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70–679 PDF 2011

IRS E–FILE AND IDENTITY THEFT

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,

EFFICIENCY AND FINANCIAL MANAGEMENT

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

JUNE 2, 2011

Serial No. 112–58

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION, EFFICIENCY AND FINANCIAL

MANAGEMENT

TODD RUSSELL PLATTS, Pennsylvania, Chairman

CONNIE MACK, Florida, Vice Chairman

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

PAUL A. GOSAR, Arizona

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

EDOLPHUS TOWNS, New York, Ranking

Minority Member

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

ELEANOR HOLMES NORTON, District of

Columbia

(III)

C O N T E N T S

Page

Hearing held on June 2, 2011 ................................................................................. 1

Statement of:

Shulman, Douglas H., Commissioner, Internal Revenue Service ................ 13

White, Jim, Director of Strategic Issues, Government Accountability Office; Sharon Hawa, identity theft victim; Lori Petraco, identity theft

victim; and Lavonda Thompson, identity theft victim ............................... 41

Hawa, Sharon ............................................................................................ 60

Petraco, Lori .............................................................................................. 67

Thompson, Lavonda .................................................................................. 73

White, Jim .................................................................................................. 41

Letters, statements, etc., submitted for the record by:

Diaz-Balart, Hon. Mario, a Representative in Congress from the State

of Florida, prepared statement of Ms. Vas Dagins .................................... 10

Hawa, Sharon, identity theft victim, prepared statement of ........................ 62

Petraco, Lori, identity theft victim, prepared statement of .......................... 70

Platts, Hon. Todd Russell, a Representative in Congress from the State

of Pennsylvania:

Prepared statement of ............................................................................... 3

Prepared statement of Ms. Lee ................................................................ 30

Shulman, Douglas H., Commissioner, Internal Revenue Service, prepared

statement of ................................................................................................... 15

Thompson, Lavonda, identity theft victim, prepared statement of .............. 75

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 5

White, Jim, Director of Strategic Issues, Government Accountability Office, prepared statement of ........................................................................... 43

(1)

IRS E–FILE AND IDENTITY THEFT

THURSDAY, JUNE 2, 2011

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,

EFFICIENCY AND FINANCIAL MANAGEMENT,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 1:01 p.m., in room

2247, Rayburn House Office Building, Hon. Todd Russell Platts

(chairman of the subcommittee) presiding.

Present: Representatives Platts, Lankford, Amash, Gosar,

Guinta, and Towns.

Also present: Representative Diaz-Balart.

Staff present: Ali Ahmad, deputy press secretary; Michael R.

Bebeau, assistant clerk; Molly Boyl, parliamentarian; Mark D.

Marin, senior professional staff member; Tegan Millspaw, research

analyst; Beverly Britton Fraser, minority counsel; and Cecelia

Thomas, minority counsel/deputy clerk.

Mr. PLATTS. This hearing of the Subcommittee on Government

Organization, Efficiency and Financial Management will come to

order. Again, appreciate everyone’s patience and flexibility here as

we are juggling both the floor schedule and waiting for the full

committee’s hearing to conclude.

The purpose of today’s hearing is to shed light on the growing

problem of identity theft-related tax return fraud. Each year, thousands of American taxpayers fall victim to criminals who steal

their identities and then use their personal information to claim

fraudulent tax refunds.

I am going to submit my full statement for the record, but I

would summarize that the three kinds of primary areas of focus

that we are going to have today in this hearing is, first, the issue

of internal controls at the Internal Revenue Service and the need

for those controls to be dramatically improved to prevent fraudulent conduct from taking place, to prevent American taxpayers

from being defrauded of millions and millions of dollars each and

every year; to focus on the prosecution of these criminals who engage in this fraudulent conduct to make sure that the message is

sent that if you defraud the American taxpayer, the American people, you are going to be held accountable; and, third and very importantly, that we do a better job of assisting the hardworking lawabiding American citizens who are victimized by these criminals

and then not afforded the level of care and assistance that needs

to be provided them by the Federal Government, especially in the

case of the Internal Revenue Service, to ensure that these law-abidVerDate 17-JUN-2003 13:57 Nov 30, 2011 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70679.TXT KATIE PsN: KATIE
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ing citizens are not victimized a second time by the poor assistance

or treatment by the Internal Revenue Service.

I will submit my full statement for the record and, with that, I

will yield to the ranking member, the gentleman from New York,

Mr. Towns.

[The prepared statement of Hon. Todd Russell Platts follows:]

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Mr. TOWNS. Thank you very much, and let me say that I will follow that, I will make certain that I do likewise by submitting my

full statement to the record and just indicate that I am really, really proud that the witnesses are coming forth. I think that through

this kind of dialog maybe we can get to the bottom of this.

But at the same time, Mr. Chairman, I think it is going to require additional resources to be able to fix this and to make certain

that people are not inconvenienced in this fashion. We can do better, and I know we can do better. But the point is that in order

to get to where we need to go, we might have to spend some resources to get there to be able to protect people, because I think

that we have an obligation and responsibility to do that.

I know that a solution is on the way, but it is going to really require some resources, and I think that members of the committee

here might have to recognize that. But at the same time these kind

of discussions are very, very important, and on that note I yield

back.

[The prepared statement of Hon. Edolphus Towns follows:]

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Mr. PLATTS. I thank the gentleman and certainly look forward to

working with him and his staff as we have always done so in a bipartisan way, not just today in this hearing, but as we go forward

to continue the dialog with the IRS and all interested parties to

make sure we do much better in protecting the American taxpayers, protecting our citizens against this type of fraudulent conduct.

I ask unanimous consent to recognize a member of our Appropriations Committee, including one who serves on the committee

with oversight over funding regarding the Internal Revenue Service, a gentleman who has had a good number of constituents also

defrauded by criminals in this regard, the gentleman from Florida,

Mr. Diaz-Balart, for an opening statement and submission for the

record.

Mr. DIAZ-BALART. Mr. Chairman, thank you so very much. I

want to thank you for, first, your leadership and for indulging me

for some minutes this morning. I want to thank you and I want

to thank the ranking member and the committee again for your

leadership.

Some of you are probably wondering why I am here. Well, some

of you may know that South Florida has been one of the most affected areas really in the country when it comes to IRS identity

theft issue. What you don’t know, I am sure, is that I, years ago,

was also a victim of identity theft. Now, I was one of the lucky ones

and it wasn’t the IRS issue that we are dealing with, but I can tell

you what a nightmare it is to deal with if it does happen to you.

It is bad enough going through this traumatic event of having

your identity stolen, but then to find out that even a Federal agency cannot protect you against identity theft, frankly, is just beyond

disheartening. The fact that so many people who this happens to

is, frankly, intolerable and unacceptable, and I think we can all

agree that the IRS has been slow, frankly, very slow to respond not

only to the individual identity theft issue, but also just overall.

Mr. Chairman, you mentioned that I am on the subcommittee

that deals with the funding issue. It is obviously something that we

are going to be also looking at there, but before the committee

started, Mr. Chairman, if I may kind of say what you and I were

talking about. The chairman and I were talking about how, if you

use your credit card and you go to a gas station that you don’t go

to a lot, or you travel or you use it twice in a gas station, like I

have done when I will fill up my tank and then I will fill up my

wife’s tank on one credit card, you will get a call from the credit

card company. A red flag goes up.

And this happens kind of regularly. And obviously we don’t expect the IRS to be perfect, but clearly there must be a better detailed plan to prevent further fraud issues from taking place and

also a plan, as the chairman said, to make sure that taxpayers who

have fallen victim to this issue are dealt with in a quicker and

more fair fashion.

I will point to you, Mr. Chairman and members of this committee, that a journalist from South Florida, the Sun Sentinel in

South Florida, her name is Sally Kestin, has written several really,

really good articles on the issue, and I am going to have my staff,

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if that is all right with you, give it to the members of the committee. I think they would show you just how bad it is.

I would also like to recognize, as the chairman said, a constituent

from south Florida. Her name is Sheila Vas Dagins. She had fallen

victim to this crime with the IRS not once, but twice. So imagine

that. It is hard enough to go through it once, but imagine having

to go through it again. So the IRS was aware of it and somehow,

the next year, it happened to her again. So, again, it tells you that

the protocols that are there are not effective; a lot needs to be done.

And I again, once again, thank you, Mr. Chairman, for your leadership and this committee. She was not able to be here today to

testify, but she has supplied us with her story in a very compelling

written testimony, and I would very respectfully, Mr. Chairman,

ask to allow me to submit her testimony for the record, if that is

possible.

Mr. PLATTS. Without objection, so ordered.

[The information referred to follows:]

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Mr. DIAZ-BALART. Thank you, Mr. Chairman. With that, I just

want to thank the committee for your leadership. Thank you, Mr.

Chairman, for making this a priority issue. It is a big problem in

South Florida, it is a big problem nationally, and as bad as identity

theft is, when it happens with the IRS and when people who work

hard, pay their taxes, play by the rules, and all of a sudden their

refund checks go to some crook, it makes a horrible crime even

worse. I cannot thank you enough for your leadership and I thank

you for the opportunity to be here this morning. Thank you, Mr.

Chairman. I yield back.

Mr. PLATTS. The gentleman yields back.

Just housekeeping for everyone. We are going to recess now because we have about 40 seconds left on the floor vote, the first of

seven, so the rest of the Members and I will head to the floor, returning with an estimated start time again at 1:45. And with the

agreement of our first panel of witnesses, we are actually going to

flip-flop the panels and we will have the IRS Commissioner, Mr.

Shulman, when we come back testifying first, then followed by our

witness panel with GAO and our citizens.

So we appreciate everyone’s flexibility in willing to work with us,

your patience, and, thankfully, when we come back we should have

a long break before the next series of floor votes, which will allow

us then to get into this issue in substance and, as the gentleman

from Florida said, really make sure that we do better by all of our

constituents and all of our citizens to protect them.

So, with that, the hearing stands recessed until approximately

1:45.

[Recess.]

Mr. PLATTS. This hearing of the Subcommittee on Government

Organization, Efficiency and Financial Management will be reconvened.

I know our ranking member, Mr. Towns, does plan on rejoining

us coming back from the floor fairly quickly as well. I do want to

express regrets for a number of my Democratic colleagues who

were planning on being here, but are now on their way to the

White House for a Democratic Caucus meeting with President

Obama, and they asked me to extend their regrets in not being

able to hear the verbal testimony here today, but are glad to receive the written testimony from all of our witnesses.

