The Internal Revenue Service should be doing more to combat employment-related and tax-fraud identity theft, according to a new report released in conjunction with a congressional hearing.

"I am dismayed that the IRS does not do more to stop identity theft," said Senate Finance Committee Chairman Max Baucus (pictured), D-Mont., in an opening statement at the hearing. "The IRS generally will not prosecute an identity theft case unless it is part of a larger crime."

A report by the Treasury Inspector General for Tax Administration acknowledges that the IRS's public outreach efforts have improved, but faults the IRS for rarely prosecuting ID theft cases.

"The IRS has not placed sufficient emphasis on employment-related and tax-fraud identity theft strategies," said the report. "Specifically, its prevention strategy does not include pursuing individuals using another person's identity, unless their cases directly relate to a substantive tax or conspiracy violation. IRS policy is that the actual crime of identity theft will only be investigated by the Criminal Investigation Division if it is committed in conjunction with other criminal offenses having a large tax effect."

IRS officials told TIGTA that the agency is unable to do more to stop continued use of someone's identity in employment-related identity theft cases and that it does not have enough enforcement resources available to address most of the cases. The officials also said they do not believe the cases are the IRS's responsibility.

As for identity theft related to tax administration, those cases are rarely recommended for prosecution. In fiscal year 2005, only 45 cases recommended for prosecution by the IRS Criminal Investigation Division included a charge of identity theft. In fiscal year 2006, only 55 cases included the charge.

At the hearing, recently appointed IRS Commissioner Douglas Shulman commented on the obstacles that identity theft could present to taxpayers who want to claim economic stimulus payments and said the IRS has created a specialized group of assistants to help speed the processing of economic stimulus payments affected by identity theft. However, he acknowledged that the IRS needs to do more to help identity theft victims.

"We have made progress, but we know we still have work to do," said Shulman in his prepared testimony. "We recognize that we need to strive constantly to improve the policies, processes and procedures for assisting identity theft victims. And, we have taken steps to develop a more consistent, more efficient and less burdensome manner for handling identity theft cases."

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