A new audit report by the Treasury Inspector General for Tax Administration indicates that the IRS is not efficiently or effectively processing information referrals, including identity theft claims.
J. Russell George
When individuals wish to report possible instances of federal tax fraud by another individual, the IRS instructs them to complete Form 3949-A, Information Referral, or to provide this information via a letter. TIGTA’s audit was conducted based on a referral reporting that thousands of identity-theft cases reported on Forms 3949-A were not being processed.
TIGTA found that IRS reporting guidelines are confusing and inconsistent. Instructions of Form 3040-A do not explain what types of fraud and tax-law violations to report. As a result, individuals often use Form 3949-A for purposes other than reporting suspected tax fraud or tax law violations. In addition, because Form 3949-A lacks specificity, taxpayers do not always provide the IRS with sufficient information for the IRS to take action. Finally, the IRS routes identity theft referrals received on a Form 3040-A as regular correspondence, which delays actions from being taken on identity theft cases.
“With the increasing number of identity thefts, it is imperative the IRS develop a process to ensure that these referrals are appropriately processed and efficiently examined,” said TIGTA Inspector General J. Russell George in a statement.
TIGTA recommended the IRS take a number of steps to remedy the process. The IRS agreed with all of the recommendations, and plans to revise IRS.gov, clarify the intent of Form 3949-A, review current procedures for necessary changes, and evaluate steps to ensure a more effective quality review process and tracking system.
“The Form 3949-A, Information Referral, is no longer the sole vehicle for taxpayers to report to the IRS suspected tax fraud and/or tax law violations by other taxpayers or businesses,” wrote Peggy Bogadi, commissioner of the IRS’s Wage and Investment Division, in response to the report. “With the rise in illegal or fraudulent activities such as identity theft and tax return preparer fraud, the reporting process has evolved to include specialize forms designed to capture the specific information needed for the IRS to address those more narrowly defined issues. Consequently, we agree Form 3949-A instructions, and the internal and external documents explaining its function and use, should be updated and clarified.”
Finally, the IRS plans to ascertain the feasibility of an online Form 3949-A and assess the level of technical expertise required for the needs of the process after considering the effects of the other corrective actions.
9 Comments
Pscoelles:
Recently, on this website, an article ran about the IRS complaining that credentialed professionals were "misusing" their POA powers on-line with IRS e-services.
Do you think this is connected to OUR ferreting out fraud BETTER than the IRS?
Like jtclarkcpa who involved the State Police and SSA through his OWN investigation (see his post below).
Maybe WE are better detectives than the IRS. We are certainly more motivated.
Kate Harner, EA
Posted by: KATEHARNER | October 5, 2012 1:41 PM
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I had an interesting one this past season:
Ex-husband dumps his wife who has become disabled through a degenerative spinal disease. He thinks that she will not be filing since she only had SSA disability income. (No alimony)
Disabled ex-wife wins $10,000 lottery prize and comes to my office to file taxes. Her tax return is rejected because her SSN has already been used for the year.
We discover through IRS e-services Account Transcript that ex-husband has substituted his new girl friend's name under his ex-wife's SSN on his Married Filing Joint 1040, and has included her children as their dependents. He is not yet married to this new girlfriend, and she and her children only lived with him for October - December.
I tried to notify the IRS of this fraud, only to be met with indifference and resistance. They would only deal with the Form 14039, not the obvious fraud committed by the e-husband.
This not some simple "mistake" made by an uneducated guy. He is a highly-educated and well-paid computer nerd who decided to get a MFJ deduction and two extra dependent exemptions, and $2000 in child tax credits he is not entitled to by using his ex-wife's SSN for his new girlfriend.
And if the ex-wife had not been given a winning lottery ticket for her birthday, we might never have known about this.
Kate Harner, EA
BTW - although ex-hubby received HIS illegal refund with 10 days, the disabled ex-wife is still waiting for hers in October.
Posted by: KATEHARNER | October 5, 2012 1:34 PM
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When individuals have their ID stolen, a phone call or letter to the IRS will not solve anything. They should complete Form 14039 and include with their paper return. If in the above examples the paper return has been filed without Form 14039, then complete the form and fax to the number in the instructions. If they are due a refund, it may take up to a year to receive it. To tax preparers, IRS does not like for us to use a POA from our client who has had their ID stolen to access through e-services a transcript of the fraudulent return filed. Beware!
