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Hearing on Identity Theft and Tax Fraud

May 08, 2012

 Hearing on Identity Theft and Tax Fraud  












May 8, 2012

SERIAL 112-OS12/SS15

Printed for the use of the Committee on Ways and Means


DAVE CAMP, Michigan, Chairman

WALLY HERGER, California                         
PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

RICHARD E. NEAL, Massachusetts
JOHN B. LARSON, Connecticut
RON KIND, Wisconsin

JENNIFER M. SAFAVIAN, Staff Director and General Counsel
JANICE MAYS, Minority Chief Counsel

CHARLES W. BOUSTANY, JR., Louisiana, Chairman

DIANE BLACK, Tennessee
TOM REED, New York

RON KIND, Wisconsin

SAM JOHNSON, Texas, Chairman

RICK BERG, North Dakota






The Honorable J. Russell George
Treasury Inspector General for Tax Administration

The Honorable Patrick P. O’Carroll, Jr.
Inspector General, Social Security Administration

Steven T. Miller
Deputy Commissioner for Services and Enforcement, Internal Revenue Service

Nina E. Olson
National Taxpayer Advocate, Internal Revenue Service

David F. Black
General Counsel, Social Security Administration


 Hearing on Identity Theft and Tax Fraud  

Tuesday, May 8, 2012
U.S. House of Representatives,
Committee on Ways and Means,
Washington, D.C.


The subcommittees met, pursuant to call, at 10:00 a.m., in Room 1100, Longworth House Office Building, Hon. Charles Boustany [chairman of the Subcommittee on Oversight] presiding.

[The  advisory of the hearing follows:]


Chairman Boustany.  The subcommittees will come to order.  I would like to welcome everyone to today’s joint Subcommittee on Oversight and Subcommittee on Social Security hearing on identity theft and tax fraud.  I am very pleased to join Chairman Johnson again as our subcommittees focus on fraud, waste and abuse and how the Federal Government might better protect taxpayer dollars. 

The subject of today’s hearing is not a new one, but evidence suggests it is a problem reaching unprecedented levels.  Identity theft allows criminals to file false tax returns and claim thousands of dollars in refundable tax credits. 

In a recent case in Florida, identity thieves alleged obtained $30 million in fraudulent refunds and nearly obtained $100 million more before being caught.  They spent the money on expensive cars, homes, living lavishly under the impression that they could steal from taxpayers with impunity.  Recent news stories have also told of identity thieves so brazen that they hold seminars on how to steal identities and to commit tax fraud. 

In another case scam artists uploaded music video on YouTube showing cars they were able to purchase with stolen taxpayer dollars and instructing others on how they could do the same. 

Confronted with emboldened identity thieves and tax cheats, the American taxpayers expect the Federal Government to better protect identities, detect fraudulent tax returns, punish those engaged in these crimes and assist taxpayers who are victimized.  Today we will explore how well the Federal Government is living up to this responsibility and how we can improve these efforts. 

This morning’s hearing will seek to answer four questions.  First, how does identity theft related tax fraud occur?  Identity thieves often rely on public sources of sensitive information to engage in tax fraud, and the subcommittees look forward to hearing from the witnesses on how this information might be limited or better protected in a way that protects taxpayer identities. 

Second, how big is the problem?  While the IRS has estimated identity theft related tax fraud costs taxpayers more than $6 billion annually, we will hear testimony this morning that the true figure may be nearly double previous estimates. 

Third, what tools are needed to better deter, detect and punish this crime?  Fruitful discussions of fraud, waste and abuse should include not just details of the problem, but also talk of potential solutions, and I look forward to hearing from our witnesses on that. 

And finally, this morning’s hearing will focus on victimized taxpayers and what their experience is when they learn they have been victims of identity theft and how the government might better assist them in recovering from the crime and better protect their identities. 

I want to thank our witnesses and I look forward to this morning’s discussion.  Before yielding to the ranking member, Mr. Lewis, I ask unanimous consent that all members written statements be included in the record.  Without objection, so ordered. 

Mr. Lewis, I now yield to you, sir. 

Mr. Lewis.  I want to thank you, Mr. Chairman, you and Chairman Johnson, for holding this hearing.  I am pleased to have the Internal Revenue Service and the Social Security Administration before us today.  These agencies are both entrusted with personal information and they should play an important role in preventing identity theft. 

Tax fraud and identity theft are growing problems for the tax administration.  They harm the Federal Treasury, American citizens and their families.  I commend the Internal Revenue Service for identifying and preventing over $14 billion in fraudulent tax refunds last year. 

I also thank the agency for its assistance to almost 500,000 taxpayers who have been victims of identity theft.  Despite this progress we need to do more, and we must do more, to help victims and stop the loss of billions of taxpayer dollars. 

I continue to have serious concerns about the effects of recent budget cuts on taxpayers and the agency’s ability to serve them.  In this area of budget cuts, hiring freezes and staff reduction, I am also concerned that the IRS cannot fully combat identity theft and tax fraud.  This year the IRS expects to spend over $330 million combating fraudulent tax refunds when its budget was cut by over $300 million. 

In a most recent report to Congress, the National Taxpayer Advocate states that the most serious problem facing taxpayers is that the IRS is not adequately funded to serve taxpayers and collect taxes.  We will see today that the IRS is not properly funded to handle the growing identity theft problem.  We need to provide the IRS with more tools to combat identity theft today. 

I look forward to learning more about the recommendation to expand the agency’s to access the National Directory of New Hires.  The recommendation was initially proposed by the Bush administration in 2006.  It has been in the Administration’s budget proposal every year since then.  It appears to be a common sense solution that will be a step in the right direction. 

Now the gentleman from Washington, Representative McDermott, and I have introduced a bill to expand the agency’s access to this database.  I ask my colleagues on both sides to join us on this bill. 

Mr. Chairman, in closing I would like to thank the witnesses for appearing before us today.  I look forward to your testimony, and thank you again very much for being here.  With that, Mr. Chairman, I yield back.

Chairman Boustany.  I thank the ranking member of the Oversight Subcommittee, and now we turn to Chairman Johnson, chairman of the Social Security Subcommittee, for his opening statement. 

Chairman Johnson.  Thank you, Mr. Chairman.  Chairman Boustany, I want to thank you for holding the hearing regarding identity theft and its role in the growing crime of tax fraud.  Earlier this year the Subcommittee on Social Security held a hearing on Social Security death records, including the so‑called Death Master File, a publicly available listing of the personal information of those who have died, including their Social Security numbers.  We learned that the Death Master File serves as a readily available source of information identity thieves need in order to file fraudulent tax returns. 

We heard the heartbreaking story of the Agin family whose 4‑year‑old daughter Alexis had her identity stolen shortly after she passed away.  Only when their tax return was rejected by the IRS did the Agins learn that an identity thief had already filed a claim, claiming their child as a dependent.  No grieving family should bear this additional burden.  Yet when the Agins reached out to the community of grieving cancer parents, within the first hour they heard from 14 families who had lost a child whose Social Security Number was also stolen.  Alexis’ father, Jonathan Agin is in the audience today.  He has joined us and I thank him for his tireless efforts to stop identity thieves from accessing the Death Master File.  Thank you for being with us, sir. 

So why does the Federal Government make public the Social Security numbers and other personal information of those who have died?  Turns out unless Congress changes the law, it is required.  Social Security collects death information so it can stop benefits to those who have died and start benefits for their survivors.  But a 1980 Freedom of Information Act court mandated settlement required Social Security to also make the information about deceased Social Security number holders available to the public.  In response Social Security created the Death Master File.  With 84 million listed individuals and 1‑1/2 million new individuals added each year, many groups now purchase the Death Master File from the Commerce Department, including government agencies, credit reporting agencies, financial institutions, law enforcement organizations, and medical and genealogical researchers. 

But the decades old practice of publishing personal death information that anyone can buy needs to end, and now.  In the age of Internet identity thieves can all too easily get their hands on a Social Security Number and reap instant awards that no one, including the person whose number it is, knows what has happened until after the fact usually. 

ID Analytics, a fraud prevention firm, recently released a study comparing death information from the Death Master File to applications for credit products and cell phone services.  The study found that the identities of nearly 2.5 million deceased Americans are used by fraudsters to commit identity theft each year. 

Identity theft is also a growing problem on the tax front.  The Treasury Inspector General reports that IRS stopped 6.5 billion in false refunds in 2011, but much more went undetected. 

Taxpayers who are victims of tax identity theft have to endure a long process of proving their real identities, submitting paper returns and waiting months to get their rightful refund.  That is just wrong. 

To help stop this crime I, along with a number of my colleagues, introduced H.R. 3475, Keeping IDs Safe Act of 2011.  Our bill ends the publication of the Death Master File, denying criminals easy access to the personal information of those who have died. 

Make no mistake, we will stop these identity thieves and in so doing protect the American taxpayers and prevent other families from having to go through what the Agins did. 

I want to thank all our witnesses for coming today and I look forward to hearing your testimony.  Thank you, Mr. Chairman.

Chairman Boustany.  Thank you, Chairman Johnson.  Now we will turn to the ranking member of the Committee on Social Security, Mr. Becerra.

Mr. Becerra.  Mr. Chairman, thank you very much.  The Internal Revenue Service does a lot with a little, processing 140 million tax returns in the span of just a few months while combating fraud and enforcing our tax laws.  Congress needs to do its part too by providing adequate resources and enacting legislation that strikes the right balance between efficiently processing returns and preventing fraud. 

We are all concerned about tax fraud.  Tax fraud increases the burden on honest taxpayers, it undermines compliance with our voluntary tax system, and it harms the U.S. Treasury.  When tax fraud takes the form of identity theft, it hurts individual taxpayers more directly, as Mr. Jonathan Agin, who testified recently at our subcommittee hearing, and he is the father of a deceased child who was a victim of tax fraud, as he so eloquently testified when he appeared before us in this subcommittee. 

Mr. Chairman, the IRS needs both tools and resources to combat fraud.  It needs not only to work together with Congress because it is not always easy to keep a step ahead of the fraudsters, but it also, we are going to learn today, needs to do something about having the right amount of funding to get things done.  We are going to learn today about some of the more creative ways that individuals actually do perpetrate tax fraud. 

Unfortunately, budget cuts mean the IRS is struggling just to keep up with its core work.  This year IRS’s operating budget is $305 million less than it was in 2011, and it has 5,000 fewer employees who can process returns, assist taxpayers and combat fraud. 

As a result, the IRS can barely answer the phone calls it receives from taxpayers.  In fact this spring the large majority of callers to the special IRS phone line dedicated to assisting taxpayers with identity theft did not get through.  For the most recent week measured, 75 percent of callers were unable to get through, and those that did get through waited 1 hour and 21 minutes on hold before the IRS employee could assist them. 

The National Taxpayer Advocate has identified IRS’s underfunding as the “number one most serious problem” in her annual report to Congress, concluding that the IRS “is not adequately funded to serve taxpayers and collect taxes.” 

