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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.
