third-party income and withholding information and multiple tax refunds deposited to the same bank account—continued to provide identity thieves with an opportunity to obtain fraudulent tax refunds in 2011. 

TIGTA made two recommendations.  IRS management agreed with TIGTA’s recommendations and stated plans to take action. 

Read the report

The Inspector general’s Office also noted weaknesses in the IRS support for victims of identity theft.

It took the Internal Revenue Service (IRS) an average of 312 days to resolve tax-related identity theft cases, according to the report released by the Treasury Inspector General for Tax Administration (TIGTA) that studied a statistical sample of these cases. 

This audit was a follow-up to a May 2012 identity theft audit report. 

The IRS reported that identity theft affected 1.2 million taxpayers in Calendar Year 2012, and an additional 1.6 million were affected in Calendar Year 2013, as of June 29, 2013. 

“Identity theft is a growing epidemic, and I continue to be troubled by the lengthy case processing delays and tax account errors experienced by victims of tax-related identity theft,” said J. Russell George, Treasury Inspector General for Tax Administration. 

TIGTA’s review of a statistical sample of 100 identity theft cases closed between August 1, 2011 and July 31, 2012 found that the IRS correctly determined the rightful owner of the Social Security Number in all cases.  However, taxpayers faced delays, with some cases having significant inactivity during case processing.  Inactivity on the 100 identity theft cases averaged 277 days.  This is due, in part, to assistors being required to also answer telephone inquiries during the Filing Season. 

In addition, tax accounts were not correctly resolved for 25 percent of the cases reviewed by TIGTA, resulting in delayed refunds and/or incorrect refunds to all 25 taxpayers.  TIGTA surveyed 183 IRS assistors who work identify theft cases.  Seventy-three percent of those surveyed stated that the IRS’s identity theft procedures are confusing. 

Finally, the IRS needs to improve the accuracy of its Refund Fraud and Identity Theft Global Report.  The IRS Accounts Management function’s open case inventory was overstated by 95,429 cases in the Calendar Year 2012 Global Report. 

TIGTA recommended the IRS: 1) ensure that assistors assigned to identity theft cases work these cases exclusively and are provided with ongoing training and the ability to perform actions to work these cases to conclusion, 2) develop clear and consistent processes and procedures to ensure that taxpayer accounts are correctly updated, and 3) develop validation processes and procedures to ensure the accuracy of information included in the Identity Theft Global Report. 

The IRS agreed with TIGTA’s recommendations. It plans to continue to ensure that there are sufficient resources assigned to identity theft inventory and phones and that processes and procedures will be developed to ensure that all appropriate actions are taken on identity theft victims’ accounts. The IRS also plans to improve data collection and management. 

Read the report.

 

 

Source:  US Department of the Treasury

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