Combating fraud requires a balancing act.  The IRS must balance the time it takes to conduct antifraud checks with a statutory requirement it has to process returns and issue refunds quickly for law abiding taxpayers.  Each year under current procedures it takes months for the IRS to receive and process the nearly 250 million W‑2 reports and 1.5 billion other third party reports that are submitted.  This is on an annual basis.  At the same time, the IRS aims to issue refunds within 7 to 10 days of receiving the return.  As a result the agency does not wait to issue refunds until it is able to cross‑check those returns against those other reports. 

I think we need to figure out a way to do a better job in the future, but there is no easy answer now on the horizon. 

Similarly, the question of the Death Master File also requires striking the right balance.  The Social Security Subcommittee has received testimony over the years about the value of SSA’s compilation of the death records it receives into the DMF.  The DMF is helpful in administering benefits and combating fraud at both government agencies and in the private sector.  At the same time we know that the widespread availability of the SSA’s death information means it can also be used by identity fraudsters.  We are going to learn more about the challenges of combating identity fraud in the tax world today. 

I commend SSA for utilizing its limited statutory authority to restrict death information.  SSA recently removed zip code information from the DMF to make it harder for fraudsters to use, and promptly it received a Freedom of Information Act–a FOIA request–to reinstate it.  SSA has also recently removed certain State death records which it were determined were not subject to a FOIA request from the publicly released DMF, resulting in the removal of over 4 million records from the file.  However, SSA’s longstanding legal opinion is that the Privacy Act and Freedom of Information Act do not allow SSA to keep its death records from the public.  As a result, at our last hearing on the DMF and identity fraud SSA testified that the Administration was evaluating legislative options to restrict release of the DMF.  I understand they have made significant progress and I look forward to receiving the legislative proposal. 

Mr. Chairman, I look forward to working with the administration and with my colleagues on both sides of the aisle as we try to move forward with a solution to this problem, and with that I yield back the balance of my time.

Chairman Boustany.  I thank the ranking member for his opening statement and now I would like to welcome our panel.  We have a distinguished panel with us today.  This morning we will hear from the Honorable Russell George, Treasury Inspector General for Tax Administration.  Welcome, Mr. George.  We will also hear from the Honorable Patrick P. O’Carroll, Jr., Inspector General for the Social Security Administration.  And thirdly, Mr. Steven Miller, Deputy Commissioner for Services and Enforcement for the Internal Revenue Service.  Welcome, sir.  Nina Olson, the National Taxpayer Advocate.  Ms. Olson, welcome.  And Mr. David Black, the General Counsel for the Social Security Administration. 

Welcome to all of you.  We thank you for being here today.  You each will have 5 minutes, as is customary, to deliver your oral statements, keeping in mind that your full written statements will be included in the record. 

Inspector General George, you may begin.


Mr. George.  Thank you, Chairman Boustany, Chairman Johnson, Ranking Member Lewis, Ranking Member Becerra, and members of the subcommittees.  Thank you for the opportunity to address the subject of identity theft and its impact on taxpayers and tax administration. 

Since I last testified on this subject in November of 2011, TIGTA is in the process of completing an assessment of the IRS’s efforts to spot and prevent identity theft.  While the final report will not be released until June, I will discuss some of our most cogent findings as well as those of a recently issued report on the assistance the IRS provides to victims of tax fraud related identity theft.

TIGTA has reported previously a substantial number of individuals continue to submit tax returns reporting false income and/or withholding for the sole purpose of receiving a fraudulent tax refund.  The IRS recently reported that of the more than 2 million tax returns that it identified as fraudulent approximately 900,000 tax returns with $6.5 billion in associated fraudulent tax refunds involved identity theft.  However, the IRS does not know how many identity thieves are filing fraudulent tax returns or the amount of revenue being lost. 

TIGTA evaluated the IRS’s efforts to identify and prevent fraudulent tax returns resulting from identity theft.  As part of our assessment we identified and quantified potential refund losses.  Our analysis found that although the IRS detects and prevents a large number of fraudulent refunds based on false income documents, there is much more fraud that it does not detect.  We identified approximately 1.5 million additional undetected tax returns with potentially fraudulent tax refunds totaling in excess of $5 billion.  If this is not addressed, we estimate the IRS could issue approximately $26 billion in fraudulent tax refunds resulting from identity theft over the next 5 years. 

As we previously reported, access to third party income and withholding information at the time tax returns are processed is the single most important tool the IRS could have to identify and prevent this type of tax fraud.  Another important tool that could help the IRS prevent this type of fraud is the National Directory of New Hires.  Again, as was pointed out earlier by Mr. Lewis, legislation would be needed to expand the IRS’s authority to access the directory’s wage information for use in identifying tax fraud. 

In those cases involving identity theft the fraudulent tax return is often filed before the legitimate taxpayer files his or her tax return.  For tax year 2010 we identified more than 48,000 Social Security numbers that were used multiple times as a primary taxpayer identification number.  When the identity thief files the fraudulent tax return the IRS does not yet know that the individual’s identity will be used more than once.  As a result the tax return is processed and the fraudulent refund is issued.  Once the legitimate taxpayer files his or her tax return the duplicate tax return is identified and the refund is held until the IRS can confirm the taxpayer’s identity.  These instances result in the greatest burden to the legitimate taxpayer. 

We recently completed an audit that evaluated the assistance the IRS provides to victims of identity theft.  We found that the IRS is not effectively providing assistance to these victims.  Moreover, processes are not adequate to communicate identity theft procedures to taxpayers, resulting in increased burden for victims.  Of concern is the length of time taxpayers must work with the IRS to resolve identity theft cases which, as Mr. Becerra pointed out, could take more than a year to resolve.  Resources have not been sufficient to work identity theft cases dealing with refund fraud and continue to be of concern.  IRS employees who work the majority of cases also respond to taxpayer calls.  As a result the average wait time for a taxpayer was approximately 1 hour. 

In conclusion, we at TIGTA continue to be very concerned about the scope of this problem and will provide continuing audit coverage of IRS’s actions taken to stem tax fraud related identity theft and to provide prompt resolution to taxpayers who are victimized.  In addition, we will continue to conduct criminal investigations of identity theft violations involving IRS employees, tax return preparers and individuals impersonating the IRS. 

I hope my discussion of our work assists you with your oversight of the issue involving the IRS.  Chairman Boustany, Chairman Johnson, Ranking Member Lewis, Ranking Member Becerra, members of the subcommittee, thank you for the opportunity to address this important topic.

[The statement of Mr. George follows:]

Chairman Boustany.  Thank you, Inspector General George. 

Inspector General O’Carroll, you may proceed.


Mr. O’Carroll.  Good morning, Chairman Johnson, Chairman Boustany, Ranking Member Becerra, Ranking Member Lewis, and members of the both subcommittees.  Thank you for the invitation to testify today. 

As today’s Death Master File, or DMF, makes the personal information of deceased people and sometimes the living available to the public, this creates a significant risk of SSN misuse and identity theft.  I would like to share an OIG case in which available death data was used to obtain personal information and then commit fraud. 

In a recent national investigation my office identified about 60 retirement benefit applications that were submitted in the names of deceased people.  The claims were filed with the name, the Social Security number, and the date of birth of these individuals.  The suspects found this information on a genealogy Web site that published the DMF.  Our agents and other law enforcement identified the suspects, executed search warrants, and made arrests.  However, the main suspect in the case took his own life before he could be arrested.  His two accomplices, both relatives, were indicted and pleaded guilty.  A judge sentenced them to prison and ordered them to be deported.  One also was ordered to repay more than $145,000 to the SSA. 

It is not only the personal information of deceased individuals that is at risk.  In two recent reports our auditors identified thousands of living individuals who were mistakenly included in the DMF.  These errors can have serious consequences for the affected individuals.  Each month SSA erroneously includes about 1,000 living individuals in the Death Master File.  That personal information could be used to obtain loans or credit, to apply for government benefits or to assume a new identity. 

My office has recommended limiting the DMF to only the information required by law and ensuring the file’s accuracy.  Such steps would minimize these errors and reduce SSN misuse in all forms, including tax fraud. 

We investigated a Colorado man who hired people to search a genealogy Web site for the names and SSNs of deceased individuals.  After confirming this information against other data sources the man fabricated employment records and filed fraudulent tax returns.  A judge sentenced the man to 4 years in jail for SSN misuse and making false claims.  He was ordered to repay more than $282,000 to the IRS. 

Limiting the content or discontinuing the availability of the DMF is a legislative and policy decision for Congress and the SSA.  In November 2011, Chairman Johnson introduced the Keeping IDs Safe Act.  This bill would end the sale of the DMF to the public.  Whether through legislative action or policy changes, my office strongly supports any effort to limit public access to SSA’s death records.  Pending such changes, we advocate limiting the information made available to the extent permitted by law, and we recommend a risk based approach to the distribution of the DMF. 

SSA’s key uses in government and finance make it a valuable commodity for criminals.  SSN misuse and identity theft remains significant threats and failure to take action creates unnecessary public risk.  My office also urges citizens to guard their personal information.  We encourage people to keep their Social Security cards in a safe place, shred personal documents, and be judicious in giving out an SSN in business transactions.  We will going to continue to work with your subcommittees and SSA in these and future efforts to protect personal information and reduce tax fraud. 

Thank you again for the invitation to testify, and I will be happy to answer any questions.

[The statement of Mr. O’Carroll follows:]

Chairman Boustany.  Thank you, Mr. O’Carroll. 

Mr. Miller, you made proceed.


Mr. Miller.  Thank you, Chairman Johnson, Chairman Boustany, Ranking Member Becerra, Ranking Member Lewis, members of the subcommittee.  My name is Steve Miller and I am the Deputy Commissioner at the IRS. 

Over the past few years the IRS has seen a significant increase in refund schemes, particularly those involving identity theft.  Identity theft and the harm it inflicts on innocent taxpayers is a problem that we take very seriously.  We are confronted with the same challenges that face every major financial institution in preventing and detecting identity theft.  We cannot stop all identity theft.  However, we are better than we were and we will get better still. 

There is a delicate balance here.  We cannot manually inspect 100 million refund returns to ensure all are correct.  We must balance the need to make payments in a timely manner with the need to ensure that claims are proper and taxpayer rights are protected. 

Let me begin by describing our efforts at upfront prevention.  In 2011, the IRS identified and prevented the issuance of more than 14 billion in fraudulent refunds.  A great deal of that was identity theft.  We estimate that at a minimum 1.3 million returns were identity theft of the 2.2 million total returns that we stopped last year.  This year we will stop even more. 

We have improved upfront screening filters to spot false returns before a refund is issued.  As of mid‑April we have stopped more than 2.6 million returns we suspect of being fraudulent.  At this time we estimate that the returns we have worked a minimum of 750,000 are identity theft, and we are just underway in working through those cases.  Until we complete our review of the returns we have stopped we don’t have a precise tally of how much is identity theft or the total dollars that are involved.  However, we suspect that the bulk of them are inventory, which is now 2.6 million and continues to grow, will be identity theft. 

More specific to this filing season we have also done the following.  Despite substantial cuts in our budget we added hundreds of staff in this area and will add hundreds more.  In fact we estimate that we are going to spend over $330 million on refund work this year, in the refund fraud area.  Most of that is going to be specific to identity theft.  We issued special identification numbers, so‑called PINs, to expedite filing for those taxpayers whose identities have been stolen.  There are 250,000 PINs that have been issued to date.  There have been over 170,000 failed attempts to use an SSN associated with those PINs. 