Again, we appreciate everyone’s patience and flexibility as we

juggle the schedule.

We are delighted to have with us the 47th Commissioner of Internal Revenue, the Honorable Douglas H. Shulman. Commissioner

Shulman, we appreciate your work and the work of your department, and your working with this committee, members and staff,

as we try to address this very important issue of how better to protect American taxpayers from being defrauded collectively by tax

identity theft or identify theft as tax related, and also to protect

each and every citizen who is victimized by these criminals when

such fraudulent conduct occurs.

I am not going to go through your whole bio, in the interest of

time. You have been very patient as we juggle schedules, as the

other witnesses have been, so we will go right to your testimony.

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It is the practice of the Oversight Committee to swear all their

witnesses in, so if I could ask you to stand and raise your right

hand.

[Witness sworn.]

Mr. PLATTS. Thank you, Commissioner. The record will reflect

that the witness affirmed that oath and, with that, I will turn it

over to you for your statement.

STATEMENT OF DOUGLAS H. SHULMAN, COMMISSIONER,

INTERNAL REVENUE SERVICE

Mr. SHULMAN. Chairman Platts, thank you for the opportunity to

testify before the committee on the important issue of identity

theft.

Before I discuss the efforts the IRS has taken to combat identity

theft and to assist its victims, I just want to personally apologize

to the taxpayers sitting behind me. I had a chance to talk with

them and apologize to them personally. I know that they had a

frustrating experience with the IRS. As the head of the IRS, which

serves 140 million individual taxpayers, I always stress to our employees that we need to walk in each taxpayer’s shoes and understand their specific situation and needs.

And while most taxpayers have a smooth, seamless experience

with the IRS, we obviously need to do better with the taxpayers

who are here today. On behalf of the agency, I apologize, and I

have asked my staff to followup immediately with each one of them

to make sure all their issues have been resolved.

Let me talk about identity theft for a minute. First, I want you

to know that we take the identity theft issue around the tax system very seriously. Regrettably, by the time that we detect and

stop a perpetrator from using someone else’s personal information,

that victim’s data has already been compromised outside of the tax

filing process. I think it is very important to state for the record

that all of the examples here today, the IRS is not the cause of the

identity theft. Rather, the taxpayer’s sensitive information was stolen outside the tax system and the perpetrator then uses that stolen identity to try to get a tax refund.

This is a growing problem nationwide, identity theft, and we

have seen a fivefold increase of tax-related issues around identity

theft in the last 5 years. In 2007, because we saw this as an issue,

we created the Office of Information Protection and Data Security.

Let me briefly highlight some of the actions we take to try to get

ahead of this.

First of all, we set up filters and we stopped about $1 billion

since 2008 of potentially fraudulent returns coming in due to identity theft. We have also tried to set up ways to assist victims of

identity theft. We put markers on accounts, which puts heightened

scrutiny on those accounts when they came through. The key to

those markers is setting up the right filters that block the criminals and don’t put too much burden on the victims.

While not perfect, we have gotten a lot better. Two years ago 80

percent of the returns that were tripped by our filters ended up

being legitimate taxpayers. This year that is almost reversed; 75

percent of the tripped returns ended up being the fraudulent taxpayers. So we are going to keep getting better every year.

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We have also, this year, launched a very promising program,

which is we have given 56,000 taxpayers a PIN. When they file the

return, it will go through if you have the PIN. If a PIN comes in

with that Social Security Number with no PIN, it will be blocked.

I really think this is the future and I commend my staff for being

in front of this and working on it, although it didn’t help the folks

who did not have a PIN.

I could go on and on. We do a number of other things. We have

criminal investigations; we coordinate with the Justice Department, the FBI, the Federal Trade Commission, and I am happy to

talk about it in questions.

Before I conclude, let me just turn to the written testimony of the

witnesses who experienced unprofessional behavior on the part of

some of the phone assisters that they encountered at the IRS. I

must tell you, in all candor, that all of my personal experience and

the data that I review on a regular basis suggests that our telephone representatives, on a whole, are extremely professional and

courteous. All of our customer satisfaction measures, those measured both by the IRS and by external third parties, show that

while we run one of the largest phone centers in the world, the IRS

manages to provide high quality service with a high degree of accuracy.

With that said, I take these taxpayers at face value that they

had a bad experience with the IRS, and I take this very seriously.

I believe the conversations we have with victims of identity theft

present unique challenges to our assisters. Often it is during the

initial conversation with the IRS that the taxpayer is told that they

have been victimized.

As we have heard, these can be very emotional conversations and

they are very unlike the majority of calls that we receive on a daily

basis with specific questions about your account or the tax law. So

for many of our assisters, especially the ones on our general toll

free line, this may be the first time that they have received a call

from a victim of identity theft.

So based on this testimony and what I have heard, I am initiating a thorough review of the training provided to all of our phone

assisters to ensure that they have the tools and the sensitivity they

need to respond in an appropriate manner to victims of this heinous crime.

Let me conclude by telling you that I realize that in the process

of increasing our efforts to block attempts by identity thieves to exploit the tax system, there have been inconveniences and frustrations created for honest, hardworking American taxpayers. For

that, I am deeply sympathetic. As identity theft continues to grow

as a problem for our country, we need to do our part in the tax system to assist innocent victims.

We have dedicated significant resources over the last few years,

streamlining the processes for innocent taxpayers caught up in

identity theft. These efforts are starting to pay off, but we are

going to need to keep working on it, and you have my commitment

that we are going to be focused from this day forward on continuing to improve our operations in this area.

[The prepared statement of Mr. Shulman follows:]

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Mr. PLATTS. I thank the Commissioner for your statement and

the commitment you have made as far as going forward. I am certainly grateful for your apology for those witnesses here today and

all those who have been victimized and perhaps believe they have

not received a level of assistance that they should have received,

whether they are here today or around the country.

I think what you have said here, as far as going forward, you all

captured in your April 6th address at the National Press Club, and

it was about continuous improvement; that since you joined the

IRS in 2008 and, in your own words, have made it one of my top

priorities to put the IRS on a path of continuous improvement to

evolve, to get better. We should perform the best we can today

while embracing change so we can perform even better in the future.

I think that is what this is about, especially when we look at the

numbers in this area, where we see identity theft-related tax issues

jumping about 500 percent in roughly 21⁄2, 3 years, 50,000 or so

that we are aware of to over 250,000 in the most recent year.

And I think that goes to your other statement about retraining

of the staff who are on the 1–800 number that is, for most constituents, going to be their first point of contact, that commitment you

have made to go back and evaluate and strengthen that training,

because as we get more and more of these cases, as we are seeing,

that is who is going to get that initial call.

And as you reference the written statements of the citizen witnesses who will be testifying a little later today, their description

of the treatment they received is pretty outrageous. And not putting words in their mouth, but quoting them, as we will hear from

LaVonda Thompson, ‘‘I spoke with the most rude and discourteous

person I have ever spoken with in my life.’’ Another witness, after

dealing with an IRS agent in person in a local IRS office, and feeling so frustrated in how the engagement occurred, I went out to

my car and cried; I was very overwhelmed.

This is a case where we have individuals who were victimized

and then, in essence, feeling victimized a second time, and your acknowledgment of that and your commitment to go forward to improve the training of your staff is much appreciated. And I am one,

as we have talked before, yesterday, who believes in the ideals of

public service and am grateful for the work of all public servants,

and that includes all of the personnel at the IRS who are out there

each day trying to do a good job, and that we not paint with a

broad brush in the misconduct of certain individuals to paint a bad

picture of any and all IRS agents, personnel. We know that is not

the case.

So as a committee we certainly will be grateful to be kept in the

loop as you move forward with those training changes or upgrades

so that we can make sure that we are doing better with the assistance provided to the victims of identity theft.

A number of issues I would like to address with you. You men- tioned about $1 billion in savings that you have prevented from

being fraudulently paid out and that the filter system is now identifying, of those that are kicked out, about 75 percent were fraudulent, that would have otherwise been paid out but for being caught.

Do you have a number, roughly, what you think in, say, the last

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3 years, best estimate of what you have identified what was paid

fraudulently and then what, if any, of those dollars have been recouped since being identified?

Mr. SHULMAN. Let me just address that. We have the specific

identity theft filters, which are pretty new and evolving. We also

have very sophisticated algorithms and filters that kick out a whole

bunch of fraud. We block over 2 million returns every year that

never go out, and a bunch of those are probably identity theft, because they can be duplicate PINS but they just haven’t gotten an

identity theft marker, so we don’t know what that is. So we don’t

have a good number as of today around how much potentially went

out that we know was identity theft, but it is something that we

are going to work on going forward.

The other thing I just would mention, there were a bunch of

statements in the testimony that assumed, just because the innocent taxpayer’s refund was blocked, that the perpetrator’s refund

went out, and that is not necessarily the case. There is a bunch of

these cases, it happens all the time, where we get a flag on the

first one and we are working that; a second one comes in and then

it gets a flag because it is a duplicate; and then you have to sort

out who is who.

And as I mentioned to you yesterday, we get some where someone has a purse stolen, someone gets their identity, they sell it to

20 people, so we could get multiple filings with the same—it

doesn’t mean that any of those necessarily go out; a lot of times we

are holding them all, trying to sort out exactly who is who and who

deserves the refund.

Mr. PLATTS. I understand you don’t have an exact amount perhaps that is identity theft related in the rent year or years. Is there

a number that you have at this point of how many returns were

filed that are identity theft related, whether you know the exact

amount or not, that——

Mr. SHULMAN. Our cumulative number is a little over 400,000

since we started tracking those, but those are the ones we have put

the marker on. So, for instance, the ones that are coming in this

year until the case is resolved the marker is not on it, because

sometimes—the most common mistake in tax filing is someone not

transcribing their Social Security Number right, so sometimes it is

literally somebody misses a number, it goes in. That is not necessarily identity theft, it is what we call a dupe Social Security filing.

But the cumulative number over 3 years has been 400,000 that

we have marked as having some identity theft related. Some there

has never been a return, but we have found through other criminal

investigation a cache of information that has a bunch of Social Security Numbers, so we will mark that. Some the taxpayer identifies; some we find the way that most of the people who testified

found out, which is when they file they realize somebody else had

filed.

