A View from the Inside: Identity Theft

April 1, 2015


After 27 years with the IRS and a variety of positions, I retired.  The agency I began working for in 1986, was no longer the agency I had come to love. Getting up and going to work daily became a job rather than a passion.  I had passion for my work and the individuals I served. Maybe LOVE is too harsh a word.  My job was perfect for me. I helped tax preparers and individuals solve problems, helped them navigate through the IRS bureaucracy and provided a face to the many faceless people who work for the IRS and are there to help.

That IRS is gone and in its place is a reactive rather than proactive government organization that IS broken. Decisions are slow in coming, if indeed they are ever made. The recent 2014 Data Book summarizes what IRS has accomplished from October 2013 – September 2014 – FY 2014.  Accomplishments are great but IRS is currently in a state of “crisis.”  Missteps with the 501(ϲ)(4) issue, lost e-mails, videos for educational purposes and other issues have placed the agency on the defensive. When that happens the ranks close very tightly and getting current information becomes more difficult.  So let’s look at what IRS should be doing. Let’s look at a view from the inside, my perceptions and what I saw during my 27 years.  Over the next few weeks as we finish filing season and move into notice season, CALT will post a series of articles to discuss:  Taxpayers Rights, Health Care Legislation, Forms and E-file Delays, Uniform Regulation of Tax Preparers, The New Social Welfare IRS, Earned Income Tax Credit, Complexity of the Internal Revenue Code, and IRS Employee Training. A View from the Inside. Today the view is Identity Theft. 

Identity Theft

Identity Theft was present when I started at the IRS in 1986.  At that time individuals who were not eligible for a social security card would steal someone else’s identity and use it to obtain a job (employment identity theft). Many could buy a social security card on a street corner or know someone who could create one. Home computers had not yet come into their time, yet identity theft still flourished.

Form CP2000 was generally the first inkling a person had that their social security number was used by someone else. In today’s world that first linking has been replaced by the “e-file reject.”  When that W-2 or 1099 form was issued and the “real” individual did not report the income on their federal income tax return, the IRS would issue Notice CP 2000 assessing additional tax on the “unreported income.”  Keep in mind, many of these fraudulent documents had addresses that were not the address of the “real” individual. They did not live or work in Texas or New York (examples only) and the company was not familiar. The burden was placed on the taxpayer to provide the documentation to “prove” they did not receive the income.  Before the world lived online, identity theft was manageable on a case by case basis. I don't think IRS began to understand how the whole mess would explode into what we as individuals and tax preparers are facing today. IRS was caught with its pants down dealing with identity theft and was slow to react to even begin to put controls in place to stem the bleeding from the flood of fraudulent refunds it pays out each year.

Electronic filing began in 1986, with the first 25,000 returns e-filed. With the event of e-filing, returns were processed faster and refunds were in the pocket of the taxpayers quickly.   Once direct deposit was available more and more chose to have their refunds deposited directly info their bank accounts. We can now even put the refund on a debit card – untraceable, geez no problem there, right. 

Getting rid of debit cards would be the first step in helping get rid of ID Theft. Those that do not have bank accounts have other options out there for cashing checks.  I fully understand not having a checking account (for a while I was without an account), but I also understood that I would have to pay for any service, like check cashing.  Even in our electronic global world, paper still has a purpose, so do bank accounts. Cashing a fraudulent tax refund check would require some identification. If you are not Mr. Taxpayer and your driver’s license does not say Mr. Taxpayer logically no one would cash the check, unless they were just as illegal as the scammer in front of them. And we are not talking about those that may be illegally here in the U.S.  We are talking about people who operate on the other side of the law and steal money, because it is easier than having a job and earning their own living. The government makes it easy to scam the system, and it is the individual and the tax professional that end up dealing with the mess.  To make matters worse, in the 2015 tax season, IRS is of little or no assistance.  Only about 40% of the phone calls are getting through, there is no technical tax assistance except the simplest of questions and resolving the Identify Theft for yourself or a client can be a 6-12 month nightmare. 

IRS continues to perfect the ID Theft filters it uses to identify possible returns that “could be” ID theft.  Congress has heard testimony on the identify theft crisis. But filters can only do so much and we all know Congress is slow to act. All the while, the scams increase and become more sophisticated.  IRS merely reacts and adjusts.  Getting ahead of these problems will require more. Get rid of the debit card for tax refunds. Limit the amount that can be put on debit cards, and the number of debit cards that can be sold to an individual like they do with certain drugs. If getting rid of them is not an option:

  • Verify the bank account and name – IRS started doing that again in 2015 filing season, it needs to continue.
  • If no direct deposit, verify identity of the person before cashing the check, by picture ID and one other form of identification. Remember when we needed to do this with credit cards?  
  • ID Theft refunds are generally large so force the scammer to have bank accounts instead of debit cards.

There have to be more ideas out there to assist IRS with this issue.  Where are our GREAT MINDS? Are our tax preparer organizations, which represent thousands of tax return preparers, involved in helping IRS find a way to conquer Identity Theft? Maybe. Is there another way to file a tax return without compromising the social security number? Maybe. Is it time to evaluate the use of the social security number on the tax return? Maybe. The system is broken, is anyone trying to fix it?

keywords: 501(c)(4), identity theft, notice cp2000

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CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.

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