We have also accelerated the matching of information returns to help stop fraud.  We are taking a number of actions to prevent identity thieves from stealing Social Security numbers of deceased taxpayers.  For example, when we receive a final return filed on behalf of a deceased taxpayer we are putting a special marker on those accounts since those individuals have no future filing requirement.  And we are working with the Administration and the Social Security Administration on modifications to the practice of making the Death Master File public. 

There are new procedures to allow us to match returns on lists of taxpayer information that law enforcement officials believe may have been stolen, and we have improved collaboration with software developers and others to determine how we can better partner to prevent identity theft. 

In addition, our Criminal Investigation Division continues to increase its work on identity theft.  In 2012 we will spend more than 400,000 hours of investigative work in this area.  In my written testimony you will see details of this work, including a description of a week long sweep in January that led to more than 900 charges across 23 States. 

In addition, earlier this month we began a process for local law enforcement to obtain tax return data that is vital to their local enforcement needs.  That is our work on prevention. 

We are also taking a number of actions to help victims of identity theft.  We have implemented new procedures and, as mentioned, we have added staff to resolve cases faster and better respond to calls, and of course the PINs I spoke of earlier will assist identity theft victims in filing future returns.  We have also trained 35,000 of our employees to recognize and help when they see identity theft situations. 

Let me conclude.  Our work is critical.  We can’t be lax in stopping fraud and our treatment of those who have had their identity stolen.  I can’t tell you that we will beat this problem this year, but I can say that our work in 2012 represents real progress but not the end of our efforts. 

I will be happy to answer any questions.

[The statement of Mr. Miller follows:]

Chairman Boustany.  Thank you, Mr. Miller. 

Ms. Olson, you may proceed.


Ms. Olson.  Chairmen Boustany and Johnson, Ranking Members Lewis and Becerra, and members of the subcommittees, thank you for inviting me to testify today about tax related identity theft. 

Since 2004, I have written extensively about the impact of identity theft on taxpayers and tax administration, and I have worked closely with the IRS to improve its efforts to assist taxpayers who become identity theft victims.  The IRS has adopted many of my office’s recommendations and made significant progress in this area in recent years.  Notwithstanding these efforts, however, identity theft continues to pose significant challenges for the IRS. 

I will highlight five points that I think deserve particular emphasis.  First, I am concerned that the Federal Government continues to facilitate tax related identity theft by making the Death Master File, a list of recently deceased individuals that includes their full name, SSN, data of birth, date of death and the county, State, zip code, maybe, maybe not, of the last address on record.  There is some uncertainty about whether the Social Security Administration has the legal authority to restrict public access to DMF records in light of the Freedom of Information Act.  For that reason I strongly support legislation to restrict public access to the DMF.  However, I believe the SSA has at least a reasonable basis for seeking to limit public access to the DMF under present case law under FOIA and if legislation is not enacted soon, I encourage the SSA to act on its own because everyday we delay taxpayers are harmed. 

Second, I am aware that some State and local law enforcement agencies would like to access the taxpayer return information to help them combat identity theft.  I have significant concerns about loosening taxpayer privacy protections and believe this is an area where we need to tread carefully.  But as I describe in my written statement, the IRS is piloting a procedure that would enable taxpayers to consent to the release of their returns in appropriate circumstances.  In my view, giving taxpayers a choice strikes the appropriate balance. 

Third, I am pleased that this filing season the IRS has established a dedicated taxpayer protection unit to answer phone calls from legitimate taxpayers who have been caught up in our identity theft filters.  However, for the week ending April 28th the level of service on this phone line was 24 percent, meaning that only 1 out of every 4 calls was answered and those callers that did get through had to wait on hold an average of 1 hour and 21 minutes.  More support for this unit is clearly required. 

Fourth, although my office has extensive knowledge about what victims of tax related identity theft experience as a result of handling tens of thousands of such cases, the IRS has been developing new initiatives in this area without seeking our input until late in the process.  As a result the victims’ perspective in several instances has not been given adequate weight in my opinion.  For example, the IRS is moving away from using a single traffic cop to resolve identity theft cases, which may make the process more complicated for taxpayers to navigate and end up with cases falling into black holes. 

The IRS has also been very slow to develop procedures to assist victims of preparer fraud.  Congress put the Office of the Taxpayer Advocate inside the IRS precisely to ensure that the taxpayer perspective is considered and when we are not adequately consulted the result is often that the IRS does what is best for the IRS rather than what is best for the taxpayer. 

Fifth, I note that even as the IRS is being urged to do much more to combat identity theft, taxpayers are clamoring for the IRS to process returns and issue refunds more quickly.  While there is still room for the IRS to make improvements in both areas, these two goals are fundamentally at odds.  If our overriding goal is to process tax returns and deliver refunds as quickly as possible for the vast majority of persons who file legitimate returns, it is inevitable that some identity thieves will get away with refund fraud and some honest taxpayers will be harmed. 

On the other hand, if we place a greater value on protecting taxpayers against identity theft and the Treasury against fraudulent refund claims, the IRS will need more time to review returns and the roughly 110 taxpayers who receive refunds will have to wait longer to get them, perhaps considerably longer.  Alternatively, the IRS will require a considerably larger staff to enable it to review questionable returns more quickly.  There really is no way around these tradeoffs. 

I appreciate the opportunity to testify today and would be happy to answer your questions.

[The statement of Ms. Olson follows:]

Chairman Boustany.  Thank you, Ms. Olson. 

Mr. Black, you may proceed.


Mr. Black.  Chairman Johnson, Chairman Boustany, Ranking Members Becerra and Lewis, and members of the Subcommittees on Social Security and Oversight, thank you for this opportunity to testify about identity theft. 

With the exception of an 8‑month deployment to Afghanistan between 2010 and 2011, I have served as the General Counsel of the Social Security Administration since November 2007.  I also serve as the senior agency official for privacy. 

The agency maintains sensitive and personal information on almost every American and takes seriously its responsibility to protect it.  I can attest to the agency’s tireless efforts to protect the personal information the public has entrusted to it. 

Let me begin by reiterating Commissioner Astrue’s recent testimony before the Social Security Subcommittee that the Administration is committed to strike any balance between transparency that helps prevent fraud and protecting individuals from identity theft, which is consistent with the framework for Chairman Johnson’s bill, H.R. 3475. 

Since Commissioner Astrue’s testimony we have submitted to the subcommittee specifications for a bill that expresses the Administration’s current thinking on how best to strike that difficult balance.  We continue to stand ready to work with you, other agencies and interested organizations to advance a bill that promotes our common goals. 

We at Social Security do not generate death data.  Rather, we collect it from a variety of sources so we can run our programs.  We use death data to stop benefits and to determine eligibility for survivors benefits. 

Individuals and entities became aware that we were gathering this high value information.  In 1978, Ronald Perholtz filed a lawsuit against us under the Freedom of Information Act, or FOIA, to gain access to the death information in our file.  In 1980, the parties entered into a court‑approved consent decree that required the agency to release to Mr. Perholtz the data requested in his lawsuit.  The Department of Justice advised us that Congress had not provided an exemption to the FOIA or the Privacy Act that would justify withholding the data covered by the court‑approved consent decree. 

In 1983, Congress added subsection (r) to section 205 of the Social Security Act.  This subsection requires us to collect death information from States to update our program records, provides the circumstances under which certain agencies may receive such information from us, and, notably, exempts the death information we receive from States from FOIA and the Privacy Act. 

However, Congress did not act to exempt from FOIA our release of death information we receive from other sources.  In order for us to manage the demand for FOIA requests and for death information and because we had no legal basis to withhold the information, we created a file that we could make available to the public.  That file is commonly known as the Death Master File. 

Since 1992 we have provided that file to the Department of Commerce’s National Technical Information Service, or NTIS, to distribute because NTIS functions as a national clearinghouse for a wide array of government data.  NTIS reimburses us for the file under a contractual arrangement.  NTIS recovers its dissemination costs by making the Death Master File available to 630 entities, including banks, hospitals, universities, insurance companies, and genealogical services. 

In addition, NTIS makes the file available for online searching by many organizations with similar requirements, but who do not wish to load the raw data on their internal systems.  The financial services community in particular expressed a desire for this ability when the Ways and Means Subcommittee on Social Security and the Financial Services Subcommittee on Investigations and Oversight held a joint hearing on the Death Master File in November of 2001. 

Our practice involving the Death Master File remains legally sound based on FOIA case law, the Department of Justice FOIA guidance, and OMB’s Privacy Act guidance.  Any attempt to limit disclosure of death information under current law would undoubtedly spawn additional litigation.  More importantly, we see no new judicial interpretation of FOIA or the Privacy Act that would allow to us withhold data on deceased individuals.  Accordingly, the administration is seeking congressional action to exempt this information from the FOIA to protect countless Americans from the threat of identity theft through abuse of the Death Master File. 

Thank you for the opportunity to testify.

[The statement of Mr. Black follows:]

Chairman Boustany.  Thank you, Mr. Black. 

Inspector General George, your testimony referenced identity theft related tax fraud that might go undetected, and we heard some figures, IRS reports $6.5 billion in identity theft tax fraud for fiscal year 2011.  You had a different figure that you laid out in your testimony.  Can you just describe again the total amount of fraud in 2011? 

Mr. George.  Yes.  The figure that the IRS identified we do not contest.  We have had the benefit of being able to look at the issue subsequent to the IRS’s release of their figure.  A perennial problem, Mr. Chairman, that the IRS confronts in their worthwhile effort to expedite refunds to the taxpayers they do not have either the benefit of or, whatever term I would defer to Mr. Miller to describe, the time to wait until all third party reporting information has been received by them, meaning W‑2, 1099 and the like.  And so when we looked at this number we were able to benefit from the fact that we saw the W‑2s and the 1099s and that an additional $5.2 billion was on top of the number that the IRS reported.  So it is almost double the problem that they initially reported, sir.

Chairman Boustany.  Mr. Miller, do you want to comment on that? 

Mr. Miller.  Yes, I would actually.  We don’t disagree with the number that General George and the Inspector General are utilizing.  I would point out that we probably do disagree with the large number over a 5‑year period because what ‑‑ and we received the report last week ‑‑ what we see is actually a good story, not a bad story.  It is true that money got out in 2010, which is the year they were looking at.  The Inspector General utilized four scenarios to try to look through the data.  The Schedule C work that they suggested we are now doing.  The work on Social Security income we now have fixes in place for that.  Interest income, which was a third of their rules that they were utilizing, we have what they are suggesting being done there as well.  So I will say yes, it is true in 2010.  The fourth piece was the W‑2s are missing, and I think that is correct.  What we have done is moved up by as much as a couple of months when we can look at those W‑2s, but it continues to be less than optimal not to have all the data that we need to look at as a return is in front of us in determining whether it is fraudulent or not.  But I think what we would see is a much lower number today because of the efforts that we have done than with 2010.

Chairman Boustany.  So are you suggesting that the Inspector General’s number was based on a snapshot before you implemented certain things that will have an impact on that 5‑year figure? 