Mr. PLATTS. I know one of the issues you kind of touched on that

comes through in the testimony of where a fraudulent return was

paid out and then the law-abiding citizen submits and then is told

it is going to be 4, 6 months or longer. Can you address that? We

have cases that have been brought to our attention where a frauduVerDate 17-JUN-2003 13:57 Nov 30, 2011 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70679.TXT KATIE PsN: KATIE
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lent return was paid out within 2 weeks of an E-file being submitted in, say, January or February; then the law-abiding citizen—

and that was based on just a name and Social Security Number,

and no supporting documentation done in the E-file, and they created an employer ID and income.

But then the law-abiding citizen comes forward with all the documentation, W–2s, all the proper ID to show that they are the legitimate taxpayer. Why is it four, six, or I think in the one witness

it was about a year and a half until they got their legitimate refund? I know there is a manpower issue here, but that seems pretty extreme that the victim has to go that long, given how quickly

we paid out the fraudulent payment.

Mr. SHULMAN. So one thing I just really want to clarify, because

I think there was confusion in much of the press reports and other

things. The first return that came in was received and put into our

system. That doesn’t mean the refunds were paid out. So the refunds weren’t necessarily paid out in all those.

But then to address the question of when the real person comes

in, what can take so long, one is there were some staffing issues

and, as I told you recently, we more than doubled the staff that is

working those cases now so that we can get this addressed. Frankly, we just didn’t know there was going to be this explosive growth

and we were trying to balance budget cuts and potential government shutdowns, and we were managing lots of things during filing

season. So once we found out there was growth, we threw more resources at it.

Mr. PLATTS. It that in just this current calendar year?

Mr. SHULMAN. Yes, this current calendar year.

Mr. PLATTS. OK.

Mr. SHULMAN. We are trying to balance resources as we go. Second is there are cases, and one of I think the witnesses described

the case where the person had their W–2, had their employer, had

their dependent, all those things. When you get all of that, identity

theft has become a very serious organized crime, and it is one thing

you get a Social Security Number, you file; you probably will trip

a filter and get blocked. And if you don’t, when the real person

comes in, they are obvious.

But sometimes we write to both people and both people come

back with a driver’s license, with a Social Security Number on it,

maybe they have gotten a passport, they know the names of all the

dependents, they know what the AGI last year was. That usually

means it is some sort of a work-related crime or someone has gotten into some sort of payroll processing system where they get information. And when that happens it can take a while to sort

through.

Some of the delay was we had some things sitting on the shelf,

waiting for our people to get to it. We think we have addressed a

lot of that by putting more people, but sometimes when our analysts get there they have to start making calls to employers, they

have to ask for more information. And, again, this can be 30 people

that they are trying to unsort those cases. So those will always

take really long.

Mr. PLATTS. Understandably.

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Mr. SHULMAN. And I guess the other thing I would say is I

looked into—there were a lot of public accounts about people, and

without getting into any taxpayer, there were lots of public accounts that I saw where someone said someone told me it would

take 6 months, but we know for a fact they got their refund within

a couple of months and a lot earlier than that. So I think it depends on circumstances.

With that said, it shouldn’t take 9 months, it shouldn’t take a

year and a half, and we should get better at sorting this through.

I think the PIN I mentioned is going to be one of the real solutions.

Everyone who testified here today we would like to make sure they

get a PIN next year, assuming the pilot works as it goes. Their refund will fly through. Anyone else who tries to use their Social Security will just be blocked. It is much better than the flag and the

filter, which is a step in the right direction, but the PIN could be

the real solution here.

Mr. PLATTS. And I certainly understand where you have a fraudulent claim where they didn’t just get a name and Social Security

Number, but they got access to all that information, so they are filing correct status, everything is good other than where the money

is going, I understand those are going to take a lot longer. Those

where it is just a name and Social Security Number—and this kind

of comes back to the issue of the training of your staff and how

they handle it.

I think maybe as you look at how you improve your training program, is that initial saying we are going to do this as quickly as

possible; hopefully, it will be a month or whatever you are going

to think is the best case scenario, but it could be 6 months, but

please know that we are going to be giving you regular updates.

That is part of what I would call an internal control on the training

side and the follow-through.

My wife, Leslie, served on the Victims Assistance Board in your

county in our home community a number of years back and when

you are dealing with victims of crime, it should be one of our highest priorities in how we handle them because it is not just what

they lost. Here it is the taxpayer loses the money ultimately, collectively the American taxpayers, but it is a financial impact on the

law-abiding citizen who has been victimized, and for those especially who are really looking to that refund to pay whatever pressing bill they have, whatever it may be, there is going to be a financial impact.

But there is really a mental health aspect to it as well, and I

think that is what came through to me, not just, again, the witnesses we are going to have here today, but the other cases. I think

we have 12 cases that we are currently working in my office, and

having talked to my colleagues, Mario Diaz-Balart in Florida and

around the country, is that we really look at these individuals appropriately. They have been victimized by criminals, so we really

have to prioritize how we go about.

And I think one of those is that regular contact between your

agency and those individuals once they have been identified, so

they are not sitting out there waiting for knowledge, but kind of

get those regular updates.

29

I am going to touch on one other area that you just mentioned

before I turn to the ranking member, and that is in trying to prevent it. And I appreciate that preventive approach.

In fact, in your April 6th statement at the National Press Club,

I appreciate that you were looking at how to be proactive and not

just catch them after the fact and do something, but to prevent

fraud and other misconduct, and I think one of the things you mentioned is about trying to have the employer identification number

and information up-front, those W–2 data up-front, rather than

getting it, in a sense, after the fact and then trying to play catchup.

And I realize that is a substantial engagement to pursue, and I

think maybe it was good that Congressman Diaz-Balart being here

as an appropriator on the subcommittee that directly oversees IRS,

as you are looking to make those type of improvements that will

prevent fraud up front, that we engage him in what those financial

aspects may be as far as making those improvements.

But you mentioned the PIN, the thorough system and putting

flags on, and I think one of our witnesses in the next panel will

testify that they were supposed to have been flagged and apparently were not properly flagged, so they were a victim of identity

theft a second time regarding their refund; whereas the PIN approach seems like it would more likely prevent that.

Where do we stand in that pilot program? I think it was 50-some

thousand individuals in the current year. And how quickly do you

envision anybody identified as even a possible victim of identity

theft being able to get that PIN to try to make certain that only

they will be receiving their refund?

Mr. SHULMAN. We have all the data now, although people still

file after April 15th, they have gotten themselves an extension. But

we have most of the data in. We are looking at it and are parsing

it. Like I said, I think it is very positive. My desire would be to

expand it dramatically and potentially give it to anyone who has

been a victim. For next year we have to balance that against all

of the demands, but I think unless we see something that we are

not expecting to see by next year, we are going to try to dramatically increase that.

Mr. PLATTS. My hope is that we can move in that direction. In

fact, not a witness here today, but one of the victims that has submitted a written statement, Pamela S. Lee, from York, and, without objection, I am going to submit her statement for the record.

And in the name of full disclosure, as I have shared with you before, this is a family member, my, I will say, big sister. Although

she is in the audience, she stands about 4 feet 10 inches, maybe

if that.

[The information referred to follows:]

30

31

32

Mr. PLATTS. But she is one of these victims, and because of it

being a family member, I am most familiar with how her case

played out, and the filter system is what really worries me, that

if we rely on that, while I am glad it is getting 75 percent of those

that are kicked out are ones you want to catch, is how many we

are not catching with the filter system, because as in this case, my

understanding is it was a different filing status, different employer,

different address, different dependents.

I mean, there was one, what I would call that Mario referenced

earlier, one red flag after another that I would have thought that

filter system would have caught and kicked it out to say, hey,

something is askew here. Unfortunately, it didn’t. And then when

the written returns were received by the IRS, about a month after

the fraudulent returns, nothing happened for another 2 months,

until the taxpayer, Ms. Lee, then contacted the IRS saying where

is my refund.

So now it is 3 months after the fraudulent return was submitted

and paid out in January, 2 months after the IRS has received

paper documentation that there is something wrong here, yet even

then nothing had been done. So that is why I do worry about the

filter approach versus getting to the PIN as a way to better protect.

And this may be too broad a sentiment or thought, is there the

possibility of getting beyond just the Social Security Number for

each and eery taxpayer? What would be the cost of the PIN being

sent annually, here is your PIN, not just the half million or so that

have been possible identity theft? Is that something you are even

considering or is that, because of the additional cost, whether it

would be effective or not?

Mr. SHULMAN. If you don’t mind, if I could just address the two

things that you had mentioned. One is that series of filters, you

said why didn’t it stop someone?

Mr. PLATTS. Right.

Mr. SHULMAN. I just learned of the taxpayers’—and obviously I

can’t discuss individual taxpayers publicly——

Mr. PLATTS. Understood.

Mr. SHULMAN [continuing]. But there is nothing to say that it

didn’t trip a filter or that refund didn’t get stopped. So we are

going to look into all of these. But I will tell you, like I said, there

are 2 million refunds that get stopped, and it is just those kinds

of things, if there is enough indicia there. We change these every

year; we are very sophisticated. The crooks keep testing all our tolerance levels, but we are very serious about stopping refund fraud.

Mr. PLATTS. And I don’t want to imply otherwise. As I have said

to you, I know you want to prevent every fraudulent filing and payment as much as I do, and I know that your department, across

the board, shares that, and that why the purpose of this hearing

is how do we partner with you to help you do just that.

Mr. SHULMAN. On the PIN, it is an interesting idea. As you

know, everybody is in very tough fiscal times. My guess is it would

be very expensive. We are looking first to expand the PIN. First

make sure it works; second, expand it to the group of people most

likely to have one of these problems. Right now the Social Security

Number is what is used. I think it has been an overstatement in

some of the testimony submitted today that all you know is a name

33

and a Social Security Number, and you automatically get that refund. There are a lot of things that go into looking at that.

With that said, I am very open. As you quoted from a speech earlier this year, we should always be looking at how we do it better,

and it is certainly something, as identity fraud goes, we are going

to have to figure out how to stay on top of it.

Mr. PLATTS. I do appreciate that it is not necessarily that simple.

That is a statement from a conference call with an IRS employee

stating that to committee staff, that Social Security Number and

name is all you need to E-file and that it is that simple. So that

is not just citizens, witnesses making that statement, that is one

of your employees saying that to my committee staff.

Mr. SHULMAN. Well, I will look into both the employees who were

rude to people on the phone and that employee, then, because there

is a lot more that goes into issuing a refund than just a name and

Social Security Number.

Mr. PLATTS. I won’t identify the individual here.

