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US Congress Looks For Tax Fraud Solutions

23 April 2013   (0 Comments)
Posted by: Author: Mike Godfrey
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Source: Mike Godfrey

Led by its Chairman Max Baucus (D – Montana) and Ranking Member Orrin Hatch (R – Utah), the Senate Finance Committee has held a hearing on solutions to tax fraud involving identity theft in the United States.

In his opening testimony, Baucus pointed out that identity theft remains a serious problem "that is growing at epidemic proportions – especially tax-related identity theft. According to the Internal Revenue Service (IRS) Taxpayer Advocate, tax-related identity theft jumped more than 650% between 2008 and 2012. Last year alone, there were 1.8m incidents of identity theft and fraudulent refunds."

He noted that, in recent Congressional testimony, the IRS reported they had identified more than 900,000 fraudulent returns and stopped more than USD6.5bn in fraudulent refunds in 2011, but called it "only the tip of the iceberg."

The Treasury Inspector General for Tax Administration (TIGTA) has also recently reported that 1.5m fraudulent returns went undetected in 2011, potentially allowing a further USD5.2bn in refunds to be paid. The Inspector General in the Justice Department has estimated that, if tax identity theft is not addressed, the IRS could issue some USD21bn in fraudulent refunds over the next five years.

"We know tax fraudsters have easy access to taxpayers’ Social Security numbers through online databases, hospitals and other businesses that store personal information," Baucus added. "We need tougher controls on access to private information, but it needs to be done efficiently without adding more paperwork to the process."

It has been found, for example, that identity thieves have used the Social Security Administration's compilation of death records, containing the Social Security numbers (SSNs), names, dates of birth and death, and zip codes of those who have died, which it uses to administer benefits. While that Death Master File (DMF) is useful to many organizations for fraud prevention and benefit administration, it has also been used to submit fraudulent tax returns.

He also wanted the IRS to utilize the tools it already has – "The IRS needs to improve the way it handles tax identity theft once cases are identified. The IRS needs to speed up prosecution through better communication with federal, state and local law enforcement."

In his statement, Hatch understood that, in its dealings with tax fraud identity theft, the IRS has adopted a three-pronged approach – prevention of tax refund fraud (although, "given the prevalence of this crime, much more work needs to be done in this area"); the provision of taxpayer services for those who have been the victims of identity theft; and catching and convicting the criminals.

With regard to taxpayer services, he noted that the IRS appeared to be falling short in many instances. For example, he added, "an audit by the TIGTA sampled 17 different identity theft cases and found that the average time it took for these cases to be resolved was 414 days. That is simply too long a wait for taxpayers who have been the victims of identity theft."

In his testimony to the hearing, Steven Miller, its Acting Commissioner, insisted that, as "one of the biggest challenges" facing the IRS, it has a comprehensive identity theft strategy to prevent identity theft.

He confirmed that its work on identity theft and refund fraud continues to expand – for the 2013 filing season, more than 3,000 IRS employees are currently working on identity theft, more than double the number at the start of the previous filing season. 35,000 employees who work with taxpayers have also been trained to recognize identity theft and help victims.

He also disclosed that, since the beginning of 2013, the IRS has worked with victims to resolve more than 200,000 cases, and has suspended or rejected more than 2m suspicious returns so far this filing season.

However, Miller noted that barriers to further progress exist in "the sheer volume and complexity of these crimes, as identity thieves continue creating new ways of stealing personal information," and "the need to further upgrade our technology in order to implement improvements, such as more sophisticated filters and better taxpayer authentication procedures." The latter would involve further funding, whereas the IRS budget "has been reduced by USD1bn over the last two years."

Action to be taken to restrict refund fraud, he suggested, could include a restricted access to the DMF and a delay to its public release for three years; and granting the IRS the authority to require or permit truncated SSNs on forms that employers send to employees, to reduce the risk that the information could be stolen.

The American Institute of Certified Public Accountants, in its testimony, supported that IRS proposal to allow truncated SSNs on forms sent from employers to employees, but went further by urging Congress "to consider extensive legislation to allow truncated SSNs on all types of tax forms and returns provided to a taxpayer, employee or other recipient."


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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