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CPA Guest Opinion

Does the IRS Understand It Is Victimizing Victims?

“IRS to identity theft victims: Pay now while we pay later,” was the title of an article that appeared in the May 7, 2012 edition of the South Florida Sun Sentinel. It reported the sad case of a South Florida 76-year-old disabled  veteran who was the victim of identity theft and Internal Revenue Service “customer relations”.

He timely filed his 2011 tax return reporting an overpayment of tax only to learn an identity thief earlier used his identity to file a return claiming a fraudulent refund. Adding insult to injury, Internal Revenue Service staff informed the victim that the refund would be delayed and the $600 part of his overpayment he wanted applied to his 2012 estimated income taxes would not be applied as requested.  Rather, if he did not reach into his pocket to pay the $600 a second time, he would be subjected to penalties and interest for underpaying his 2012 estimated taxes. So, he fearfully paid the $600 a second time.

Even the IRS recognizes the inherent unfairness of what the taxpayer was told. The problem for the public is the lack of training received by intake personnel at the IRS.  It required a higher level spokesperson at IRS to provide a partial explanation for the Sun Sentinel reporter who wrote the original story.  IRS already has a policy of reducing amounts of assessed taxes and removing penalties for “reasonable cause,” economic hardships, fairness and equity. Had the intake staff known this, the victim would not have felt compelled to pay the $600 a second time.

So, what is the IRS doing to combat identity theft? As part of a comprehensive identity theft strategy, it has embarked on a national effort focused on preventing, detecting and resolving identity theft cases as soon as possible. It has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes.

On January 31, 2012, the IRS and the Justice Department jointly announced the results of a massive national crackdown on suspected identity theft perpetrators as part of a stepped-up effort against refund fraud and identity theft. The nationwide effort targeted 105 people in 23 states and resulted in 69 criminal complaints related to identity theft with 939 criminal charges. Furthermore, in the same week, IRS conducted compliance visits to money service businesses in nine locations across the country helping ensure these check-cashing facilities aren’t facilitating refund fraud and identity theft.

According to IRS Commissioner Doug Schulman, “This unprecedented effort against identity theft sends a strong, unmistakable message to anyone considering participating in a refund fraud scheme this tax season. We are aggressively pursuing cases across the nation with the Justice Department, and people will be going to jail. This is part of a much wider effort underway at the IRS to help protect taxpayers.”

On the victim side, the IRS says it is taking additional steps to prevent identity theft and detect refund fraud before it occurs. These efforts include designing new identity theft screening filters that will improve the IRS’ ability to spot false returns before they are processed and before a refund is issued, as well as expanded efforts to place identity theft indicators on taxpayer accounts to track and manage identity theft incidents.

This is where it breaks down. IRS Criminal Investigations is very good at its job. Nevertheless, IRS customer relations skins its knee in two critical places. First, IRS is mining data to correlate reported identity theft victims and fraudsters.  Regrettably, its computer programming is not yet fully equipped to accurately identify identity theft returns.  Fraudsters know that the earlier they file a refund return with IRS using a stolen identity, the more likely they are to be successful.  Secondly, the information about what IRS is doing to combat identity theft and assist victimized taxpayers is published in the one place taxpayers do not visit for information —

Unfortunately, in its rush to provide justice for victims, victim needs are not being adequately addressed.  Simply having better trained intake staff could have prevented this mini-tragedy and the large number of others occurring around the country.

By Stanley I. Foodman
Foodman CPAs & Advisors

South Florida Legal Guide Midyear 2012 Edition

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