CAGW: IRS Not On Top of Tax Fraud, Poised to Lose Billions More This Year | Citizens Against Government Waste

CAGW: IRS Not On Top of Tax Fraud, Poised to Lose Billions More This Year

Press Release

For Immediate Release Contact: Leslie Paige 202-467-5300
February 4, 2015  


(Washington, D.C.) – Citizens Against Government Waste today criticized the Internal Revenue Service (IRS) for mismanaging its budget and failing in its obligation to protect taxpayers from the epidemic of Stolen Identity Refund Fraud (SIRF), a fast-growing form of consumer fraud.  In 2014, the Federal Trade Commission (FTC), which is the national repository for all fraud complaints, received “54,690 consumer complaints about con artists impersonating Internal Revenue Service officials. That was up nearly 24 times the number in 2013 when the FTC received just 2,545 such complaints.”   Fraudsters know that SIRF is simple and effective and that the IRS has been unable to emplace systems to counteract them. 

A November 28, 2014 Treasury Inspector General for Tax Administration (TIGTA) report, documented how the IRS mishandles sensitive communications between the agency and law enforcement officers trying to investigate SIRF cases.  Since the sharing and disclosure of tax return information is governed by federal privacy laws, law enforcement officers attempting to prosecute SIRF cases are prevented from obtaining key data about the federal tax returns of alleged victims unless they get permission.  In April, 2012, the IRS launched a pilot program in the state of Florida, which has been the epicenter of SIRF, called the Law Enforcement Assistance Program (LEAP), to facilitate the sharing of that information.  In March, 2013, the program rolled out nationwide.  Theoretically, the IRS’s Criminal Investigations (CI) and Wage and Investment Division Return and Income Verification Services (RAIVS) were supposed to collaborate and make taxpayers’ sensitive information available in a timely fashion to assist local law enforcement in investigating and prosecuting cases.    

Instead, TIGTA found that the program is not well-publicized among law enforcement officials because the IRS has not done any outreach to make them aware of its existence, nor does the IRS have any way to measure the effectiveness of the program.  TIGTA reported that it reached out to “nine financial crime detectives in eight cities with high rates of identity theft … and found that none of these individuals were familiar with the LEAP.”

In order to obtain access to the relevant tax return information, law enforcement officials obtain permission from the victims and submit special forms to the IRS.  TIGTA discovered that the forms are confusing, and that once they arrive at the IRS, the data is often lost because the CI and RAIVS databases are incompatible.  Once the forms are rejected, law enforcement officers do not have clear guidance on how to correct and resubmit them.

An August 20, 2014 Government Accountability Office (GAO) report on the growing epidemic of SIRF stated:  “Based on preliminary analysis, the Internal Revenue Service (IRS) estimates it paid $5.2 billion in fraudulent identity theft refunds in filing season 2013, while preventing $24.2 billion (based on what it could detect). The full extent is unknown because of the challenges inherent in detecting IDT refund fraud.”  IRS Taxpayer Advocate Nina Olsen testified before the House Appropriations Subcommittee on Financial Services and General Government on February 26, 2014 that “21 separate units handle different aspects of identity theft, and although the IRS says it has adopted a single point of contact, no employee has the authority to coordinate the entirety of the taxpayer/victim’s case if, as is common, more than one of the 21 units is involved. … The IRS also takes much too long to resolve ID theft cases and issue refunds to legitimate taxpayers.”

Taxpayers have more reasons that ever to be vigilant about protecting their identities and more reasons to be frustrated with the IRS, because the agency is not going to do much to help if they become victims of SIRF.

Citizens Against Government Waste is the nation’s largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.