Mr. SHULMAN. No, I take it at face value what you said.

Mr. PLATTS. But I would be glad to share that information with

you. I am not finding the exact one, but we will get it to you, because that seemed to be what was being conveyed to us.

A final question, then I am going to yield to Mr. Towns. Is there

any consideration, again, we are looking at ways of how to prevent

this wrongdoing, to stop the criminals, protect the innocent. I know

in some of these cases, and I don’t know if it is consistent or something that you have identified as a consistency in the fraudulent

claims. They were filed in January electronically, before most

Americans, I know I never get a W–2 until the end of January, the

last minute, from the current Federal Government as my employer

or from previous employers.

Is there any consideration that is a specific red flag, that anybody who is filing electronically in January, that we look at with

extra scrutiny because of the propensity that they are trying to

beat the law-abiding citizen who hasn’t yet got their W–2s? I am

generalizing here, and I may be wrong, but most Americans are not

able to file until at least the end of January or into February, until

they get their employer information, and then go forward and submit everything. that would be a specific red flag, that anybody filing electronically that early would get extra scrutiny? Is that something that you would consider?

Mr. SHULMAN. I guess there are two things about that. One is

a lot of the common perception is that April is when everyone files.

The reality is our peak starts January, February, and there are a

lot of people who file, as you discussed earlier, people who are really counting on that money, and they will go get from their employer, because most employers, especially large employers who

employ large chunks of lower income workers, can make the W–2

available earlier. So there are a lot of people who file who are some

of the neediest taxpayers, who really need that money.

Second of all, as we talked about yesterday, I just want to be

clear, we have seen no nexus between electronic filing and this

identity theft tax-related fraud, because you can get your return in

just as quickly by sending overnight mail to us. And the speed

34

issue, a lot of times it is about whether you get a check or direct

deposit and we have to send something to FMS.

So, again, everything is on the table, and I certainly would look

at anything, but usually the time is not the issue, because the

thing that nobody wrote about, and obviously there wouldn’t be a

hearing and a lot of interest in it, but we stop lots of people who

the legitimate taxpayer filed, got their refund, never knew anything happened, and then the crook comes in later; and we block

those too. Obviously, those ones aren’t devastating to the victim;

the victim—

Mr. PLATTS. Good news doesn’t sell, right?

Mr. SHULMAN. But it is certainly something we look at. What I

will tell you is we have technologists, statisticians, economists who

continually are looking at our screens, refining them year after

year, looking at patterns, working with our criminal investigators

and other people, and I get briefed on them all through December

to make sure we test them; we test them against last year’s data,

we test them throughout the year.

So we are looking at these filters very carefully and we are trying to get, as Jim White from GAO testifies, the key to these things

is stop the bad returns and don’t burden the honest taxpayers.

Mr. PLATTS. Am I mistaken though, if you file a paper return,

then you do have to have your W–2s? I thought when you file an

electronic return, you don’t send any W–2s in with that because

you are doing it electronically. But if you file by paper, I thought

you then did have to file your W–2s with the return.

Mr. SHULMAN. The electronic return usually has, you can do it

electronically. We have been working on our E-file. Next year we

will be able to actually PDF any attachment to an electronic return.

Mr. PLATTS. But I meant as far as that identity theft is paper

or electronic, isn’t it harder to do it with paper because you have

to have those W–2s attached?

Mr. SHULMAN. A lot of people get them late. What I can tell you

is we look, we screen with the same material on paper and electronic.

Mr. PLATTS. Because I am looking for that nexus that you referenced. And I would encourage you, if you see anything with that

75 percent of those that you did kick out and were fraudulent, you

know, that analysis, was a large percentage of them in January

and what percentage of them was electronic? If your staff could followup with the committee on those two specific issues, that would

be great.

Mr. SHULMAN. Sure.

Mr. PLATTS. And my ranking member has been very tolerant of

me going very long here. I yield to the former chairman of the full

committee and the ranking member of the subcommittee, the gentleman from New York, Mr. Towns.

Mr. TOWNS. Thank you very much. No, I think that your questioning I think is just so important to try to get to the bottom of

it and not get involved in terms of a blame game, because we are

all in this together. So your questioning I thought was really right

on point and to the point.

35

I am always concerned about if people do things and get away

with it, then they will almost encourage them to do it again, because if nothing really happens—and then, of course, others hear

that they did it and nothing really happened. So I guess the point

that I want to ask you, since 2008 how many prosecutions have

there been?

Mr. SHULMAN. So I actually don’t have—I will have to come back

to you. I don’t have a cumulative number, but I put in my testimony and mentioned earlier—

Mr. TOWNS. Mr. Chairman, can we keep the record open so we

can receive that?

Mr. PLATTS. Yes.

Mr. SHULMAN [continuing]. Just last year we took to full investigation and recommended to prosecution—and we don’t do that if

we haven’t coordinated with the Justice Department—prosecutions

of people who had stolen 50,000 identities that had been used in

tax crimes.

So when we prosecute we obviously, like every other agency, we

have a very small part of our operation as a criminal investigation

division, we have to spread it across terrorist financing, offshore

tax evasion, any number of things. As this problem has grown, we

have put more resources and plan to continue to put my resources

into it, and we try to find prosecutions, A, where we can get the

proof but, importantly, ones that impact large numbers of taxpayers is, frankly, the ones that U.S. attorneys will take and work

with us on, etc.

So if you look at 50,000, I think the number was actually 56,000

taxpayers who were affected with the prosecutions that we took all

the way through our criminal investigation chain, that represented

more than a quarter of all the identity theft that was identified,

which is a pretty high number for any Federal or, frankly, State

or local investigator to be able to followup on that percent.

Mr. TOWNS. Would you know the rate of conviction?

Mr. SHULMAN. What is that?

Mr. TOWNS. Would you know the rate of conviction, have any

idea?

Mr. SHULMAN. Very high rate of conviction. I believe it is 95 percent, but let me get back to you for sure on the record.

Mr. TOWNS. How much of the fraudulent paid money has been

recovered from thieves?

Mr. SHULMAN. So every year we block billions of dollars of fraudulent refunds. We blocked about $1 billion over 3 years with identity theft. I mentioned to the chairman we haven’t tracked specifically identity theft numbers related that has gone out and what we

have gotten back, we haven’t started tracking that; we plan to as

this problem grows. So I don’t have a number for you, Mr. Towns.

Mr. TOWNS. You know, my concern is that sometimes we don’t

have the resources. We know there are things that should be done,

but we don’t do them because we don’t have the resources to do it.

And, of course, sometimes in that process the wrong kind of message gets out. So I know that as the Commissioner, that you just

can’t come up here and bang, bang, bang, saying that you want

money, money, money, but the point is that I think that when you

see a problem that I think it becomes our responsibility here to

36

give you additional resources to be able to go out and fix the problem, because if a person is expecting his or her return, and then

they don’t get it, and then all of a sudden they can’t get an answer

because, really, somebody else has gotten it, and the frustration

around that and the problem, to me, is something that we need to

really take very seriously; and I am talking about Members of the

Congress as well.

And I agree with the chairman. I was so happy that we had one

of the appropriators here today, and I think that if you feel that

you need additional resources, don’t hesitate to make that case because I think at the end we are going to save money by you doing

that, at the end of the day, based on what I am hearing and what

has been said here, that if we spend it to fix it, then, in the long

run, we will be much better off.

And I know how difficult it is to make the case for resources, especially in this atmosphere and climate, but sometimes we have to

do that in order to be able to correct the situation that we now find

ourselves in and to make certain that people have the confidence

and not to be worried about whether somebody is going to get my

return because of my identity.

Let me ask you what department really covers this in your shop?

What department, the name of the department that handles this?

Mr. SHULMAN. Handles? I am sorry.

Mr. TOWNS. Handles the claims in terms of the identity. You

must have a department that takes a look and handles the identity

theft. What is that called?

Mr. SHULMAN. Oh. Well, we have this centralized office of Information Protection, Privacy and Security that sets all policies and

coordinates the fraudulent—most of it is in our Waging Investment

Division, which deals with individual taxpayers. That is where all

the service issues are that we have talked about with the victims’

testimony. And then our criminal investigation is the arm, obviously, that follows up on fraudulent schemes that we see.

Mr. TOWNS. Right. Now, was that the department—I know there

were some cutbacks. Was that the department that was cut back?

Mr. SHULMAN. Well, we had some cutbacks in every part of the

IRS this year.

Mr. TOWNS. Because I am really concerned about making certain

that you have the resources to do the job that needs to be done,

and that is really where—I think sometimes, you know, we are involved in situations where we have a problem and we know that

resources are actually needed to correct the problem, but we do not

deal with it.

And we are guilty of that here in the Congress, so I want to let

you know that I stand ready to push, to be able to assist you to

get what you need to be able to correct this situation, because it

is going to grow if you don’t, and that is the problem. You see,

when people do something and get away with it, they tell others,

and then it gets bigger and it gets bigger and bigger, and then the

problem becomes one that becomes a lot more costly to be able to

handle.

So I think that if we can sort of move forward now and correct

some of the things that are going on and send a message forward

that this is not something you do. If you do this, you are going to

37

spend time in jail. I think that point has to be made, because if

people do it and they get away with it, they are being encouraged.

Mr. SHULMAN. I couldn’t agree with you more. What I will say,

and I am obviously biased because I am the Commissioner of the

Internal Revenue Service and responsible for this agency, but this

problem is a good illustration of why I advocate for the right resources for the IRS, because on one side we need to have the service resources to quickly process the returns and the refunds for the

victims, and on the other side we need to get the enforcement resources to pursue this kind of crime.

The service resources I think are fundamental because every

American is expected to pay taxes; this isn’t a choice, this isn’t an

optional department. And we owe it to the American citizens to

treat them right. The enforcement resources are just obvious from

an economic standpoint, where there is a huge return on investment. We return, for our enforcement programs, anywhere from 8

to 1 to 23 to 1, $23 for every $1 we spend, and that doesn’t even

count, that is conservative accounting that OMB and CBO have

come up with; that doesn’t count the deterrent effect of people seeing and just never doing it to begin with.

So this is a kind of microcosm of why we always argue this agency is a little different collecting the money for the government because it has a huge return on investment and a real obligation to

serve every taxpayer in a way that is dignified and respects their

own individual situation.

Mr. TOWNS. But the problem, Mr. Shulman, is that people compare you with other agencies. For instances, talk about in terms of

American Express, and they say, well, this person went to purchase

something with their American Express card and they called me.

