The IRS was sharply criticized Thursday for having inadequate procedures in place to respond to and measure the growing problem of tax-related identity theft.
During a Senate Finance Committee hearing, lawmakers as well as the IRS inspector general and national taxpayer advocate criticized the agency for failing to adequately address the problem.
“I am amazed the IRS has no mechanism for taxpayers to give the IRS a heads-up that their identities have been stolen,” Senate Finance Chairman Max Baucus said. He said such taxpayers have been instead told to contact the FTC to report the problem.
Baucus said the FTC reported that 50,000 people complained about tax and employment-related identity theft in 2006 compared with 18,000 in 2002. Baucus urged the IRS to develop a comprehensive identity-theft strategy “with goals, timelines and milestones” and gave the agency 90 days to provide a status report on the issue.
IRS National Taxpayer Advocate Nina Olson said tax-related identity theft usually involves the filing of a false return to obtain a fraudulent tax refund or the theft and use of another person’s Social Security number to obtain employment. Olson and others urged the IRS to establish a centralized unit to deal with identity theft cases.
Treasury Inspector General for Tax Administration Russell George said the IRS must improve its computer and network security procedures. A March 2007 audit by his office found that IRS employees reported at least 490 computers had been lost or stolen and that many IRS computers contained unencrypted sensitive data.
Rebecca Spencer, a tax preparer from Billings, Mont., said when one of her clients discovered that her identity had been stolen and used to file a fraudulent tax return, her first problem was trying to reach a live person at the IRS. Her subsequent efforts to resolve the problem with IRS officials were stymied and 10 days after notifying the agency of the theft, the IRS released her refund to the fraudulent taxpayer.
Spencer managed to block the refund from going to the fraudster by alerting the bank to the fraud. Spencer and others said it was almost impossible under current procedures to block a refund from going out once it has been processed. “Once (a refund is) accepted, that’s the end of it,” she said. “The thief is home free.”
IRS Commissioner Douglas Shulman, who has been in his post for just a few weeks, acknowledged the problems and said procedures are being implemented. They include ensuring that specially trained employees will be in place by this fall to help taxpayers who call to report identity theft, creating an office to help bring an agencywide focus to the problem, and instituting a procedure that tags a taxpayer’s account once identity theft has been established.
When asked why the agency lacks adequate data on the problem, Shulman noted that until recently the agency did not specify when a taxpayer was a victim of identity theft. Sen. Ken Salazar, D-Colo., pressed Shulman about whether the agency would have enough personnel to ensure taxpayers can reach a live person when they call about identity theft. “We will have enough people,” he said.
This article appears in the April 12, 2008, edition of NJ Daily.