Mr. Miller.  Absolutely.

Chairman Boustany.  Okay. 

Inspector General George.

Mr. George.  I have no information to contradict what he states.

Chairman Boustany.  Okay.  The subcommittee is not only interested in the size of the fraud but also in how we might prevent it from occurring and continuing to occur.  And I would like each of you to comment on what Congress needs to do legislatively.  We are all aware of Chairman Johnson’s bill.  I think there seems to be broad agreement that it is a good bill that needs to move forward.  But what more do we need to consider to assist your agencies to combat this growing problem? 

Mr. George.  Mr. Chairman, the new hire directory would be an immensely helpful tool for the IRS for a variety of reasons, but some of it is the fact that it would give the IRS a tool to determine whether or not someone who is claiming deductions or income for which they would seek a refund if they didn’t have a job in the previous year or the year prior to that, you know, it raises alarm bells that the IRS can use internally to determine whether or not the information that they are supplying seeking the refund is valid, suspect, what have you.  And this again, as was pointed out by Mr. Lewis, is something that has been sought for by both the various administrations and various Secretaries of the Treasury. 

Chairman Boustany.  Thank you.  Mr. Miller.

Mr. Miller.  So if I could add to that, I think the new hire database would be a great add, a new tool in our tool box in this area, not a panacea, none of these are panaceas to be honest with you.  But we could use all the help we can get and that would be a good one.  Another one actually is the Death Master File which is the subject of discussion today.  We need, the IRS needs maybe 2 years without having a decedent’s Social Security number in the public domain because a decedent has a filing requirement, the executor must file on behalf of the decedent for the year of his or her death.  So we need a little bit of time, we can’t just lock the account when we understand someone has passed.  We have to allow that person to file with us. 

I will go back to obviously the big one for us is the budget.  We could use any help that you can give us in terms of bridging some of the gaps we are seeing right now on the budget. 

Lastly, I will mention there is a little known provision in Section 6103, the tax privacy rules, that has expired, and that allows us to share information with prisons.  And that allows the prisons to utilize that information in disciplinary hearings on people who are prisoners who are cheating, and we have 1990,000 returns from prisoners that we believe are fraudulent.  That would help as well.

Chairman Boustany.  Despite IRS’s creation of a centralized identity protection unit, the Taxpayer Advocate reports at least 28 different units within IRS are charged with helping ID theft victims and sit on a somewhat bureaucratic maze.  Taxpayers sometimes work more than a year to resolve their identity issues, according to TIGTA.  I would like you each to comment on how this affects taxpayers and what changes could be made to streamline that process and better serve the victims of these crimes. 

Mr. George.  As you can imagine, if you call American Express or any credit card company and you are relating a problem to them and every time you are requested to give the same information you gave the first time you called and to explain the problem over and over again, how frustrating that can be.  While Mr. Miller pointed out that the IRS is providing additional resources towards this, we noted in our research, Mr. Chairman, that during the height of the tax filing season, people who are normally assigned to address identity theft problems were actually taken away from that responsibility and reassigned to answer tax questions that any citizen who rightfully has a question and calls the 1‑800 number expects to receive.  And so the identity theft issue is actually set aside for a while and then assigned to someone who may not have any information at all regarding that particular case.  And so again the taxpayer has to start anew.  And we think they could readily institute policies where you have a single individual assigned to a case and almost as many police departments do with detectives and the like.

Chairman Boustany.  Mr. Miller, has that been considered? 

Mr. Miller.  It is in some fashion, but let me rephrase sort of the question.  We have, the vast majority of the identity theft work we are doing with victims is when the person files and they are blocked from going through because somebody has stolen their identity and it has gone through first.  That work resides ‑‑ and it is anywhere between 150,000 or more of those cases ‑‑ resides with a unit specifically working on those cases.  I don’t think we have pulled people off, we may have, but I am unaware of that.  What I can say is with the number of cases that we had, we were understaffed.  And so there is no question about that in terms of working through these cases.  They are difficult cases.  They can take anywhere between 40 days and what the Inspector General has mentioned on average right now they are taking 280 days, and that is about 250 days too long in probably all of our view.  That is a question of staffing.  We started the year working those cases with 200 people.  Now the filing season is over, we will have 1,200 people working those cases. 

What I am trying to do is make sure that by the end of this calendar year nobody who has been a previous victim has the chance of being a victim again.  We want to work that inventory during the summer.

Chairman Boustany.  Thank you.  And one final question, are there any practices in the private sector that we at the Federal level might adopt that would both limit tax fraud or better assist victims?  Briefly if you could comment on that. 

Mr. George.  Mr. Chairman, yes.  The short answer is there is something called shared secrets.  If you call again a credit card company in addition to asking for your name and your card number, they will ask many times your mother’s maiden name or date of birth.  The IRS simply doesn’t do that and that is something that they can easily do.  But just to go back to your earlier point, sir, something that is somewhat perverse in that the victim of identity theft reaches the point where the refund was sent to someone else’s account, the thief’s account, bad guy’s account, information that is later sent by the IRS to try to resolve the information is sent to the same address as that which the thief provided.  And so there is still even more of a chance of the unwilling or I don’t think intentional divulgence of privacy information, personally identifiable information.  So the IRS, there are certain commonsensical actions that I think are needed that I don’t think would cost a lot of money but the IRS simply hasn’t done.

Chairman Boustany.  Thank you.  Mr. Miller.

Mr. Miller.  Just a couple points.  One, I believe statutorily we have to at least start with the address the record that we have, and if it is the wrong address unfortunately that is the address we probably will have to send it to.  We do follow up and we work these cases.  It is one the barriers we have. 

In terms of shared secrets I think it is a wonderful idea and we are working on it.  I don’t think it is cheap, quite frankly.  We don’t have a database sitting there waiting to be utilized for this.  Part of our authentication process I hope to roll out before the next filing season, but it is not a small list to be honest with you.

Chairman Boustany.  Thank you.  I now yield to Mr. Lewis the ranking member of the Oversight Subcommittee. 

Mr. Lewis.  Thank you, Mr. Chairman.  Let me thank each witness for being willing to testify and being here today.  Thank you so much. 

Inspector General George, your written testimony states that the IRS has faced budget cuts, a hiring freeze, and staff reductions during the same time it has encountered a large surge in identity theft refund fraud.  Is identity theft something that the IRS is fully able to combat given its resources and budget constraints? 

Mr. George.  Notwithstanding and again obviously, sir, you understand the role that I play.

Mr. Lewis.  I understand your role very well.

Mr. George.  Where they can make improvements.  Notwithstanding all of my statements, I would have to give the IRS credit in this area.  They are doing a better job in terms of assisting people who are victims of identity theft and in terms of improving processes, but they obviously could do a better job and there is no question that if they had additional resources they could do more and do it better. 

Mr. Lewis.  But do you have any suggestions or recommendations of what amount of additional resources would be helpful to the IRS? 

Mr. George.  That I don’t have at this time, sir. 

Mr. Lewis.  Mr. Miller, in your original testimony you stated that in some cases identity theft, the identity that is stolen may belong to a deceased individual.  Why doesn’t the IRS immediately turn off Social Security numbers of deceased individuals?

Mr. Miller.  Mr. Chairman, Mr. Lewis, we can’t do that.  As I mentioned, a person who died in 2011 will have to have their executor file a tax return in their name, and so if I passed on the 1st of January, for example, all the way through the extension date of October 15th of the next year, there is a possibility that that decedent will have to use their Social Security number to file their return.  We have filters in place to try to make sure that those returns coming in are not fraudulent, but it is impossible for us really to lock that account down until that final return has been filed. 

We are marking them as best we can at this point, but we can’t just block that social until they no longer have a filing requirement with us. 

Ms. Olson.  If I might add, sir, if you are a surviving spouse, under the law you are able to file married filing jointly with your deceased spouse for the year of death, and I believe 2 years after the year of death, if you do not remarry.  So that is really three, you know, the year of death, plus two more years that in certain instances, you would need the Social Security number to be live. 

Mr. Lewis.  Thank you, Ms. Olson.  Mr. Miller, you further stated in your written testimony that the IRS has a significant increase in refund fraud involving identity theft.  Given your budget cut, how do you address identity theft and keep up with your current workload?  I understand that the telephone service is suffering with identity theft victims waiting over 1 hour to speak with someone.  What else is suffering? 

Mr. Miller.  So it is a zero‑sum game.  We have a dollar to spend on various things, and we have gone from, our estimate would be maybe $190 million in 2011 to $330 million this year on these issues.  So obviously, service is stretched; enforcement is stretched.  We are making sure we fund what we need to fund to have a fair and equitable, balanced program of service and enforcement.  But there is no doubt that we are stretched. 

And I would speak a moment on the line that everyone refers to.  Nothing to be proud of for us, obviously.  It is not a defensible position to have that low ability to answer the phone.  We have taken steps to address it.  We are right now in the 70s, because we have put another 100 folks on that line, but it took a while to do that.  We had to wait for the filing season, to be honest with you, before we pulled people off and put them on that line.  And that is the line, by the way, we should be clear, that is not the line that if I am the subject of identity theft, I pick up and the phone and call the service.  That line, seven out of ten people are getting through and we are doing much better on.  This is the line where we sent something to the person saying, your return is being held up, we have some questions.  That is the line that we frankly were swamped on, and have now taken appropriate steps, late but appropriate steps to try to get past that backlog. 

Mr. Lewis.  Thank you.  Now, Miss Olson in your testimony you stated that a broad perspective is needed on the IRS’s overall mission, and the challenges and tradeoffs that a tax‑related identity theft present.  Please explain.  Can you explain to us further?  Can you inform and educate members of the committee? 

Ms. Olson.  We were trying to raise a really broad policy issue, which is the conflict between the fact that we have 80 percent of our individual taxpayers getting refunds and they want them quickly, and then the need of the IRS to basically screen returns, and rout out identity theft or other refund fraud and make sure we are protecting the government fisc, and those two issues are inherently in conflict.  And part of my raising this was to say we should perhaps consider, and this a very big issue, doing what many other countries do in their filing season, which is that they actually delay the date of issuance of refunds until after the return filing season is over.  So you know that, you know if the return filing season is going to end on April 15th, and refunds are going to be issued on June 1st, or June 15th, then the IRS would have the time to do the matching with the information return documents, and things like that, and that you would be much more likely to have the legitimate refunds going out. 

That is a very big issue, but I think that is about the only way that you are really going to resolve these competing tensions, the need for refunds, and then the need to protect revenue. 

Mr. Lewis.  Thank you.  Thank you, Mr. Chairman.  I yield back. 

Chairman Boustany.  I thank the ranking member. 

Chairman Johnson. 

Chairman Johnson.  Thank you, Mr. Chairman.  Before I get to any of my questions I would like to briefly speak about a tax fraud issue I have been working on for over 2 years. 

Mr. Miller, the other week NBC Indianapolis, Station WTHR ran a report entitled:  “Tax Loopholes Cost Billions.”  According to the report, the IRS is handing out refundable child tax credits to illegal immigrants who are claiming children who don’t even live in the United States. 