But the point is that they can do that because they have the staff

and they have the system in place that they paid for to be able to

raise these kinds of flags. So that is the point I want to make, because you are going to be compared with them.

In fact, some of my colleagues have already done that today. I

was on the floor of the House and a guy came over to me and said

he doesn’t understand the problem because of the fact that and he

went on to talk about in terms of how the credit card company

woke him up. He was asleep at 2 a.m., and they called him and

said are you making this purchase.

But the point is that in order to do that you have to have staff,

you have to have resources, and that is the difference. I also told

him there is a big interest on that card, whatever he has, there is

a big interest on it, so, therefore, they can hire staff, they can do

things and say things. And we just want you to know that we sit

here. We are not just going to blame; we want to work with you,

and we think that together we can do better.

That is what I am saying. And I know that in order to do that

we would have to do some things on this side of the aisle, other

than just saying you have to stop it. We have to help you stop it,

and I am prepared to do that.

Mr. SHULMAN. Appreciate that.

Mr. TOWNS. On that note, I yield back.

Mr. PLATTS. I thank the gentleman.

38

Commissioner, we will wrap up quick for you. Just a couple

quick followups. One is on the issue that the ranking member

raised on the prosecutions. There was a press story in the Sun Sentinel in Florida, end of April, that identified—I will read it verbatim: ‘‘Prosecutions for identity theft-related tax fraud are rare.

Agents for the Internal Revenue Service who are responsible for

criminal investigations have pursued just 412 such cases nationwide since 2007.’’

Now, they are specifically referencing identity theft-related tax

fraud. I take it that you agree that is an inaccurate number?

Mr. SHULMAN. As I told Mr. Towns, I don’t have the cumulative

number with me, but I will get back for the record.

Mr. PLATTS. If you could.

Mr. SHULMAN. But I think the important thing is a lot of these

people are committing, there is one criminal with thousands of taxpayers, so that could represent a lot.

Mr. PLATTS. That may not mean one victim, it might have been

100 victims.

Mr. SHULMAN. Yes. That may very well be the number, but what

I am telling you is, as this problem grows, we are going to devote

more resources and our investigations will continue to grow and

our recommendations to Justice for prosecutions will continue to

grow.

Mr. PLATTS. And that kind of follows up with what Ed just said.

As a committee, we are an authorizing committee, an oversight

committee, we are not appropriators, but we are glad to work with

our friends on appropriations in kind of two areas that I think you

are looking are doing. One is your manpower commitment to the

victims so that, after being victimized by the criminal, that the government does right by them so it is not 6 months or 9 months until

they get their legitimate, and that is a manpower issue.

But also a manpower issue of going after the criminals, because

if that number is accurate, 412, when we talk about the number

of identity theft cases, tax-related going from 50-some thousand to

250-some thousand, obviously that is a very small percentage of

prosecutions, if we are accurate in those numbers.

A question on the prosecutions. I know that in IRS statute you

are understandably restricted pretty significantly in what information you can share with anybody because you are protecting very

personal data. Are there statutory restrictions on you that in some

way are preventing your criminal investigation division in working

not just with Justice, but with local law enforcement? Because I

understand that, as with some of the cases I have heard about or

we are going to hear about here today, where it 3,000 or 4,000, and

it is not multiple, but one person defrauding using one name and

Social Security and information.

When that goes into the Department of Justice and they

prioritize all these criminals they are going after, that is probably

going to go pretty low in that totem pole because of the amount.

But for local law enforcement, they prosecute shoplifters who

maybe stole $100 worth of goods. It is something that they know

how to do. Is there anything that prohibits the agency from working with local law enforcement so that we can, when we know who

the person is, they don’t get the message, as Mr. Towns expressed

39

concerns that, hey, as long as I don’t ask for too much, each year

I can pocket $3,000 or $4,000 because they are never going to come

after me.

And we are sending that message that I am good to go and just

don’t get too greedy; as long as you don’t get too greedy, you are

safe. I think to combat that we have to engage, I would contend,

local law enforcement. I don’t know if, here, today, you know if

there is anything that prohibits or restricts it or hinders that.

Mr. SHULMAN. What I will say is I think some of the articles

might have overstated the restrictions, but there are some restrictions around specific information. We need to give information that

is pertinent to the investigation to know where the investigation is

going, etc. I always tell people I got sworn in as IRS Commissioner;

when I came back to the office, the people who talk about the laws

around taxpayer privacy were in my office, just as an example of

how seriously this agency takes data protection. And there are very

restrictive laws because we are holding very sensitive information

about taxpayers.

We can, though, do coordination with other law enforcement

agencies; it is not always just come troll our data bases, look at everything or share everything that comes in, but there are specific

things we can do. I would be happy to have further conversations

about exactly where there could be some restrictions.

If you don’t mind, I also just want to be clear, because I might

not have been clear earlier. When you said 250 cases of identity

theft with only 400 prosecutions—

Mr. PLATTS. Two hundred fifty thousand.

Mr. SHULMAN. And that those numbers seem skewed. One is

250,000 was the flags that were put on. We put some of those on

because we haven’t defined a data base or someone called and said

my wallet was stolen. So those aren’t necessarily anything; there

hasn’t been a crime committed, it is just a flag so that we can put

it through more screening.

Mr. PLATTS. OK.

Mr. SHULMAN. And, second of all, even though last year it was

116 investigations, 41 of them ended up with recommendations for

prosecutions, that was still 50,000 taxpayers. So the number was

more like 50,000 for 200,000. And I don’t know that I was clear

earlier.

Mr. PLATTS. Right. Again, because of the likely prosecutions at

this point are those more large schemes involving multiple or significant numbers of taxpayer IDs being taken. So the number of

cases might be small that you are prosecuting, but the impact is

that 50,000 number.

Mr. SHULMAN. Yes. I just wanted to make sure I was clear in my

explanation earlier.

Mr. PLATTS. One other item just if you can followup for the

record, my earlier questions about of those identified and kicked

out as being fraudulent, how many were E-file, how many were in

January. Also the issue of how many were asked to be refunded in

the form of a debit card versus a check or a direct deposit.

Again, I am looking, trying to help personally so I can better

work with you and your agency of what is common issues here that

we need to try to look at, and it comes back ultimately to the broad

40

issue of internal controls and how do we ratchet up our controls to

address whatever is most common. Knowing, as you well stated,

that the criminals are always going to try stay—whatever we do,

they are going to try to get a step ahead of whatever we did, but

if we could have that information about the debit card refunds that

are identified, that they were asking for refunds and you caught

them, but they were looking to get it on a debit card and, again,

the belief that maybe is easier and get away with it, versus if they

know they have to go to a bank, have some kind of contact with

a bank to get that fraudulent refund from that bank.

With that, Mr. Towns, did you have any other questions?

Mr. TOWNS. No.

Mr. PLATTS. I am going to thank you for our testimony, conclude

by saying, while I think, as you have referenced in written testimony and we are about to hear from our other witnesses, we do

have a lot of progress to make, work to do. Also want to recognize

the progress you have made and the commitment that you are

making that your understanding of this is a growing problem, it

isn’t because we asked for this hearing; it is because you are seeing

the data as we are looking at it and are out there trying to lead

the effort forward in a positive way.

And for those hardworking public employees in the department

who are providing great service to hand out, we are grateful for

them, and hopefully those who haven’t provided that level of service that you clearly want to be provided, that they will learn from

their mistakes and do a lot better in the future with the American

public that they interact with.

But thank you again for your testimony. Look forward to continue working with you and your staff, and our thanks for being

flexible here today with the schedule.

Mr. SHULMAN. Thank you. And if you wouldn’t mind, since I was

up here at 12 and I had hoped to be here when the other witnesses

spoke, I am going to have to step out, but my team is going to stay

to followup. But you all do have my apologies again for having a

frustrating experience with the IRS.

Mr. PLATTS. And we appreciate your understanding of their testimony from the written and as we discussed yesterday in pretty

good detail the subject or the message of their testimony, and your

staff’s willingness to stay with us is also appreciated. Thank you,

Commissioner.

We will take about a 2-minute recess while we get the next panel

situated and then begin.

[Recess.]

Mr. PLATTS. We will continue with our second panel. We are honored to have four individuals with us, first, Mr. Jim White, Director

of Strategic Issues at the Government Accountability Office. Mr.

White, we appreciate not just your presence here today, but day in

and day out, you and your colleagues at GAO and the important

work you do for all of our Nation, but especially for Congress and

the resources that you bring to our work here on the Hill.

As well as three citizen witnesses, unfortunately who have been

victims of identity theft as it relates to their tax filings. We have,

first, Sharon Hawa from the Bronx; we have Lori Petraco from

York, Pennsylvania; and Ms. LaVonda Thompson also of York.

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We are grateful for all four of you being here and, as I have said

a number of times now, you have been very flexible with us and

very patient as we have tried to figure out the hearing schedule

around the floor schedule and the full committee, so we are grateful for that.

If I could ask for all four of you to stand so I can swear you in.

If you would raise your right hands.

[Witnesses sworn.]

Mr. PLATTS. And the record will reflect that all four witnesses affirmed the oath.

We are going to set the clock at 5 minutes, but if you need a little more time than that, we want you to be able to give your testimony as you see fit, and we are glad to hear it.

Mr. White, we will start with you.

STATEMENTS OF JIM WHITE, DIRECTOR OF STRATEGIC

ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE; SHARON

HAWA, IDENTITY THEFT VICTIM; LORI PETRACO, IDENTITY

THEFT VICTIM; AND LAVONDA THOMPSON, IDENTITY THEFT

VICTIM

STATEMENT OF JIM WHITE

Mr. WHITE. Chairman Platts, Ranking Member Towns, thank

you for inviting me. As you will hear from the victims, ID theftrelated tax fraud is an insidious crime. To begin, I want to describe

a hypothetical and simplified example of refund fraud, which is illustrated on page 3 of my statement and I think up on the screen.

First, a thief steals a taxpayer’s identity. This happens outside

of IRS. Second, the thief files a tax return claiming a refund using

the name and Social Security Number of the innocent taxpayer.

After verifying that the name and Social Security Number match—

and this, again, may be simplified—then the IRS issues a refund

to the thief. Later, the legitimate taxpayer files a return. At that

time IRS discovers two returns have been filed using the same

name and Social Security Number. IRS holds up any refund while

it notifies the taxpayer of a problem and investigates. The notification from IRS may be when the taxpayer first learns his or her

identity has been stolen.