Posted by: pschoelles | October 4, 2012 2:23 PM
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I think Bataxmans strategy of only allowing licensed firms to e-file is spot on. Unfortunately, even though those of us who are more "professional" think differently, the big chains do qualify as a licensed firm. And I think the issue was a poorly trained preparer or one who didn't care. Now I don't know if Bataxman operates in a state that previously had no licensing requirements and whether that would have made a difference in that preparers case.
I do have to say, I started at H & R block and we always got ID's and the instructors always seemed concerned that we do things right. Of course this was in California and many, many years ago.
Posted by: ShortStuff | October 4, 2012 10:50 AM
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It's unfortunate that at the same time identity fraud is taking billions and giving the IRS a black eye, the IRS is shredding documented claims of fraud, as reported in MyFoxTampaBay this morning (10/4/12). Shredding claims of fraud not only does nothing to protect the innocent, it leads to more money lost to fraud.
It's time for people to take complete control of their identity to prevent fraud in the first place. Financial ICONN from TASCET is the only proactive way to accomplish this. If the IRS doesn't offer Financial ICONN to filers, people should get one for themselves.
Posted by: krklumpy | October 4, 2012 10:10 AM
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A simple update to IRS computers...implementing validity checks,requiring taxpayers to enter some personal info like date of birth of taxpayers and dependents. Just SOME info that would validate it is the true taxpayer. Also....timing....make it where IRS MUST match W2 info claimed to true employer W2s. Yes...timing will be the challenge........well...why not CHANGE Due Dates......allow for validity checks before recklessly sending out refunds to possible thieves.
Posted by: Dianeoffutt | October 4, 2012 10:10 AM
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@wdbcpa: interesting, because I too experienced my first rejected efile this year. Retired couple. Very similar experience to yours. My client was quite nervous about the situation, and we were not getting any feelings of assurance from the IRS, so I obtained power-of-attorney and accessed his tax return transcripts online through e-services. There we found the home address and tax return information of the person who used his SSN before he did. With that information, my client contacted the state police post in his area where they conducted an identity theft investigation. Doesn't appear to be malicious. We took steps to monitor his credit for a couple years, sent identifying information and an affidavit to the IRS who has now adjusted his account balances to match the tax return we paper-filed, and he has also notified the SSA of the situtation. I guess all we can do now is keep an eye on things, and try to file first for 2012!
Posted by: jtclarkcpa | October 4, 2012 10:00 AM
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I too have practiced tax and small business advisory for more than 35-years. This is the first year that I have experienced rejected e-file returns, the IRS indicating that the taxpayer's SSN has already been used. The taxpayers are retirees; The rejection experience rate at 1.5%. In my first such rejection, the taxpayer contacted the IRS with regards to their SSN having been used. They had no success trying to discuss this with the IRS. The IRS would not acknowledge or discuss the issue. We paper-filed the return and must assume that the IRS straightened-out the account. The taxpayer notified the IRS in writing of their concern about their SSN having(apparently)been used, but no response has been received. Of course this is time-consuming and frustrating that the IRS will not acknowledge or discuss a specific taxpayer matter that is brought to their attention by the taxpayer. If there appears to be a key entry error, etc., they should acknowledge the same, and that they will investigate. Instead, 5-months later, the taxpayer is still in the dark.
Posted by: wdbcpa | October 4, 2012 8:57 AM
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First let me state that as an accountant for over 35 years I have seen fraud at such a high level that the IRS does not even come close to accounting for it in their estimates. Earned Income Credit, 1st Time Homebuyers credits and such have been abused at such levels that Congress would drop dead of a heart attach if they new the true numbers of fraudulent returns. Identity theft is the new game in town. I have seen numerous clients who attempted to file and were rejected because the IRS informed us that they already filed. These are long-time clients of mine. The return is then mailed in and the client waits an average of almost a year to get a response. I understand the IRS is overwhelmed by this, but measures need to be put in place to stop this. A very simple solution that will raise hell is to take away filing of your return from your home computer. Licensed accounting firms and legitimate tax preparation firms should be the only ones allowed to file tax returns. I myself had experience with a client who went to a large chain tax prepartation firm and they filed her return with her last paystub and no id. A complaint to the IRS never resulted in any response. My firm does everything it can to attempt to stop attempted fraud. No easy solution, but licensing is a start. Unless drastic measures are taken by the IRS, the fruad will proliferate to the point that will affect a large percentage of the population. I wish the IRS luck in this impossible endeavor.
Posted by: BATAXMAN | October 4, 2012 8:32 AM
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