Without objection, I would like to submit that report for the record. 

Chairman Boustany.  Without objection.

[The report follows, The Honorable Sam Johnson #1 :]

Chairman Johnson.  It is outrageous that by all accounts the IRS is simply turning a blind eye to this type of fraud which is costing the American taxpayer billions.  Now the IRS has said it doesn’t have the authority to require Social Security numbers for this refundable tax credit.  However, as you well know, one of the requirements for the child tax credit is for the child to actually live in America.  Unfortunately, it does not appear that the IRS is enforcing this simple requirement, and I feel that is unacceptable. 

As you well know, I have got a common‑sense measure to stop the IRS from giving out refundable child tax credits to illegal immigrants by requiring tax filers to provide their Social Security number.  It is my hope that we will finally pass this into law.  Until we do so, I fully expect and call on the IRS to do all it can to stop this, multi‑million dollar fraud.  I think the taxpayer deserves no less, and I think you agree with me. 

Mr. O’Carroll, criminals seem to always be one step ahead of us, particularly when the government makes it easy for them.  Can you tell us more about the case in Puerto Rico and why obtaining Social Security numbers of those from Puerto Rico are so valuable? 

Mr. O’Carroll.  Yes, Mr. Chairman.  As you are saying, it is a commodity out there, the misuse of the SSNs, and SSN information, and what happened in Puerto Rico is that there was a theft of a lot of birth certificates and other identifying documents that went on to the black market and were sold and then were used for people to basically adopt identity and adopt identities of children from also school records that were taken from there, and both were being then used for identity theft and fraud.  And we have been, again, very keeping, I guess the law enforcement community is informed of this and trying to keep as much information out there to keep it from becoming too widespread.  And we think that probably through the sharing of information it has been contained. 

Chairman Johnson.  Given your experience, are there other ways, in addition to ending the public availability of the Death Master File, that you could recommend for fighting tax‑related fraud resulting from identity theft? 

Mr. O’Carroll.  Yes, I can.  As I had said in my oral testimony, most of it is common sense on the part of individuals, not to be, you know, be phished into giving information out to people that you don’t know, to safeguard your Social Security number.  Don’t carry it with you.  Shred any personal information that has your identifiers on it so that it is not going to be, you know, picked up by something doing the dumpster diving and trying to get your personal information.  So we try at every opportunity that we can when we talk to people at our hotline is to give that information out, is that it is a valuable commodity and to safeguard your Social Security number whenever you can. 

Chairman Johnson.  Thank you.  Ms. Olson, I know in your annual report to Congress you supported legislation to limit public access to the Death Master File, and you also suggested Social Security might have legal authority to limit access to the Death Master File, but when Social Security tried to simply remove the zip code from the file, the agency was besieged by inquiries and lawyers.  Protecting personal information by limiting access is Congress’ responsibility. 

Isn’t eliminating the publication of the Death Master File as we propose the best way to make sure none of the information about the deceased is made public? 

Ms. Olson.  Sir, I support having a legislative solution to this.  I think that that is the cleanest and least controversial approach, but my concern is, as I said in my oral testimony, every single day that we do not have that legislation taxpayers are being harmed.  And my reading of the case law since the 1980s, although there may be litigation over the Social Security withholding this information, my reading of the United States Supreme Court case law is that there are exemptions that would cover Social Security withholding that information, and Social Security would prevail.  So that is my point, is that we could take administrative steps as we are trying to get the more perfect solution, which is legislation. 

Chairman Johnson.  Thank you, ma’am.  Thank you, Mr. Chairman. 

Chairman Boustany.  Mr. Becerra, you are recognized. 

Mr. Becerra.  Thank you, Mr. Chairman, and thank you all for your testimony.  Let me first submit for the record a couple of matters, Mr. Chairman.  I would like to submit a letter from April the 17th, 2012, by the United States Conference of Catholic Bishops opposing, as they say, our strong opposition to unfair proposals that would alter the child tax credit to exclude children of hard‑working immigrant families, and a January 30th, 2012, New York Times editorial which also opposed the unfair proposal to target hard‑working immigrant families on the child tax credit and it is titled:  “A Harder Squeeze on the Poor”, for the record. 

Chairman Boustany.  Without objection.

[The letters follow, The Honorable Xavier Becerra #1, The Honorable Xavier Becerra #2:]

Mr. Becerra.  Miss Olson, you are the Taxpayer Advocate.  Let’s make sure we are clear.  That doesn’t mean you are the IRS’s advocate before Congress.  It means you are the advocate for the millions of Americans who file voluntarily their tax returns to pay their taxes. 

Ms. Olson.  Yes, sir. 

Mr. Becerra.  So you are the eyes and ears for Americans who can’t afford to be in D.C. to talk to Congress every day. 

Ms. Olson.  Right. 

Mr. Becerra.  Okay.  You have said that the number one most serious problem facing the IRS is underfunding, or as you put it, the IRS quote does not adequately ‑‑ “is not adequately funded to serve taxpayers and collect taxes.”  You have said that today.  You have said it before. 

$300 million less in funding this year for the IRS than in last year’s budget.  IRS is dealing with workloads that are increasing with 5,000 fewer employees than it had before, so to combat fraud, take care of taxpayers’ filings, fewer employees.  Does anyone disagree with what Miss Olson has said that the IRS is not adequately funded to serve taxpayers and collect taxes?  And I would actually ask the two IGs, Inspectors General, do you, either of you disagree with Miss Olson’s statement that the IRS is not adequately funded?  And I am not going to get into the whole thing, but I am just wondering, do you think they have got enough money or they don’t? 

Mr. George.  As was stated by Mr. Miller ‑‑

Mr. Becerra.  Mr. George, I am going to run out of time real quickly.  I can get into it more, but I am just wondering, do you concur or not with Miss Olson? 

Mr. George.  No.  I have not conducted an assessment as to the adequacy of IRS funding. 

Mr. Becerra.  So you can’t pass judgment, that is fair.  Okay, Mr. O’Carroll. 

Mr. O’Carroll.  I am focusing more on Social Security’s funding than IRS, so I am not going to weigh in there.

Mr. Becerra.  Maybe we should ask the IGs to examine whether or not the IRS is adequately funded.  Mr. Miller, you said that no doubt we are stretched.  You just said that a few minutes ago, and so I think you would concur with Miss Olson that your budget is strained and you are trying to do as much as you can with what you have when you are answering only one out of every four phone calls from folks who are calling about identity theft, and those who do get their phone call answered are waiting more than an hour on hold.  I suspect you are distressed having to deal with that type of outcome. 

Mr. Miller.  We are.  That is a disappointment to us as well as to the taxpayer. 

Mr. Becerra.  Okay now, so let me ask this.  I think Mr. George, it was in your testimony that you said that with $32 million in additional funding to do some of this work on identity theft, we probably could collect some of the, or avoid paying out the $5.5 billion in refunds that were sent out based on fraudulent returns that involved identity theft.  Is that correct? 

Mr. George.  That is, yes, that is my testimony, sir. 

Mr. Becerra.  So for a tenth of the money that the IRS didn’t get of the $300 million, they could actually get us back $5.5 billion? 

Mr. George.  Yeah, the return on investment, you know, is something that in many of the activities that the IRS engages in would benefit them in terms of getting more of taxpayer dollars back to the Treasury.  There is no question about that, sir. 

Mr. Becerra.  Is there a more clear definition of being penny wise and pound foolish than to cut the IRS millions of dollars and cost the taxpayers at the end of the day billions of dollars? 

Mr. George.  There is no question that if the IRS received additional resources, it could do more. 

Mr. Becerra.  I appreciate that.  Let me ask Miss Olson and Mr. Black to engage in a bit of a colloquy with me in the time I have remaining.  Okay, Miss Olson, you said you think IRS has the ability to restrict some of the Death Master File information from getting out there without having to resort to Congress for a change in statute.  Mr. Black, you say you don’t believe that authority exists and you have to abide by the existing laws.  And you also mentioned–I don’t think you mentioned, but it seems like you would need to be defended if you were sued because you tried to restrict, as Miss Olson said, some of that information.  The Department of Justice ultimately would have to take on your case and defend you in court if you were to restrict access to that information because someone, a consumer, a business, decided to sue you because all of a sudden you were restricting access to that Death Master File. 

Can I ask a question?  Why not talk to each other?  Why not ask Justice to sit in a room with you all instead of asking us to perhaps write a new law; can we find out if Justice first would defend you in court and say, yeah, I think there is a case here.  If they say no, we wouldn’t defend you, then I think it is clear, Miss Olson, that we need to have a new statute.  But at the end of the day, every day that we don’t restrict access, someone is using information to commit fraud, and it seems to me that it is almost ‑‑ I hate to say this ‑‑ but it almost would be worth testing how far we can take the existing laws on privacy to see if you can start restricting–give legitimate stakeholders, there are a lot of insurance companies, a lot of others ‑‑ and I will conclude with this, Mr. Chairman ‑‑ a lot of others who need to have access to the Death Master File so fraud isn’t committed against them.  I know an insurance company would say, wait a minute, if we can’t have access to this information, fraud will be committed against consumers by people using it, without us having the correct information.  So I think we have to be careful, but giving legitimate stakeholders access to the information.  Let’s test the limit so that we can avoid this and if ultimately we find that the statutes aren’t sufficient to restrict access to private information, then Congress will be better guided.  But would you be willing to reach out to Justice and perhaps report back to Congress on what conversations between IRS, Taxpayer Advocate, SSA, and the Department of Justice would turn up? 

Chairman Boustany.  Briefly.

Mr. Becerra.  Yes.  I apologize, Mr. Chairman. 

Mr. Black.  It is difficult for attorneys to be brief, but yes, we would be happy to discuss this with Justice, but as both the chairman and yourself have pointed out, there is both positive and negative uses of the Death Master File. 

Mr. Becerra.  Okay.

Mr. Black.  We would prefer the legislative approach that strikes that balance between the two, and we would prefer to leave a decision like that made up to Congress as opposed to the courts determining what that proper balance is.  I think the better approach is that Congress working with the Administration determines what that balance is about the appropriate access to the Death Master File versus the improper access to the Death Master File. 

Mr. Becerra.  And I probably should have added Mr. Miller since he is with the IRS as well, and I hope that Mr. Miller would be willing to work with Ms. Olson on that as well. 

Chairman Boustany.  The gentleman’s time is expired.  Ms. Jenkins. 

Ms. Jenkins.  Thank you, Mr. Chairman.  Thank you for holding this hearing and thank the panel for being here.  And Mr. Miller, or in Mr. George’s testimony, he states that their office has recommended that the IRS limit the number of tax refunds being sent to the same account, however, that IRS has not yet acted.  And according to Mr. George, his office found 10 bank accounts that had direct deposits of more than 300 tax refunds, which begs the question, you know, why hasn’t it been fixed.  So is it not possible for the computer system to flag an account after a threshold number of returns has been sent? 

Mr. Miller.  So I believe it is possible.  It does make sense to look at that.  There ‑‑ I will start by saying it is not exactly the IRS that would be doing this, but FMS, but it is part of Treasury, so it can be done.  The issue is a little more complex than just doing that, however, because there are numerous accounts that will receive multiple refunds, including tribes, for example, return preparers, so we would have to find a way to figure out who is whom in that area as we move forward.  We did go down this road once before to a bit of a muddle, but we are going to look at it again, absolutely. 