Employment fraud is different, also illustrated on the screen.

With employment fraud, a thief uses a stolen name and Social Security Number to get a job. The following year, when taxes are due,

the employer reports the income to IRS on a wage statement and

the innocent taxpayer files a tax return. IRS matches the two and

discovers income reported in the name of the innocent taxpayer

that was not included on the taxpayer’s return. IRS sends a notice

of underreported income to the taxpayer, and that is when the taxpayer and IRS may first learn about the ID theft.

So, to summarize so far, IRS learns about an identity theft affecting taxpayers long after the theft occurs, and available evidence

suggests the problem is growing.

Now I want to outline what IRS is doing to resolve taxpayers’ ID

theft problems, detect fraud, and prevent future problems. Starting

in 2004—and the Commissioner summarized some of this—IRS

created an ID theft strategy, set up an office to oversee it, put theft

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indicators on victims’ accounts, screened some returns for fraud,

and sets up the Identity Protection Specialized Unit and an ID

theft hotline.

In 2009, we recommended that IRS develop measures and data

for assessing the effectiveness of IRS’s efforts. IRS agreed and has

since taken new actions. To help resolve innocent taxpayers’ problems, since identity theft makes it appear they either claimed two

refunds or underreported their wage income, IRS is placing a temporary ID theft indicator on accounts, while still investigating. The

purpose is to alert all IRS offices that ID theft may be the explanation for what appears to be tax evasion.

To detect ID theft-related tax fraud, IRS screens returns filed in

the names of past victims. The screens are not perfect. If, for example, IRS screens out returns with a change of address, it will slow

refunds to some legitimate taxpayers who moved. If it screens too

loosely, more fraudulent returns get through. This year, about

200,000 returns failed the screens; 146,000 were fraudulent; and

50,000 were innocent. Also, IRS is experimenting with screens for

the Social Security Numbers of deceased taxpayers to try to prevent thieves from filing using those identities.

Another new step gives past fraud victims special PIN numbers.

IRS screens out returns filed in the names of those taxpayers unless the PIN is attached.

IRS’s ability to address identity theft is constrained by law, timing, and resources. The laws governing the privacy of taxpayer

data limit to some extent, as the Commissioner also described,

IRS’s ability to disclose information about suspected ID thieves to

Federal, State, or local law enforcement agencies unless certain

conditions are met. Complicating any investigation is the fact that

IRS typically discovers the ID theft long after it occurred.

Finally, criminal investigations require resources. Last year, IRS

initiated about 4,700 criminal investigations of all types, including

ID theft, tax evasion, money laundering, and other financial

crimes, far fewer than the number of ID theft cases.

Given all of this, can IRS do more? Options exist, but they come

with tradeoffs. IRS could screen tax returns filed in the names of

known identity theft victims more tightly, but that will increase

the number of false positives and delay refunds to those taxpayers.

It could also burden employers who could be contacted about reported wages.

Looking forward, IRS needs to continue assessing its efforts, such

as PINs and screens, for deceased taxpayers to learn what is effective. We have not assessed the effectiveness of these steps. In the

long term, IRS should be looking at how to take more advantage

of the new processing systems it is building. With better processing, IRS might some day be able to match tax returns to wage

statements before refunds are issued and thus prevent more refund

fraud. However, such pre-refund matching would require employers

to file wage statements earlier in the year.

Mr. Chairman, that completes my statement. I would be happy

to take questions.

[The prepared statement of Mr. White follows:]

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Mr. PLATTS. Thank you, Mr. White.

Ms. Hawa.

STATEMENT OF SHARON HAWA

Ms. HAWA. Good afternoon, Chairman Platts and Ranking Member Towns. Thank you for allowing me the opportunity to provide

you with my testimony regarding this atrocious and rapidly increasing identity theft crime. It not only impacts individual livelihoods, but it also steals millions of dollars from the U.S. Treasury

year after year, and will continue to do so until something is done

to prevent it.

This unfortunate situation has taken a tremendous emotional

toll on me. The stress, fear, and anxiety are all compounded by

having to deal with terribly unorganized agencies such as the IRS

and the Taxpayer Advocate Service, which only adds to feeling victimized by their inefficient systems and lack of communication.

Knowing that I and other legitimate taxpayers like me remain vulnerable tax season after tax season leaves me both infuriated and

it also frustrates me.

In 3 years, thieves managed to steal my tax refunds twice by filing fraudulent tax returns in my name. The first time was in 2009,

after I filed through my local tax preparation office, as I had for

the previous 5 years. Two days later I received word that the IRS

rejected my return because my Social Security Number was used

more than once.

Scared and in shock, I immediately took measures to secure all

my personal assets, credit reports and accounts; I obtained a police

report, filed with the Federal Trade Commission, and mailed in

hard copies of my returns to various IRS addresses, as instructed

by different units within the IRS. After 12 months of back and

forth confusion, the IRS’s Identity Protection Specialized Unit assigned me to an incredibly rude and hard to reach taxpayer advocate, where I had to explain my situation, resubmit the documents,

and prove my identity all over again.

It took a painstaking 14 months until I finally received my

$6,604 refund. Meanwhile, I had to take on a second job to support

myself and spend a lot of time, money, and energy drafting letters

and sending in the necessary information.

In 2010 I was unaffected, but I still remained extremely anxious.

When I finally received both my 2009 and 2010 tax refunds a few

weeks apart, I hoped the worst was over. But this year I learned

that I had fallen victim to this crime yet again, and this time they

also stole my State refund, together totaling $6,335.

Research has shown me just how antiquated the taxpayer system

is. I realize that the IRS has been dealing with this crime since

nearly the start of the millennium. So why do they seem so inexperienced and incompetent in handling the matter? And why hasn’t

anything been done yet to combat it?

The very process designed to accommodate taxpayers has also become a windfall for thieves. There has been an increased in tax

theft as a result of E-filing and direct deposit, which do not necessitate validating personal identity when filing. A digital signature

to E-file simply requires a self-select personal identification number, which is the taxpayer’s adjusted gross income from their preVerDate 17-JUN-2003 13:57 Nov 30, 2011 Jkt 000000 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70679.TXT KATIE PsN: KATIE
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vious year’s return, information that is easily obtainable. Furthermore, direct deposit only requires a bank’s routing number in order

to release the funds; no further vetting of personal information or

identity is required.

So on two separate occasions identity thieves E-filed early in the

tax season, before I physically received my W–2 forms, and used

direct deposit accounts to steal my refunds. To make matters

worse, in 2009, they received $1,895 more than I was due and I received a notice from the IRS stating that I owed that amount in

overpayment.

Electronic filing was created to save the IRS millions of dollars, since every E-filed return costs the IRS $0.19 versus a paper return which costs $3.29.

But I urge you, instead, to look at the many millions of dollars

fraudulently paid out to these criminals. Cases jumped 644 percent

from 2004 to 2007 and an additional 300 percent since last year,

and many millions of taxpayer dollars needlessly and disgustingly

wasted due to this broken and exposed system. In an era where

technology is so prevalent, one would hope that priority would be

placed on this issue. It is absolutely absurd that the government

pays out twice on a single stolen refund, multiplied by hundreds

of thousands of stolen refunds each year. Since the country is facing one of the worst economic situations in its history, this appalling travesty needs immediate attention and repair.

This entire ordeal is in large part due to the unacceptable lack

of security measures that the IRS and the U.S. Government have

placed on the personal identities of taxpayers, and, as an upstanding citizen of this country, I demand change. I demand first that

legislation be enacted to force Federal and State tax offices to put

appropriate measures in place that prevent thieves from taking the

people’s hard-earned refunds away from them and forcing them to

fight for their identity and their tax refunds for the rest of their

lives.

I, second, demand that Federal Government work more closely

with State and local law enforcement agencies to target and catch

these criminals so that victims like me can rest better knowing

that these criminals are serving time. And I, third, demand that

each State develop and enact the necessary laws to protect consumers from corporate tax preparation offices that have few incentives to safeguard their customers’ personal information.

I hope that, by hearing our testimony today, measures will be

put in place that we will no longer have to deal with this nightmare any longer. I thank you for your time and your effort in making these critical changes happen now.

[The prepared statement of Ms. Hawa follows:]

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Mr. PLATTS. Thank you, Ms. Hawa.

Ms. Petraco.

STATEMENT OF LORI PETRACO

Ms. PETRACO. Good afternoon.

My story begins on March 15, 2011, when I retrieved my mail

from my mailbox. I received an envelope from the Internal Revenue

Service. Inside was a window envelope stamped by the Postal Service ‘‘Return to Sender, Attempted Not Known, Unable to Forward.’’

Inside the window envelope was an IRS change of address form

and, more importantly, a Notice CP–12 for tax year 2010 dated

February 14, 2011. My Social Security Number and my first and

last name, which were all accurate, but an address of 45 Ludlow

Street, Apartment 3B, Yonkers, New York 10705. I had never lived

at this address, let alone ever lived in Yonkers or the State of New

York.

The form stated that I had a miscalculation on my 2010 form

1040-EZ in the area of tax credits and that my new refund amount

would be $4,552. I read this form several times in disbelief and

called my husband. I knew my joint tax return was prepared by an

accountant, that we used the 1040 long form, since we have two

children in college, and, finally, that we had just mailed our return

within the last 2 weeks.

I wanted to believe an error was made that would explain this.

I immediately called the IRS 1–800 number, but after 20 minutes

on hold without being able to speak to anyone, I gave up. The local

IRS office is about a mile from my home, but they were closed for

the day, and so I spent a restless night wondering what this all

means.

March 16th I arrived at our local IRS office early and was asked

to step up to the counter. The clerk was courteous, but the counter

is in no way private. Everyone sitting in the chairs directly behind

me could hear our conversation and the lobby was full. When I

showed the clerk what I had received, and that this wasn’t my return, she blurted out, your identity has been stolen; I will need to

fill out an identity theft affidavit. The entire waiting room heard

this.

Until then I was still hoping this was just a mixup. She asked

for me and for me to recite my Social Security Number. Just seconds ago this IRS employee proclaimed that I had been a victim

of identity theft and was now asking me to recite, where others

could hear, the same sensitive information she concluded had been

stolen. I said no, that she could take the information from the form

in front of her, and I would be happy to show her my driver’s license. She asked, when did you lose your Social Security card? I

replied, I didn’t. She wanted to see it, but I don’t carry it in my

wallet because I don’t want my identity stolen.

