IRS ‘falling short’ in tax fraud battle

WASHINGTON, April 16 -- Senators on Tuesday took to task the Internal Revenue Service for a litany of problems in addressing taxpayer identity theft, saying the agency is “falling woefully short” in curbing the estimated $5 billion problem.

Senate Finance Committee Chairman Max Baucus, D-Mont., said at a hearing the number of fraudulent returns are “unacceptable” and that “identity theft is a serious problem growing at epidemic proportions.”

According to the IRS, tax-related identity theft jumped a staggering 650 percent between 2008 and 2012.

“The IRS is falling woefully short,” said ranking member Orrin Hatch, R–Utah, who referenced slow response times and rude behavior from employees fielding telephone calls.

IRS representatives blamed part of the problem on sequestration. Nina Olson, National Taxpayer Advocate for the IRS, argued that the recent budget cuts have impaired the IRS’s ability to serve taxpayers and catch fraud.

The IRS saw more than $600 million in reductions, “which the IRS is struggling to absorb,” Olson said at the hearing.

Sen. Bill Nelson. D-Fla., took this opportunity to make a passionate plea to move along a tax fraud bill, which he has championed for two years, that would aim to eliminate the more than 1.8 million incidents of identity theft and fraudulent refunds in the last year alone.

The proposed Identity Theft and Tax Fraud Prevention Act of 2013 would compel the IRS to act more quickly and limit access to death records and social security numbers.

Steve Miller, the IRS’ acting commissioner, pledged to cut the response time to identify and correct fraud cases to 90 days, down from 180 days, by the end of the calendar year.

“We are closing more [fraud cases] than we are getting in and that is key,” Miller said.

Still, several committee members called for tighter controls of the so-called Death Master File -- a database of recently deceased citizens and their social security numbers that has been made available to the public since 1980. Data from these files is sometimes used to collect on tax returns using the identities of recently deceased Americans.

“It’s like shooting fish in a barrel,” Nelson said. “You’ve got the numbers right there for someone to file a return.”

Marianna LaCanfora of the Social Security Administration proposed delaying the release of information to the public for three years, significantly reducing the ability of criminals to use such information to commit fraud.

Only private entities that the Social Security Administration certifies as having “a legitimate need for the information” would be able to receive it, LaCanfora testified.

But Miller acknowledged that it still might not be enough. “There is some leakage,” he said, acknowledging that some criminals are also able to collect the same information from funeral homes and hospitals. “We don’t have the authority nor the capability to police the use of Social [Security numbers]. All we can do is try to educate.”