With tax refund fraud on the rise in recent years, Klobuchar joined a bipartisan group of 15 senators calling on the agency to make fraud reduction a top priority
Klobuchar has introduced legislation to help crack down on identity thieves and protect victims by focusing law enforcement resources and increasing penalties on perpetrators
WASHINGTON, D.C. – U.S. Senator Amy Klobuchar (D-MN) urged the Internal Revenue Service (IRS) to crack down on tax refund fraud. With tax refund fraud on the rise in recent years, Klobuchar and a bipartisan group of 15 senators sent a letter to IRS Commission John Koskinen calling on the agency to make fraud reduction a top priority. Klobuchar has introduced the STOP Identity Theft Act to help crack down on identity thieves and protect victims by focusing law enforcement resources and increasing penalties on perpetrators. Representatives Debbie Wasserman Schultz (D-FL) and Lamar Smith (R-TX) have introduced companion legislation that passed the House of Representatives last month.
“With billions of dollars at stake, we believe that finding a solution to the problem of identity theft-related refund fraud should be a top priority for the IRS,” the Senators wrote. “We understand that the IRS may not be able to stop all refund fraud, but a lot more can be done within the IRS’s current authority to reduce the risk of fraud and improve taxpayer services. It is essential to stem the tide of this crime before another tax season passes by and billions more taxpayer dollars are stolen.”
In cases of widespread fraud across the country, criminals using stolen information such as Social Security numbers have been electronically filing false tax returns before the legitimate taxpayer files their tax return and steals the taxpayer’s refund. The victims often experience long delays in receiving their rightful refund or never receive it at all.
The STOP Identity Theft Act of 2013 would direct the Department of Justice to focus its resources in areas with a high rate of tax-return identity theft and to coordinate investigations with state and local law enforcement agencies. The bill would increase the maximum jail sentence on perpetrators from 15 to 20 years and expand the definition of a victim of identity theft to allow for prosecution in cases where organizations and businesses—not just individuals—are victims of fraud.
The full text of the Senators’ letter is below:
Dear Commissioner Koskinen:
We are writing to request information regarding the IRS’s efforts to prevent identity theft-related refund fraud. There has been a substantial increase in this kind of fraud in recent years with $5.2 billion being lost to fraudulent tax returns in 2013, according to the Government Accountability Office (GAO). GAO characterized this growing problem as a “persistent, evolving threat to honest taxpayers and tax administration” in its latest report on the subject.
We understand that the IRS may not be able to stop all refund fraud, but a lot more can be done within the IRS’s current authority to reduce the risk of fraud and improve taxpayer services. We would like an update from you on what you have done to date with respect to the following:
- Accelerating the verification of tax return information. By law, the IRS has 45 days after a return is due to issue a refund without interest, yet refunds are typically issued just 9.6 days after a return is filed, according to the GAO.
- Providing victims of tax-related identity theft with a single point of contact, as recommended by the National Taxpayer Advocate for several years. According to the Taxpayer Advocate, “without a single person responsible for transferring cases from one function to another,” cases can become “stuck” or lost in the process.
- Allowing taxpayers to “turn off” electronic filing, as the Taxpayer Advocate recommended to the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth as long ago as 2011. More than 80 percent of tax-related identity theft occurs through electronically filed tax returns. Shouldn’t taxpayers have the option to disable any electronic filing of their tax return?
- Allowing any taxpayer to request an identity theft PIN, regardless of whether or not they have been a confirmed victim of identity theft. We understand that the IRS has launched a pilot program to allow anyone in states with high fraud rates to request an identity theft PIN. We would appreciate an update on your efforts, if any, to convert this pilot program into a nationwide program.
In addition to the need for improving IRS’s existing safeguards and services, we are concerned that the IRS has yet to devise a comprehensive plan to address the problem, if given additional resources. With billions of dollars at stake, we believe that finding a solution to the problem of identity theft-related refund fraud should be a top priority for the IRS. Therefore, we respectfully request responses to the following questions:
- With respect to detecting, deterring, and criminalizing taxpayer identity theft, please explain how you currently prioritize resources and describe how you intend to allocate resources to this problem in the future. Please also explain what additional statutory authority, if any, the IRS needs to seriously address the problem.
- For each of the 2012, 2013, and 2014 calendar years, how many taxpayers filed an affidavit alleging identity theft or refund fraud? If possible, please also identify, in dollar terms, how much of the fraud identified through the affidavits still resulted in money being sent to fraudsters.
- What are the total costs associated with undertaking each investigation into tax-related identity theft? To date, what percentage of the cases resulted in funds being recovered?
- Does the IRS plan to fully assess the costs and benefits of accelerating information matching, whether it be moving up Form W-2 deadlines or delaying the filing season, as recommended by GAO? If so, when? If not, why not?
- Do you disagree with any of the GAO’s recommendations, as cited in their September report titled “Additional Actions Could Help IRS Combat the Large, Evolving Threat of Refund Fraud?” If so, please explain.
- What further action, if any, does the IRS intend to take to combat this problem prior to the next tax filing season?
Please provide a timely response to these questions. It is essential to stem the tide of this crime before another tax season passes by and billions more taxpayer dollars are stolen.
Sincerely,
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