She completed the affidavit and told me to come back with my

Social Security card so that she could send the license and Social

Security Number with the affidavit. She also told me because this

person filed the return as a single person and got $4,552 already,

my legitimate return would be held up and that I would not see

my refund until perhaps October or November, roughly 8 or 9

months later.

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I asked her, how can a person file a return and, without validation or proof of anything, receive a refund. She replied, do you

know how many people file electronically? We expedite the return

and match up the information later. Finally, she said, don’t forget

to file a report with the Federal Trade Commission, the Social Security Administration, and the three credit bureaus.

Again, the clerk was courteous, but her matter-of-fact manner

and abruptness that this happens all the time, in front of a room

full of strangers, was upsetting.

I went out to my car and cried. I was very overwhelmed. I was

so upset that I began to wonder how far the thief would go. I went

home, signed on to all three credit bureaus on the Internet and reported the identity theft and printed my current reports. Everything was OK.

I pulled up my bank accounts to see if my balances were OK.

They were. I was late for work that day in order to protect all that

I have worked hard for. I felt the need to report this to my supervisor, as well as to the chief, as I work in law enforcement and did

not want someone to jeopardize my job or my good name.

That evening I filed a report with the Federal Trade Commission, and they requested that I file a police report with my local

municipality. I am not sure why because this is a cyber crime involving someone in Yonkers, New York, and not York, Pennsylvania.

March 17th I contacted Springettsbury Township Police Department and spoke to Detective Raymond E. Craul and explained

what had happened and what the Federal Trade Commission requested. He was familiar with the Federal Trade Commission’s request and gave me an incident report number, but stated he had

no jurisdiction to investigate. I added the police department’s incident report number to the Federal Trade Commission’s Web site on

my incident page.

I again had to leave work early to go out to the Social Security

office in York, Pennsylvania to inform them of the identity theft.

Unfortunately, at that time they still didn’t have my 2010 earnings

to verify for accuracy. I was resigned to the fact that this nightmare would continue indefinitely, that the IRS would hang on to

my tax refund, and that I would have to be vigilant with the credit

bureaus for the rest of my life.

On April 27th I discovered I was not the only local government

employee in York County affected by the identity theft via the IRS.

One of these victims suggested that our local Congressman, Tom

Platts, and his office could help. I followed through with contacting

the York office and filling out the Constituent Service Form with

all related documentation. On April 28th I told my story to two

special agents from the Department of the Treasury out of Philadelphia, who were also launching an investigation.

I am here today to tell you that I am a victim of identity theft.

I am forever changed. I will always need to check on my credit and

be vigilant in what information is shared with others. I am a victim, being victimized by the IRS who is holding up my refund because they don’t have checks and balances in place to prevent

crimes like this from happening, to timely verify personal and fiVerDate 17-JUN-2003 13:57 Nov 30, 2011 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70679.TXT KATIE PsN: KATIE
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nancial information, or to timely and adequately assist people like

me who have fallen victim to identity theft.

If they did, they would have seen the following things: that I had

filed my taxes with the same man as married, filing jointly for the

last 28 years; that I have lived at the same location for the last

12 years and never filed any change of address with any other governmental agency, meaning Social Security or the Postal Service;

and, finally, that we always complete the 1040 long form and that

we always file by mail and not by using the Internet.

I thank you for the opportunity to tell my story in the hope that

changes occur within the IRS that will prevent this from happening

to others. Hopefully, my tax refund will not be delayed until October-November, so that this law-abiding citizen can get back to living her life. Thank you.

[The prepared statement of Ms. Petraco follows:]

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Mr. PLATTS. Thank you, Ms. Petraco.

Ms. Thompson.

STATEMENT OF LAVONDA THOMPSON

Ms. THOMPSON. Good afternoon.

My nightmare began on Monday, February 28, 2011. That day,

my accountant was in the process of E-filing my Federal tax return. He received a message from a software provider alerting him

that a tax return had already been filed for me. He responded by

advising that it could not be filed already because he was trying

to file it now.

He then called the IRS and they in fact confirmed that a return

had been filed in my name. My accountant called me and told me

what happened. He gave me the number to the IRS to call and find

out what the person used to file their return, because they could

not release that information to him. I called and was told they

could not tell me anything.

Once I got home from work, I called the IRS again and spoke

with Mr. Baird. He told me what I had to do as far as filing an

Identity Theft Affidavit with copies of my driver’s license and Social Security card; calling the Federal Trade Commission; filing a

police report; contacting the credit bureau and Social Security Office.

Once I finished speaking with him, I called the Federal Trade

Commission and spoke with an employee whose name was Mark.

He took a complaint and gave me a confirmation number. I called

Social Security and was informed that I had to call the Federal

Trade Commission, and I informed the representative that I had

just talked to someone. She said, OK, and wished me good luck.

That day she said I was the fifth person that she had spoken with

who had their identity stolen.

On February 28, 2011, I filed an incident report with the York

County, Pennsylvania District Attorney’s Office. On March 1, 2011

I filed a police report with the York City Police Department. A detective found out who did it, but he could not charge the person because that person is reportedly located in the State of New Jersey.

He was told the IRS would bring charges against them.

On March 15, 2011 I forwarded a letter to the IRS with the following documents: Identity Theft Affidavit Form 14039, Preparer

Explanation for Not Filing Electronically Form 8948, Incident Investigation Information, copies of my Social Security card and

Pennsylvania driver’s license.

On March 16, 2011, at approximately 10:25 a.m., I called to get

some information on my case because they would not release it to

the detective, and he wanted me to call and get it. I spoke with the

most rude and discourteous I had ever spoken with in my life.

When I asked her about my case, she proceeded to yell and scream

at me. When I asked for her name and ID number again because

she said it so fast when she answered the telephone, the phone

went silent; she had hung up the telephone.

I then called the detective and told him what happened. He told

me to calm down and call back, and hopefully I would get another

person. At 10:30 a.m. I called back and Mrs. Bennett answered. I

could not stop crying and told her what had just happened to me

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when I had called a few moments earlier. Mrs. Bennett kept apologizing for the previous person, when she is not required to do so.

She informed me that the person used my Social Security Number,

first and last name, no middle initial to file that return. Once my

return was received, the IRS considered it to be a duplicate return.

On March 18, 2011 I wrote a letter to the IRS about the situation on March 16, 2011 and I did not get a response. Aren’t telephone calls monitored by the IRS for the purpose of hearing what

is being said? Is this unhelpful attitude toward the public a single

incident or is it a general attitude?

On March 30, 2011, at 11:10 a.m., I called again to get an update

and spoke with Mrs. Dandridge. She informed me that it would

take 16 weeks to 6 months for me to receive my return because of

the identity theft. I thanked her for her help.

I had to close my checking and savings account and get a new

one and order new checks because of this, an added expense, albeit

a minor one, but one which I did not need. I had to pull my credit

reports and, luckily, so far, there has not been any activity on the

part of the thief. I had to put a 90-day alert on my Social Security

Number.

On May 10, 2011, I wrote a letter to Experion to put a permanent alert on my Social Security Number. On May 17, 2011 I wrote

letters to TransUnion and Equifax, requesting the same.

You may not be able to know how stressful this has been. I can’t

sleep; I wonder what the person will do next as far as trying to get

credit cards or anything in my name. Now, since this has happened, I am told the IRS will monitor my Social Security Number

for the next 3 years. When I file my return, it will take them longer

to process it because of this.

What, if anything, is the IRS doing to rectify that this does not

happen again to me or another person? In my work history I have

had the occasion to see and work with victims of crime. I have seen

the calming and encouraging effect of policemen, a prosecutor, or

others involved in the criminal justice system have had on victims

of crime. The system I worked with made every effort to avoid victimizing a victim a second time. The way I feel, I have been treated

by the IRS system, I have been made a victim a second time. I ask

and wonder how many people have had the same unpleasant experience.

Last, on Tuesday, May 31, 2011, I received correspondence from

the IRS dated May 13, 2011 regarding another individual filing a

tax return using my Social Security Number. This incident started

February 28, 2011 and I am just now receiving correspondence.

Why would it take 3 months for me to receive this information?

Thank you for your attention.

[The prepared statement of Ms. Thompson follows:]

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Mr. PLATTS. Thank you, Ms. Thompson.

Again, my thanks to all four of our witnesses. And to our three

citizen witnesses, the victims of identity theft, I want to add my

words of apology to the Commissioner’s on behalf of not specifically

the IRS, but on behalf of our Federal Government for how each of

you have been treated as law-abiding citizens seeking to comply

with your obligations as taxpayers and, instead, becoming victims

not just of criminal conduct of those who sought to defraud you, but

also victims of poor service from us, the Federal Government.

All of us bear responsibility for that, ultimately, especially as the

elected representative of two of you, and I know for our third witness, on behalf of all my colleagues, we want to do better on your

behalf.

I want to kind of focus a couple questions with you three and

then Mr. White separately. And maybe, Mr. White, actually, ask

you first. In the Commissioner’s testimony and also in your written

testimony and your testimony here today, Mr. White, you talked

about the filter, the screening process, and I am not sure what, if

any, detail GAO’s reviewed that as far as how that filter process

works and whether you are able to make any assessment of, it kind

of relates to my questions earlier, where we have these three witnesses or others where it would seem that while it has worked certainly in the 140,000 or so, clearly it has let others slip through

that seem to have a fair number of red flags that didn’t get caught

up. I am not sure if you can give an opinion on how to assess that

process.

Mr. WHITE. We haven’t assessed it ourselves. I can say several

things, though. One, the filter process does not work perfectly, as

we have heard. It does stop some fraudulent returns and some

fraudulent refunds from going out the door at IRS; however, they

are both false positives and false negatives.

So this past year, so far in 2011, there have been about 50,000

false positives. Those are returns of honest taxpayers that got

stopped by the filters by mistake. So that creates a burden on those

taxpayers. Then, on the other side, you have false negatives where

fraudulent returns slip through the filters, perhaps because the ID

theft stole so much of the honest taxpayer’s identity that they could

get through the filters; they had enough information to get

through. So you have both kinds of problems there. The filters

don’t work perfectly.

We have recommended that what IRS needs to be doing, and

they have agreed with our recommendation and started doing this,

they need to be assessing every year the effectiveness of the actions

they are taking. They have taken a number of steps. They are taking a number of new steps this year. Each year they need to be assessing those steps and then feeding back.

