Two high-ranking senators are calling for the Government Accountability Office to investigate the growing problem of tax fraud related to identity theft and how it contributes to the tax gap.

Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking Republican member Charles Grassley, R-Iowa, sent a letter to the GAO asking for a report on the Internal Revenue Service's current procedures for curbing identity theft and tax fraud, and how those measures could be toughened. They contend that the deterrence of identity theft should be an integral part of the Treasury Department's efforts to close the gap between taxes legally owed and taxes actually collected, and that the IRS should be doing more to help victims.

"Innocent taxpayers who are victims of identity theft should not be burdened with delayed refunds and red tape while the IRS is sending fraudulent refunds to the thieves who have stolen their identities," said Baucus in a statement.

He and Grassley asked the GAO to find out how much identity theft-related tax fraud, especially refund fraud, is occurring. They also want to know the extent of false refunds that are being recovered by the IRS.

They requested the GAO to identify business processes or information systems that other federal agencies, state governments or private firms are using that the IRS might be able to leverage to detect identity theft or help victims.

The senators also asked about some specific ways in which identity theft occurs. They want to know how many employers are reporting more wages on the Form W-3 than on the Form 941 and if the IRS pursues them for possible fraud. The use of stolen or false Social Security numbers could contribute to the tax gap by creating information return mismatches that prevent the IRS from determining whether income has been fully reported, the senators suggested. They want the GAO to find out if the IRS examines returns for mismatches between the Social Security number and individual taxpayer identification number to root out instances of identity theft.

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