Ms. Jenkins.  Okay, thank you, and could maybe one or more of you just comment or explain the interaction between the Department of Justice, local law enforcement, and your agencies when identity theft‑related tax fraud occurs and kind of walk us through a typical investigation and prosecution of how law enforcement interacts with one another when this occurs? 

Mr. O’Carroll.  Ms. Jenkins, I will take this at least to start.  We work very closely, or our office and our investigators work very closely with the Department of Justice and we are on 45 national task forces that are out there trying to, you know, on identity theft, bankruptcy, and through that we try to assist, you know, local law enforcement with the information on it.  We are able to share a lot of our information with them.  They share their information back.  One of the things we have a little bit of a limitation on is anything in relation to IRS data we don’t share and we can’t share with law enforcement, but we share all of the information that we have from Social Security on it.  We are very proactive with it.  We try to work with U.S.  Attorneys’ offices, and get the word out there that there is punishment for identity theft.

Mr. Miller.  So if I could add on to that, we also work really very hard in this area.  I mentioned that 400,000 hours of our criminal investigators’ time is spent on identity theft.  We have, as the Inspector General mentioned, we have numerous task forces that we are on.  We have some issues.  We have some issues with local law enforcement because 6103 works in a fashion that allows us to share taxpayer data with State enforcement officials if the State enforcement official is working on State tax.  If it is a tax charge that they are working on, and so in States like Florida, for example, where there is no State income tax, there is a gap in what we can do.  What we have tried to do, and local law enforcement has been very vocal and annoyed with us, 6103 makes it difficult.  We have just started a path forward that I think will help, and that is where you have been a victim and want to help local law enforcement we will go to you.  We will say, do you mind if we share?  Do you waive your right to 6103 privacy on behalf of the local law enforcement official?  So far, very early to be able to tell whether that is going to work or not, but our attempt there is to help local law enforcement, but it is a difficult path. 

Ms. Olson.  I was going to say, if I might add, another thing that local law enforcement and the IRS are doing now including the ‑‑ and also the Department of Justice, is where someone has identified a scheme and the IRS is not yet involved in it, and they get lists of people’s numbers that have been compromised, the IRS now has a place for those lists to go to and, you know, the taxpayer accounts get an identity theft marker because we know that they are possibly compromised even if they haven’t been actually yet with us.  Again, that takes more resources, more people to enter those markers, and that is sort of on the bottom of the pile.  But at least there is that protective device that is going on now. 

Ms. Jenkins.  Okay, thank you, Mr. Chairman.  I yield back. 

Chairman Boustany.  Mr. Stark, you may inquire. 

Mr. Stark.  Thank you, Mr. Chairman, both chairmen for holding this hearing, and thank the witnesses for being with us today. 

Just my very first question would be directed towards Mr. Miller, and you could just send us a note.  I would like to know during that hour and 20 minutes that I might have to wait what music you play, and do you pay your ASCAP fees on that?  That would be helpful to know what days to call. 

On a more serious note, directed towards Mr. Black and Mr. O’Carroll.  Something that we have talked about before, but 19 States are stealing basically about $6,000 bucks a year per foster care child.  What happens, those of us who have children who receive Social Security payments, my own case, my young three children, because of my age and that I am on Social Security.  Many States unhappily, including our own State of California, take that money from foster care children and dump it into the State general fund, and they don’t fill out the annual form that you require me to fill out saying what did I do with that money?  Did I save it for the child?  Where is it now?  How much is saved?  Did I spend it?  What did I spend it on? 

You are not requiring the States to do that.  And consequently, we have, as I say, I think it is about 19 States now that are taking the money that should be set aside.  These kids when they turn 18 might very well have 15‑ or 20,000 bucks which they could buy a car, go to college, do a lot of things, and the State is just using it to pave potholes and pay the Governor’s salary.  That is unfair.  And I would like to ask Mr. Black, what are you going to do to see that the States obey the law and fill out the form and return it to you so that you can see that those foster children, whose money that is, receive it when they mature out of foster care? 

Mr. Black.  Congressman Stark, unfortunately I spent all of my preparation time getting into the ins and outs of the Death Master File, but when I return I will sit down with our policy folks, the Office of General Counsel will look at that issue and submit a response for the record.

[The information follows, David F. Black]

Mr. Stark.  Because it is the law, and it takes enforcement.  And Mr. O’Carroll, you are also familiar with this. 

Mr. O’Carroll.  Yes, I am because I met with you one time.  We talked about it.  And to be truthful on it, we haven’t done our audit work on it.  As a result of your bringing it up to me, it is on our list for our work plan for next year. 

Mr. Stark.  It started with Mr. DeLay and myself.  I mean, this is an issue, as I say, for the poorest of the poor, the kids who need it most.  And as I say, I am sorry the States are doing this, but I want to see that they get what they deserve and receive the funds they should.  So I can fill in any of my colleagues on the details of their own State, but this is something which I guess we have oversight on, and I would like to see that these children somehow get that money saved or the State does.  Now, they may need mental health care, which would be a logical thing for this money to be spent on that, special hospitalizations, special treatments.  Any of those things are valid ways to spend it, but I am afraid the States who assume the locus parenti for these kids don’t do it.  And I hope that I can encourage both of you to look into this more and see that these children get the savings and the funds they deserve. 

I am sorry to digress, Mr. Chairman, but it is an important issue for young kids.  Thank you very much.  I thank the witnesses. 

Chairman Boustany.  I thank the gentleman.  Miss Black. 

Mrs. Black of Tennessee.  Thank you, Mr. Chairman.  Mr. Miller, I have a question for you.  In Mr. George’s testimony, he says that the office has recommended that the IRS limit the number of tax refunds that are sent to the same account.  However, the IRS has not acted on that, and according to Mr. George and his office, they found that 10 bank accounts had direct deposits of more than 300 tax refunds. 

Do you have any idea about how you can fix this, or do you have plans for fixing this so that you might be able to make that determination and helping to make sure that that one account doesn’t get that kind of refund? 

Mr. Miller.  Well, Congresswoman, I have previously touched on this, but it is something we are working on, and it is something we will look at.  We have tried to do that once in the past with mixed results.  What I have mentioned is that there are absolutely valid reasons why a single account can be the recipient of many refunds.  At the short end of it, it can be a family account for several people, all the way up through the fact that certain Indian tribes maintain an account for the unbanked within their tribal membership, and also return preparers.  So we would have to find a way to know that that account was an account that was going to be able to receive many refunds, and we are going to work on that. 

Mrs. Black of Tennessee.  I think with the exception of, as you say, maybe an Indian account, I think 300 tax returns for even a family would seem to be quite excessive.  I mean, that would have to be a mighty large family to get 300 tax refunds. 

Mr. Miller.  Agreed, but the return preparers are another issue. 

Mrs. Black of Tennessee.  Okay.  Thank you. 

Mr. George.  Miss Black, if I may just, in addition, because I didn’t address this during my oral testimony.  In addition to the issue that you just raised, we are finding a growing problem with the use of prepaid debit cards, and having Federal refunds, not only in the realm of the IRS, but Social Security, and other governmental benefits going to these prepaid cards which people can literally buy at stores and bodegas and the like, and finding growing examples of fraud associated with that, with very little oversight being conducted by anyone on this area.  And so again, I have to continue my response by saying tax policy is an issue that the Secretary of the Treasury has given solely to the Office of Tax Policy, so I am not in a position to give you any policy advice on this but I did want to make this committee aware of a growing problem in an area that is, you know, something that is beneficial, not everyone has a bank account, but at the same time it is being used inappropriately. 

Ms. Olson.  If I might comment on that, please. 

Mrs. Black of Tennessee.  Sure. 

Ms. Olson.  My office has recommended in the past that just as you have a Social Security debit card to load benefits for the unbanked onto that, that the government should have a Federally funded, you know, card for people to get their refunds on, those unbanked individuals.  And that card would only be available if they went into a financial institution and produced evidence of identity and things like that; rather than clicking a button on a software package, you know, software package that sent you a card without any identification information, and it just came to you in the mail.  And I think that might be one way to reach the balance between trying to get the unbanked into the banking system, but also protecting us against identity theft in some way.  We can learn from Social Security on that. 

Mrs. Black of Tennessee.  Mr. George? 

Mr. George.  Yes, Mrs. Black.  There is no question that the IRS and Treasury should be working with financial institutions to develop policies.  This is an issue that is of importance, as Ms. Olson just noted, and it is something that is resolvable.  It is something that we think can be addressed, but just simply isn’t being done so. 

Mr. Miller.  And if I could just add on a little bit.  We are working with financial institutions.  I do not want to give the subcommittee the view that the debit card companies and that the financial institutions are not working with us.  They absolutely are and they have been very helpful.  We are not as far as we need to be yet, but they are working with us. 

Mrs. Black of Tennessee.  And Mr. Miller, is there any idea about when, I mean, I hear you say you are working on this, but obviously time is of the essence, because there is so much of this going on.  Do you have any idea about when you might be able to come up with some resolution that would help us, because we are obviously at tax season and I can just imagine how much is happening right now. 

Mr. Miller.  Well, it has happened already, Congresswoman, so we have a little bit of time but not that much time to prepare for the next filing season. 

Mrs. Black of Tennessee.  Yeah. 

Mr. Miller.  But as I have mentioned I think to the subcommittees, there is no panacea here, and really should not ‑‑ absent some ability of the community to act in a fashion that doesn’t allow a Social Security number to be stolen, the service will always be working in small places to do things to stop this.  There is no one single thing that we can do to stop identity theft. 

Mr. George.  But if I may just close on this.  The exact problem that you noted regarding 300 refunds going to a single account, you are having ‑‑ while I don’t have an exact number, but we do know that many additional tax refunds are going to a single debit card, so it is really, it is a mirror image of the problem. 

Mrs. Black of Tennessee.  Sure.  Thank you, Mr. Chairman.  I yield back. 

Chairman Boustany.  Mr. George, let me put on the record that over a year ago, a letter to, I think it was Secretary Geithner, expressing major concerns about the debit card issue and the potential for fraud, and the responses have been very, very slow on that and we are still pushing to get further information on the potential problems with the use of these debit cards. 

Mr. George.  I was unaware of that.  Thank you, Mr. Chairman.

Chairman Boustany.  We will get a copy of the letter to you. 

Mr. George.  Thank you, sir. 

Chairman Boustany.  Thank you.  Mr. Paulsen, you are recognized. 

Mr. Paulsen.  Thank you, Mr. Chairmen.  I want to thank you and the ranking members for holding our hearing today.  And the topic of identity theft is certainly very important and we need to be doing all that we can to combat the problem.  I remember last week in Minnesota, actually I held an identity theft seminar with the Minnesota Financial Crimes Task Force for seniors, and I will tell you the object was to give them insight on how to better protect themselves, and it was a packed house.  The line was overflowing out the hallway.  In fact, they were so interested in getting information that they hung around for an extra hour, so we ran over time.  And I think one way we can help protect, certainly seniors, is to remove that Social Security number from that Medicare ID card.  And I am cosponsor of Chairman Johnson’s legislation.  I thank him for bringing that forward and working on that issue. 

