“Identity theft is one of the biggest challenges facing the IRS today.” That statement was made by IRS Principal Deputy Commissioner Daniel Werfel on August 2, as he testified before the House Oversight and Government Committee. He testified that identity theft inflicts significant harm on many innocent taxpayers. As a result, 3,000 IRS employees have been focusing their efforts to prevent identity theft and fraudulent refunds.
In the past year alone, there have been an estimated 565,000 cases where taxpayers were victims of identity theft. There are over 1,100 identity theft investigations this year. There have been 765 indictments and over 300 convictions. Those who have been convicted are often sentenced to prison terms of two to five years. Werfel testified that sequestration budget cuts are causing challenges for the IRS. With 8,000 fewer total staff, the IRA has been forced to become more efficient in its operation.
There are six specific strategies that the IRS has created to prevent identity theft, according to Werfel:
- Implementation of new identity theft software screening methods that flag potential returns that are at risk.
- Acceleration of the use of various information returns to attempt to discover mismatches that could involve identity theft.
- Tracking the accounts of deceased persons and locking them to eliminate refunds; identity thieves use the Social Security numbers of deceased persons to file returns and claim refunds.
- Coordinating law enforcement with other agencies to identify links with groups of criminals.
- Developing a more complete list of prisoners, thereby enabling the IRS to stop refunds that are sent to prisoners who substantially overstate their prison earnings.
- Working together with software companies and over 80 financial service institutions to help track payments. One identity thief had over 600 payments sent to the same bank account. This initiative is designed to identify these events.
Also testifying at the hearing was the Treasury Inspector General for Tax Administration (TIGTA). Michael McKenney, the acting Deputy Inspector, noted that the IRS has made significant progress. But McKenney also faulted the IRS because it “is not in compliance with direct-deposit regulations that require tax refunds to be deposited into an account only in the name of the individual listed on the tax return.” He testified that the IRS is working with financial services institutions to attempt to correct this failure.
The IRS also has expanded use of identity protection personal identification numbers (IP PIN). When someone has been the victim of identity theft, they are given the IP PIN and it is included on their tax return. In this way, the IRS is able to determine that this return has been filed by the actual taxpayer.
– Heinz J. Brisske