The Internal Revenue Service is not providing personal identity numbers to all taxpayers who are the victims of tax-related identity theft, according to a new government report.

The report, from the Treasury Inspector General for Tax Administration, noted that the IRS began issuing Identity Protection Personal Identification Numbers, or IP PINs, to eligible taxpayers in fiscal year 2011 to help victims of identity theft. Use of an IP PIN provides relief to taxpayers because it allows the IRS to process their tax returns without delay and helps prevent the misuse of taxpayers’ Social Security Numbers on fraudulent tax returns, TIGTA noted.

Even though the program expanded, the IRS did not provide an IP PIN to 532,637 taxpayers who had an identity theft indicator on their tax account indicating that the IRS resolved their case. The IRS also did not provide an IP PIN to 24,628 taxpayers who were potential victims because their personally identifiable information had been lost, breached or stolen by or from the IRS.

In addition, IRS programming errors resulted in 32,274 taxpayers not receiving an IP PIN on a timely basis and the issuance of 13,220 IP PIN notices to deceased taxpayers.

TIGTA also found that the IP PIN notices issued to 759,446 taxpayers for processing year 2013 did not provide taxpayers adequate instructions on the use of the number and its importance on a tax return.

“Tax-related identity theft continues to be one of the biggest challenges facing the Federal system of tax administration,” said TIGTA Inspector General J. Russell George in a statement. “It is incumbent upon the Internal Revenue Service to fully utilize all available tools in the fight against this fraudulent activity.”

The program has been expanding. TIGTA found that the IRS issued 1.2 million IP PINs to taxpayers to use in filing tax returns in 2014, up from 770,000 in 2013. In addition, taxpayers who used their IP PIN to file their tax returns claiming a refund in processing year 2013 had their returns processed in a time frame similar to the general population of return filers claiming a refund.

TIGTA recommended that the IRS ensure that IP PINs are consistently issued. The IRS should also revise its IP PIN issuance criteria to make eligible those taxpayers who have had their Personally Identifiable Information lost, breached, disclosed, or stolen and have authenticated themselves, TIGTA suggested. The report also recommended that the IRS ensure that the finalized IP PIN criteria are provided to the Applications Development function before each filing season; ensure that IP PIN criteria are accurately programmed; and revise the IP PIN issuance notice to explain the effect on processing a recipient’s tax return and refund when the number is not included on the filed tax return.

The IRS agreed with the recommendations. However, its corrective action for one of the recommendations does not adequately address the concerns raised, TIGTA cautioned. The IRS indicated that individuals whose personally identifiable information was compromised are eligible to receive an IP PIN. However, the IRS’s Web site for its online IP PIN application still has not been updated to inform these individuals of this option, TIGTA pointed out.

“The use of the IP PIN by taxpayers has been a major success, and as is noted in the audit report, protects taxpayers from being victims of identity theft while allowing their tax return to be processed in a time period similar to returns submitted without an IP PIN,” wrote Debra Holland, commissioner of the IRS’s Wage and Investment Division, in response to the report. “Our records indicate that less than one percent of taxpayers issued an IP PIN are a victim of identity theft again.”

In an email to Accounting Today, the IRS offered further reactions on the report. “Identity theft involving tax administration remains one of the most serious challenges facing the IRS,” said the IRS statement. “While more work remains, the IRS has made substantial progress protecting victims, preventing refund fraud and pursuing perpetrators despite budget limitations. As noted in the TIGTA audit report, the use of the Identity Protection Personal Identification Numbers (IP PINs) by taxpayers has been a major success, protecting hundreds of thousands identity theft victims while allowing their tax return to be processed in a time period similar to the general population of tax return filers. The pin number is part of a larger strategic effort by the IRS to combat identity theft impacting the tax administration. We apply a strict set of parameters to accounts that are determined eligible for a pin number, resulting in an extremely low recurrence of identity theft. For the 2013 filing season, we enhanced our programming to increase efficiency and expanded the pin program to more than 770,000 taxpayers. For the 2014 filing season, we issued over 1.2 million pin numbers.

“It is important to clarify that while TIGTA highlights a group of roughly 530,000 taxpayers that did not receive IP PINS, those were taxpayers identified by the IRS as having potentially suspicious activity on their accounts, rather than taxpayers that self-reported to the IRS,” the IRS statement continued. “The IRS recognized these accounts as possibly being victimized and notified the taxpayers of our concerns. However, we set very strict parameters to our accounts before an IP PIN can be issued in order to protect the integrity of the system. In this coming year, taxpayers identified by the IRS as having possible suspicious activity on their accounts will receive a letter inviting them to take part in our IP PIN program through an e-authentication process on our website.

“TIGTA also suggests that the IRS should offer a pin number to taxpayers who have been notified that their personal information was disclosed,” the IRS added. “Beginning in January 2014, the IRS began a pilot program that allowed some taxpayers to voluntarily receive a pin number via an online application. Next year, we plan on mailing notices to let taxpayers know that they may be eligible for a pin number. We feel this solution will offer protection for taxpayers impacted by a disclosure or data loss.”

The IRS also pointed to the impact of budget cuts on its ability to help taxpayers with these problems. “As resources allow, we will continue these efforts and develop additional new ways to protect taxpayers,” the IRS concluded. “It is important to note that reductions in IRS's budget have stretched resources across the agency. Since 2010, the IRS budget has been reduced nearly $850 million. At the same time, we have 13,000 fewer employees today than we did in 2010.”

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