But I do want to turn for a moment, if I could, to fraud and ID theft in the area of tax returns, in particular, and Miss Olson, in your 2011 report to Congress, you gave that outline on an issue regarding tax fraud where the tax preparer fraudulently alters a completed tax return and then retains the illicit benefit without the knowledge of the taxpayer even.  And you recommended an increase in the penalty to give greater incentive to go after these fraudulent preparers, and so today actually, along with Mr. McDermott and both the chairmen and the ranking member of the Oversight Subcommittee, we are introducing legislation, the Fighting Tax Fraud Act, which essentially doubles the current penalties, giving greater incentive for prosecutions against this type of theft. 

So Commissioner, I want to thank you and your office for your diligence and being a great resource to not only myself but my staff throughout the drafting process, and I am just wondering if you could talk a little bit more about what you saw that encouraged you to add this as one of your top 10 recommendations, essentially. 

Ms. Olson.  Well, the IRS is seeing many more of these schemes coming in involving return preparers that are filing tax returns, after the taxpayer has approved the return and they actually have a copy of what they think is going to be filed, the preparer alters the return in some way and then uses the split refund procedure to get the difference in the additional refund deposited into their account.  The taxpayer doesn’t find out about this until much later.  They get the refund that they are expecting and it is only until the IRS comes out trying to collect this erroneous refund from the taxpayer that they find out that the return has been altered.  And what we learned was really to go after the preparer you have some very‑low dollar civil penalties that are really about negligence, and then you have a very expensive route, which is to try to build a case to get to the Department of Justice to bring a prosecution and get restitution for the dollars that are lost to the public fisc, and what we tried to propose was some sort of civil penalty that would really serve as restitution, where you could build the case that the preparer had, in fact, committed this act.  It was fraudulent.  It was willful and fraudulent and then the preparer would be 100 percent liable for the amount that was erroneously taken out.  So it fills a gap in our ability to recover what the public fisc is out, and it also heightens the risk to the preparer in engaging in this activity. 

Mr. Paulsen.  And so in these cases, as you mentioned, the taxpayer doesn’t really know that he or she has been defrauded at all until they get the notice from the IRS letting them know that their returns were faulty, and this means that they are unaware that anything took place, actually for quite some time.  So part of the problem in cases like this is that the return is going to two separate bank accounts, essentially? 

Ms. Olson.  It can go to two bank accounts, or as, you know, Commissioner Miller was saying, it can go to the preparer, the preparer could set up a bank account, and then distribute, have the return go to that bank account and then send to the taxpayer the amount that they are expecting.  But either way, the taxpayer won’t know that this is happening. 

Mr. Paulsen.  And other than doubling penalties to enhance the crackdown, or for enforcement of this, do you have any other ideas or suggestions on helping raising the flags earlier in the process to identify where the problems are?  Do you have any idea what the prevalence of this type of a fraud activity might be out there? 

Ms. Olson.  It is very hard to know about this, but just recently the State of Illinois brought some actions against a large return preparation firm that also operates in many other States where they had identified some alleged fraud, and in fact, they contacted my office, and we all worked together with the IRS, myself, and the Illinois AG to develop a message for taxpayers who might be impacted by this. 

And I think to your point about a town hall, we would be more than happy to provide some information to all of the Members of Congress so they could go out in their town halls and alert taxpayers to this risk. 

Mr. Paulsen.  Good.  Thank you, Mr. Chairman.  I yield back. 

Chairman Boustany.  I thank the gentleman.  Mr. Smith, you are recognized. 

Mr. Smith.  Thank you, Chairmen Johnson and Boustany, for holding this hearing and thank you to our witnesses.  I do have a news article from my district that I would like to ask for unanimous consent to submit for the record. 

Chairman Boustany.  Without objection.

[The news article follows, The Honorable Adrian Smith]

Mr. Smith.  Thank you.  Mr. O’Carroll, on the piece I submitted, and I assumed that you ‑‑

Mr. Becerra.  Mr. Chairman, I hate to interrupt the gentleman, but could the gentleman identify the article, so we ‑‑

Mr. Smith.  I am getting there.  Thank you.  It has to do with a student whose Social Security number was utilized by someone fraudulently. 

Mr. Becerra.  I thank the gentleman. 

Mr. Smith.  The article I submitted has to do with a young man from my district, Corbin Russell, actually.  He found when he went to apply for some student loans that he was denied because someone else had used his Social Security number to file a death claim in South Carolina over 2 years ago.  And so now Social Security says that everything is fine with them, but with other agencies it is not yet.  And so there is a lot of time that may need to pass before it is clarified or rectified.  And so I was wondering why isn’t there the automatic red flag on a tax return when the name and Social Security number do not match? 

Mr. O’Carroll.  I will take the first crack at it.  In terms of, I am well aware of that, with the identity theft that was taken by your constituent, and again, we are concerned on SSA’s information on it, when they get the ‑‑ in this case we realized that it was falsely reported as death on it.  SSA changed the record on it and from our standpoint, with SSA, I think we rectified his problem, which again now leads over to the tax issues, which I will ‑‑

Mr. Smith.  Well, would SSA further take any action with other agencies, credit bureaus, and so forth, to correct that? 

Mr. O’Carroll.  I guess no, is the short answer on it, is that what SSA will do is, we will ‑‑ and I will from, I guess advice to the individuals, they will give it to them.  They will tell them how they can go about it.  They will give them the record from SSA that can be used to be taken to other locations, but SSA isn’t proactive in terms of going out to the credit bureaus and the financial institutions and even other government agencies on sharing any of the identity theft.  It is probably a good concept in the future of sharing that type of identity theft, but we are not involved in it now. 

Mr. Smith.  Okay, anyone else wishing to comment? 

Mr. Miller.  Only to say that we do a name check with the Social as it comes into us on the return. 

Mr. Smith.  Okay.  Mr. Miller, you have mentioned that the multiple refunds are mailed to tax preparers.  Could you outline a scenario where that would be commonplace? 

Mr. Miller.  I think we are talking direct deposits, which would not be a mailing at all actually.  

Mr. Smith.  Okay, but transmitting multiple deposits to one entity? 

Mr. Miller.  So there are split refund accounts.  My understanding is, and I can get back to the subcommittees on this, but, yeah, there are return preparers who have an account that receives sometimes the refunds of the clientele. 

Ms. Olson.  Sir, if I might.  There is ‑‑ preparers are barred from negotiating a check or a deposit for the taxpayer.  There are serious penalties about that, but where taxpayers are unbanked, there may be an account set up where the refund can be direct deposited into it on behalf of the taxpayer, and then ‑‑ and my understanding is, it is actually an account, or a subaccount for that taxpayer in particular, but it may be a larger account number and that might be where the problem is.  But again, there are preparers, as I described earlier, who are actually violating the law, using the account, their account to receive the taxpayer’s funds and then distribute it out. 

Mr. George.  Mr. Smith, if I may, my office investigates many allegations such as what Miss Olson just outlined, where tax preparers have directed refunds from legitimate clients for their own benefit, in effect stealing money from their clients. 

Mr. Smith.  Thank you.  Also, Ms. Olson, in your earlier testimony, you talked about perhaps holding refunds until the end of the filing season.  Is the filing season basically January through the middle of April, or how would you define filing season? 

Ms. Olson.  Yes, January through April 15th, and I realize this is a radical suggestion, but I am trying to point the contrast, you know, the tension out between our dual responsibilities here.  So, and it is basically the model that is followed by most large tax administrations that give out refunds in the world.  They allow themselves time to do these reviews, you know, even waiting to see what kind of duplicate returns we get in.  So the first to file isn’t always the one that gets the refund.  And then we freeze all the later ones. 

Mr. Smith.  Okay.  Thank you, Mr. Chairman. 

Chairman Johnson.  Mr. Chairman, I would like to submit for the record my letter to the editor to the New York Times editorial earlier submitted for the record, in response. 

Chairman Boustany.  Without objection.

[The letter to the editor follows, The Honorable Sam Johnson #2]

Chairman Johnson.  Thank you, Mr. Chairman. 

Chairman Boustany.  Mr. Reed, you are recognized. 

Mr. Reed.  Thank you very much, Mr. Chairman, and thank you to the witnesses.  Essentially, to everyone or anyone who would like to respond, in preparing for the hearing today, I was reading about the ability for the IRS to lock accounts on deceased tax filers.  And I can appreciate that ability, because of the reports of millions of dollars worth of checks going to deceased folks and the issues that it represents in regards to waste, fraud, and abuse.  And I was just wondering, is it working from any of your points of view, and would a more ambitious approach using tools such as that one help?  Can anyone offer any ‑‑

Mr. Miller.  So if I could start on that, Congressman.  We do lock accounts of the deceased.  As I have mentioned, there is a whole group of folks who have died within the last couple of years or even 3 years that still a filing requirement, so we can’t really lock their account.  We can run them through our filters.

Mr. Reed.  But isn’t that a filing number off the estate?  Doesn’t the estate have to get the taxpayer identification number rather than the Social Security number? 

Mr. Miller.  Right now they will be filing as an estate entity, and they will be filing as the last year of the decedent. 

Mr. Reed.  Okay, please continue.  I am sorry. 

Mr. Miller.  And so locking accounts, marking accounts is what we are doing, running them through, running them through the filters, and we have caught like 90,000 questionable returns in the traps, is something we are pursuing now, and we will get better at it, but that is really where we are at this point.  I think locking of accounts and getting smarter about filters is our best approach going forward. 

Mr. Reed.  So just so I am clear, when you lock that account, that is reported to the Treasury, so that if there is a refund due or anything like that, I know it is a little outside of the purview of the committee today, but does the Treasury still issue refunds when that account is locked? 

Mr. Miller.  No.  The locking of the account means that basically that return is going to come in and it is not going to be able to be filed with us. 

Mr. Reed.  Okay.  So now if there is an erroneous reporting on that filing, on that locked out account, what are the steps that you take specifically to make sure that that gets corrected, and what is the time frame upon which that correction occurs? 

Mr. Miller.  Sir, I don’t know about the time frame.  The approach would be, a person would call in and say you are not letting me file.  I need to file.  Generally what would happen at that point is we would ask them to file on paper and we would take a look at that return.  And that will take a while, but that is the approach that we are taking at this point. 

Mr. Reed.  Because I believe Mr. George had mentioned that it can take IRS more than 1 year to resolve an identity theft case, right?  So that is not what we are talking about here. 

Mr. Miller.  Could be, but, and if it is, it will take a while for us to work through that case.  These coming in through paper are worked, I think, a lot faster especially if there is no first return that has come in. 

Mr. Reed.  Okay, so just looking forward, what could you offer to us, or what would be your best recommendation as to how to better enhance your ability to solve this issue or what would be the kind of the prioritization of additional tools that you could use in order to address the concerns? 

Mr. Miller.  So is this for decedents or for identity theft in general? 

Mr. Reed.  Let’s do both if we could, decedents.  I have got plenty of time. 

