The IRS intends to take additional measures to combat identity theft during the 2012 filing season, Steven Miller, Deputy Commissioner for Services and Enforcement, recently told Congress. Miller was joined by J. Russell George, Treasury Inspector General for Tax Administration, who reported that tax-related identity theft has grown significantly since 2008. Miller and George testified before the House Committee on Oversight and Government Reform, Subcommittee on Government Organization, Efficiency and Financial Management, on November 4, 2011.
Tax-related identity theft is a growing problem. George told lawmakers that IRS incident tracking reports indicated that 254,079 taxpayers were affected by identity theft in calendar year 2008. "As of August 31, 2011, IRS incident tracking reports indicated that 582,736 taxpayers were affected by identity theft in calendar year 2011," George said. "In calendar year 2011 to date, the IRS has protected $1.3 billion in refunds from being erroneously sent to identity thieves," Miller added.
George explained that there are two types of identity theft that relate to tax administration: tax fraud identity theft and employment identity theft. In tax fraud identity theft cases, an individual uses another person's name and/or Social Security number (SSN) to file a fraudulent tax return, which results in a refund. In employment identity theft cases, an individual uses another person's identity to obtain employment.
"Employment identity theft can affect taxpayers when the IRS attempts to take enforcement actions for what appears to be unreported income," George explained. "Refund fraud using another person's identity has a more substantial effect. After an identity thief has successfully committed the crime and is enjoying the benefits, the victim begins to realize the harm. It affects lawful taxpayers' ability to file their returns and can delay their tax refunds."
"The majority of identity theft cases are worked by telephone assistors," George said. "Total time spent on a case can vary significantly and sometimes cases can stay open for months with little or no activity as assistors answer calls or work other types of cases." Miller told lawmakers that the IRS has "redoubled its training efforts" for assistors.
In 2011, the IRS began issuing Identity Protection Personal Identification Numbers (IP PINs) to victims of identity theft under a pilot program. "The IP PIN will indicate that the taxpayer has previously provided the IRS with information that validates his or her identity and that the IRS is satisfied that the taxpayer is a valid holder of the SSN," George said. "Under this pilot, the IRS issued IP PINs to over 50,000 taxpayers who were identity theft victims," Miller added.
Miller said that the IRS will expand the IP PIN program for the 2012 filing season. "The IRS will be issuing IP PINs to more than 200,000 taxpayers who have suffered identity theft in the past," Miller explained.
The IRS is also taking steps to stop the growing trend of fraudulent tax returns being filed under deceased taxpayers' identities, Miller said. The IRS intends to expand a pilot program that marks the accounts of deceased taxpayers to prevent misuse by identity thieves. "The IRS has marked 230,000 accounts of decedents. This will be an ongoing process," Miller reported.
The recently enacted U.S.-Korea trade agreement requires federal and state prisons to provide information on the current prison population to the IRS, including the names and last known addresses of inmates, to curb fraudulent filings by inmates. "The IRS intends to engage with prison officials to determine the best way to move forward with this new authority," Miller said.