Mr. Miller.  I will roll through the list. 

Mr. Reed.  See, oh, there is the buzzer now.  See look it, now we wasted some more time. 

Mr. Miller.  So obviously, we have talked about our budget, which is stretched pretty tight right now. 

Mr. Reed.  And I hear that one, I should ‑‑ whenever I ask that question of any panel from the ‑‑ I always hear resources, and need for money and people.  Beyond that, because we have no money, and obviously, if you have no money you can’t hire any people, so…

Mr. Miller.  Well, if we have no money and we can’t hire people then we aren’t going to be able to do the IT things that I need either, Congressman, and that is going to be a very difficult place for the Internal Revenue Service to be. 

Mr. Reed.  Okay, so with the staff that you have, what authority, what tools could you be given to make your job more efficient so you could do it within the resources that you do have? 

Mr. Miller.  We have obviously talked about the Death Master File here, and we have talked a little bit about the new hires database.  Both of those would be incremental improvements to what we do.  There is also some expired statutory language around sharing with prisons taxpayer information so that we can do a better job of letting those prisons do disciplinary action with respect to prisoners.  Those are sort of the things that we would be looking for, and to be honest, simplification would be a good thing for us and for taxpayers as well here. 

Mr. Reed.  Simplification of the actual ‑‑

Mr. Miller.  Of the Code. 

Mr. Reed.  Excellent.  Any other suggestions anyone had on either on death or identity theft cases?  Mr. George, how about you? 

Mr. George.  I would just note, and because this hasn’t been discussed today, a lot of victims of identity theft don’t know they are victims because they don’t have filing requirements.  And so that is something where I don’t know whether it is the IRS or whether it is Congress needs to take a closer look at in terms of informing people who do not have a requirement to file a tax return, that they may need to check their credit records, or whether the IRS has a way of alerting them to something that they should be aware of, but that is an issue that needs to be looked at. 

Mr. Reed.  That is a great point.  I appreciate you bringing that up, because eventually, hopefully, they will have to file because ‑‑ in that position, and times will get better for them and then they can head off a lot of problems that they otherwise would have to deal with at that point in time. 

I see my time has expired, Mr. Chairman.  I do appreciate it and I yield back. 

Chairman Boustany.  I thank the gentleman.  Mr. Marchant, you are recognized. 

Mr. Marchant.  Thank you, Mr. Chairman.  Recently I had a phone call from a constituent that asked me to come over to his office.  I went over there and sat down with him and he showed me next door where there was a storefront that, literally, there were people streaming into this storefront on a constant basis for the entire hour that I was there, in the middle of the day. 

And I asked him what his concern was, and he said, you know, this goes on for day after day, after day, after day, and in this case it was primarily Hispanic families.  And he said, we share a common block of mailboxes.  And he said, I, from time to time I will go to the mailbox to open my box up, and inadvertently the postal worker will have put some of the mail from this place next door into my mailbox.  And then I look through it to see which is my mail and which is not my mail.  And he says that there are dozens and dozens of IRS checks that are made out to various different people.  And I have listened to the testimony today, and I don’t know that I was able to decipher what this particular problem was but they were all using this same address of this tax preparer in this case.  He asked me to look into it.  Frankly, I did not know where to start in looking into it.  I did not know where, what governmental agency to start with.  The first was the IRS, but then after listening today to the panel, can you suggest to me what a Congressman should do when a constituent cares this much about how the system is being played and what action I might take, and then describe to me what possible fraud is going on in this case? 

Mr. Miller. 

Mr. Miller.  So if I could start, Congressman.  So I would recommend that you do contact us.  The postal inspector as well has lines that do this, and we work very well with the postal inspector.  You know, in any given case I have no idea whether it is fraudulent or not because it may be that that is their mailing stop.  That is where they are receiving their refund and they come back and grab it.  It also is possible, obviously, that it is a drop for fraudulent returns that are being procured.  So we wouldn’t know in any given case.  It certainly would raise our antenna, as it did yours, and we would look at it.  So I would recommend coming to us.  The postal inspector works with us very closely looking for exactly this sort of pattern and stopping a whole lot of these things. 

I will mention one other thing since we are talking about mail, and we have talked about debit cards and the problems on debit cards, but there is one thing I do want to make sure everyone is aware of.  That debit card, when it goes out, when you order it online or however you are ordering it, it doesn’t go out with money on it.  So if we stop that refund, it never has money on it.  That money goes into an account with sub‑accounts, as the Taxpayer Advocate mentioned, but it may be when you see these rows of cards that they are devoid of money on them.  So that is another thing I will mention. 

Mr. Marchant.  You mentioned earlier that a person can use pretty much any mailing address for his address for his return?

Mr. Miller.  Generally not.  I will have to come back.  That is a specificity I don’t have at my fingertips, so I will have to come back on that. 

[The information follows, Steven T. Miller]

Mr. Marchant.  But a preparer could designate that the person’s mailing address be the preparer’s mailing address?

Mr. Miller.  Yes.

Mr. Marchant.  Okay, thank you.

Mr. George.  Mr. Marchant, I would just point out that because there is some overlapping responsibilities here, the Treasury Inspector General for Tax Administration, which was once the inspection service within the IRS, we have primary oversight of an IRS employee who is accused of committing some type of tax or other criminal wrongdoing, a preparer who steals their client’s information or someone who is using the IRS’s symbol.  It could be anyone, but if they mimic the IRS eagle and attempt to defraud a person or an entity, that is primarily our jurisdiction. 

Whereas, the Criminal Investigations Division, which is within the IRS itself, truly has the primary responsibility to investigate in a matter such as the example you gave along with the Postal Service, which would also have the postal inspector who would also have some responsibility.  And then there are instances where the overlap to would be an IRS employee who sells the information about a taxpayer to a bad person and that bad person then engages in the tax fraud.  So that is where there would be some overlapping jurisdiction among other examples. 

Mr. Marchant.  Thank you very much.  Yield back. 

Chairman Boustany.  I thank the gentleman.  Mr. Berg, you are recognized.

Mr. Berg.  Thank you, Mr. Chairman.  And I thank the panel for being here.  I want to also recognize Mr. Black, who also is from North Dakota.  There are so few of us, we have got to stick together when we get together.  He is actually from Rugby, which is the geographical center of North America.  So sometimes people are not sure where North Dakota is.  It is the geographical center of North America. 

You know, as we look at this issue, as I think about it, obviously, there is not unlimited money, not unlimited people, and so it is kind of a tradeoff, it’s a tradeoff between how do we get these things processed and get them out quickly versus how much time do we take verifying Social Security numbers, verifying addresses, and verifying those types of issues. 

So I kind of have a question for the whole panel individually, but really as you look at that balance, that tradeoff between getting the returns out quickly versus being more thorough and more investigative, my question is, are we at that right balance or do you think it should be shifted one way or the other? 

Mr. George.  Let me start by quickly saying, as you are aware, sir, the IRS recently released its most recent figure on what is called the tax gap, the amount of money owed, not paid on time by the taxpayer in full, without the IRS having to take some compliance action.  That is estimated at $400 billion per year, and I submit to you that that is a low ball estimate because it doesn’t include other aspects, meaning international dollars involved, tax dollars involved and the like.  So while we are talking billions here, and in my mind that is still a heck of a lot of money, much more needs to be done, much more can be done.  As we discussed during the course of this hearing, some require legislative fixes, others are just, we believe, procedural/policy decisions, changes that the IRS can make.  Some need to be done in conjunction with other agencies, as was pointed out by one of the members earlier.  It is so disconcerting, so frustrating for someone to have their identity stolen and not be able to get a student loan, and yet the IRS is not in a position to help resolve that aspect of the problem. 

So there needs to be more, you know, mutual interaction between Federal agencies, and again, using common sense as we have discussed during the course of this hearing.

Mr. Berg.  Thank you. 

Mr. O’Carroll.  Mr. Berg, just ‑‑ probably the one thing I always like to always remind when we are talking here about the benefits as opposed to the returns, on the benefits side, we are always saying that stewardship and using risk‑based approaches to make sure that the right person is getting the benefit for it; that their information isn’t being taken and their benefits are being diverted to the wrong, you know, through fraud or whatever.  So we always say that the biggest issue with the Social Security is that balance between service and stewardship.  And our biggest one is that you always have to focus on the stewardship, no matter what the budgets are or anything else, is just to make sure that due diligence is out there so that the right people are getting the right benefits. 

Mr. Miller.  Congressman, in terms of the balance, I don’t know whether it is the right balance at this point.  That is exactly, we are on the cusp of having that discussion, and we should have that discussion.  I will say a couple of things a we think about that discussion. 

If you think that we have 2.6 million fraudulent returns to date, that is against a very large number of returns, you know, the 90 plus million refund returns, so far.  And so we have to think about that.  And we also have to think about the fact that some people really do, I mean, when their refunds are late, these people are relying on them for some, at the lower end of our income spectrum, these people are ‑‑ it is the largest payment they receive in a year.  And to change their expectations around that is not ‑‑ is no small thing.  And those are things we are going to have to think about and talk about, and I would welcome you all to be a part of that discussion, obviously. 

Ms. Olson.  I agree with what Mr. Miller said.  I think that it is a very delicate decision, and that is really why I was raising it.  I think that the IRS in the filing season can do better talking to taxpayers and explaining to them the risk of identity theft, and explaining to them through releases and conversations the steps that we are taking and why there might be delays.  And I think if we educate taxpayers better, we can tamp down a little bit that hysteria, that clutching in the throat, you know, about if their refund gets caught up in there. 

I think the IRS is taking a lot of steps that are very positive in this, and I think some of the work that they are doing trying to get the W‑2 information earlier in the process in a form where they can process returns going, you know, that as they come in, against this information, also helps us protect things without creating too much more of a delay.  So I think there is some things that they are doing in the right direction before we have gotten the balance that we need.

Mr. Berg.  Thank you. 

Mr. Black.  I will take the balance of your time and thank you for recognizing me as a native from the great State of North Dakota.  As the IG from SSA recognizes, the Social Security Administration also struggles with this balance of getting the right benefit to the right person at the right time, and we have tried to balance that approach with better use of technology to do that work, as well as a better use of technology to match data with other agencies so that we can prevent things like fraud from happening up front.

Mr. Berg.  Thank you.  Mr. Chairman, I yield back.

Chairman Boustany.  I want to thank all the witnesses for coming here today and providing your testimony.  This has been a very helpful hearing for us.  I want to remind each of you that members may have additional questions that they will submit or may submit and that those questions and your answers will be made part of the official record.  And with that, this hearing is now adjourned.

[Whereupon, at 12:01 p.m., the subcommittees were adjourned.]

Member Submissions For The Record

The Honorable Sam Johnson #1
The Honorable Sam Johnson #2
The Honorable Adrian Smith
The Honorable Xavier Becerra #1
The Honorable Xavier Becerra #2

Witness Inserts For The Record

Steven T. Miller
David F. Black

Questions For The Record

The Honorable J. Russell George
The Honorable Patrick P. O’Carroll, Jr.
Steven T. Miller
Nina E. Olson

Public Submissions For The Record

Kenneth Ryesky