There needs to be a feedback loop where they learn from what

they have done and then correct and adjust appropriately. Part of

the problem here is the thieves are adjusting as well. So it needs

to be a continuous process by IRS. They have started that.

Mr. PLATTS. In essence what I would call annually auditing their

internal control system to prevent this type of fraud from occurring.

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Mr. WHITE. Yes, to learn what is working, what is not working;

do more of what is working. If the PIN numbers, for example, turn

out to work well in their experiment, then that would be something

to think about expanding, obviously.

Mr. PLATTS. On that specific, I know they are looking at the results of that pilot. Is that anything at GAO that you are engaged

with IRS in assessing that pilot program?

Mr. WHITE. No, we are not. Our sense, though, based on the

work we did in 2009, is that the PIN seems to be a promising approach. Now, it depends on taxpayers using it for it to work, but

it ought to be an addition. It seems like it has the potential to be

an addition to the filter system that would make that system work

more effectively than it does right now.

Mr. PLATTS. OK.

Mr. WHITE. The problem is if an ID theft is stolen, a lot of a taxpayer’s identify, more than just a name and Social Security Number, they can make up a return that will look realistic; they may

have a copy of last year’s tax return. So they can get through the

filters. The PIN is a number that only the honest taxpayer would

have, unless the thief is hacking into their home computer, for example. There is no perfect solution here, but that is a solution that

seems to have a lot of potential.

Mr. PLATTS. And that, from what I have come to learn, seems to

be the more we can expand that effort, if the data plays out as it

seems like it may, that would be one way to really try to crack

down and prevent this fraud from occurring.

Mr. WHITE. Then I do think there are some long-term solutions

here; these are years away. For example, right now IRS does not

match tax returns to the wage statements, the W–2s that employers file, until months after the filing season ends. The first match

is done in June. Part of the reason for that is employers don’t have

to send those information returns to IRS until either the end of

February or the end of March; then the IRS matches later.

So the refunds go out the door first, then that kind of matching

is done afterwards. If IRS can modernize their processing systems,

and if the due date for those employer wage statements could be

moved earlier in the year, IRS could do matching before refunds go

out and catch more refund fraud. But this is something that is

years away. They are working on their processing systems, but

they are not where they need to be right now.

Mr. PLATTS. And that was part of my conversation and the Commissioner in his April speech referenced that in looking ahead and

him trying to, again, be proactive in the long-term. And I didn’t get

the chance to ask him that question because the fact that we are

providing W–2s to the employee by the end of January, once that

employer makes that available to the employee, why wait another

month or more before having it also shared? So that alone would

hopefully allow us to move it up, just that one change. The earlier

the better.

Mr. WHITE. Yes. And we have some work ongoing for the Ways

and Means Committee, where we are looking at this, trying to see

if there are some options to move that up.

Mr. PLATTS. Great.

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Before I go to our other witnesses, I am going to yield to Mr.

Towns for purpose of questions. Then I will come back with other

questions.

Mr. TOWNS. Thank you, Mr. Chairman. Also, let me say to the

witnesses I really apologize and regret that happened, but we are

happy that you are able to take the time to come in and share with

us in terms of what occurred. I really appreciate that.

Ms. Petraco, as I understand it, you discovered that your identity

was compromised after receiving an address change request?

Ms. PETRACO. Yes.

Mr. TOWNS. Was the identity thief attempting to change your

York, Pennsylvania address to a Yonkers, New York address?

Could you explain that?

Ms. PETRACO. The letter I received had the change of address.

The envelope that went to Yonkers and was rejected went back to

the IRS. The IRS put it in another envelope and handwrote my

name and address. I guess they got it from their files. Then that

envelope came to me at my legitimate address in York, Pennsylvania. So, when I opened it up, I saw this Yonkers, New York address and I knew something was wrong.

Mr. TOWNS. Right. Have there been any other attempts to use

your information?

Ms. PETRACO. No. To the best of my knowledge, this is the first.

Mr. TOWNS. No credit cards or anything like that have been

used?

Ms. PETRACO. No.

Mr. TOWNS. So it appears that your ID was simply used to just

commit tax fund fraud, that is what it was used for?

Ms. PETRACO. Correct.

Mr. TOWNS. Do you know anything about the status of the investigation being conducted by the Treasury Department?

Ms. PETRACO. No. Since I have been to the IRS office, I have

heard nothing, except through Mr. Platts’ office.

Mr. TOWNS. In other words, they have not been in touch with

you?

Ms. PETRACO. No.

Mr. TOWNS. Ms. Hawa, has your ID or any of the other two victims been used for purpose other than tax refund fraud? Have they

used anything else?

Ms. HAWA. Not to my knowledge.

Mr. TOWNS. How long did it take you to get assigned an agent

while you were waiting for 16 months?

Ms. HAWA. The first year I was dealing with various agents within the IRS for about 12 months. Then after 12 months they assigned me to a National Taxpayer Advocate Service agent, who continued the quest to get my refund.

Mr. TOWNS. Have you received your refund?

Ms. HAWA. From 2008 it took 14 months, but this year, no, but

I was just contacted saying I was going to get it within 10 days.

Mr. TOWNS. OK.

Ms. HAWA. And this year I did not get assigned an agent at all.

Mr. TOWNS. Do you have any indication that action is being

taken by the IRS to find and prosecute the person that used your

identity?

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Ms. HAWA. It is very difficult to get information about the fraudulent claim. Just getting information about how much the refund

was for, when it was issued is not something that they freely share,

and that is after they use the verifiers to identify that you are the

legitimate taxpayer. So, no, aside from just the basic information,

which I had to plead for, I have no idea what the status is on the

criminal investigation.

Mr. TOWNS. Let me ask you also do you have any idea as to

where your identity was stolen, in terms of what happened, as to

how they were able to ascertain it? And I will ask all three of you

that.

Ms. HAWA. For me, in 2009, it started when I went to a local tax

preparation office in my neighborhood. I had been going to this tax

preparation office for 5 years, and I realized that it was the tax

preparation office when 20 additional customers of this office came

forward and said the same thing happened to them.

Ms. PETRACO. I have no idea. To the best of my knowledge, I

thought everything was secure.

Mr. TOWNS. Ms. Thompson.

Ms. THOMPSON. No, I have no idea.

Mr. TOWNS. Let me just go with you too, Mr. White. You talked

about the appropriate procedures that should be put in place and

you also talked about modernizing the system. That costs money,

doesn’t it, to modernize the system?

Mr. WHITE. The IRS has spent a lot of money modernizing their

systems to date. They have made progress. We have been reporting

on this at GAO for a long time now, and after Congress passed the

IRS Restructuring Act in 1998, IRS got much better at managing

systems modernization. It is still not where it needs to be to do the

sort of pre-refund matching we are talking about; they are probably

several years away from that right now.

Mr. TOWNS. I am concerned about this money, everybody is concerned about, and I am just thinking that sometimes we sort of

react to things, and when we should spend and we would save, we

ended up not spending and ending up costing us more. It happens.

I think that we do that a lot, especially in government. I am just

concerned about that. I think we have to sort of make the point because I really view that this is very, very serious. If a person is

waiting for his or her money and it is stolen, and they are sitting

waiting, that is very frustrating.

Mr. WHITE. I agree. IRS, as you may know, has a separate appropriations account for systems modernization, and under the law at

GAO looks at that account before they can spend money out of it,

and the balancing act has always been making sure that IRS had

the management capacity and the controls in place to be able to

spend that money smartly so that they didn’t get more money than

they could spend effectively, but enough so that they continue to

make progress modernizing.

Mr. TOWNS. Let me just say what my real concern here is, aside

from the fact that a person has lost. I am thinking in reference to

credit scores, employment, or other things, all the negative things

that can happen, you can be impacted by this.

May I ask you how about your credit score? How have you dealt

with this, all of you?

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Ms. HAWA. Well, I am cautious to begin with, so even prior to

this incident happening, the first year, I always kept up on my

credit reporting agencies and I always had freezes on my accounts.

So this just exacerbated my need to continue the freezes and always be on top of my accounts. I mean, this is going to be a lifelong

issue to deal with. Even if my taxes aren’t stolen next year, I am

still going to be concerned that my identity is compromised and I

will have to worry about accounts being opened in my name and

whatnot. So this is not just a one-time thing that we have to deal

with; this is a lifetime issue.

Mr. TOWNS. Ms. Petraco.

Ms. PETRACO. I agree. I don’t see this ending for me any time

soon. Currently it is just the IRS, but I will be vigilant about the

credit scores, because I work in law enforcement, so the bigger impact for me is just the fact that I am the law-abiding citizen. I am

supposed to protecting others in my role. So it does have an impact

because I don’t know what way this person is going to use my identity. And my name is unique, so that limits the amount of people

that have that name out there, so it is me.

Mr. TOWNS. Ms. Thompson, it has been approximately, I think,

3 months since you discovered that your identity was used to commit tax fraud. You also reported the problem to the IRS and the

FTC, is that correct?

Ms. THOMPSON. Yes.

Mr. TOWNS. Have you received any written communications from

either of those agencies?

Ms. THOMPSON. The Federal Trade Commission wrote me a letter

that had my confirmation number on it. IRS I never got anything

from except the letter that I just got the other day.

Mr. TOWNS. What did that basically say?

Ms. THOMPSON. That an individual used my Social Security

Number to file a return, but that was 3 months ago, and it is telling me what to do as far as the affidavit and contacting the Federal Trade Commission. But I already did all that, so it is 3 months

late.

Mr. TOWNS. Right. Did you contact the York PD?

Ms. THOMPSON. Yes.

Mr. TOWNS. And what was their response?

Ms. THOMPSON. They have a police report; so does the District

Attorney’s Office.

Mr. TOWNS. Do they appear to be investigating? Would you

know?

Ms. THOMPSON. The York City Police Department found an address and a name in New Jersey, but the IRS, when they came to

talk to us the other month, said he can’t arrest her; they are going

to arrest her. He said he can’t touch her.

Mr. TOWNS. When you say they are going to arrest her, you

mean——

Ms. THOMPSON. The IRS.

Mr. TOWNS. Have you received either written or verbal communication from the IRS which gives you an update on the progress

of tax fraud?

Ms. THOMPSON. No.

Mr. TOWNS. No progress report, just the one letter?

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Ms. THOMPSON. No.

Mr. TOWNS. You know, Mr. Chairman, I think that is a real issue

in terms of the amount that is involved, because if a person discovers that it is $3,000 or $5,000 and nothing is going to happen,

the IRS is not going to pursue it and nobody, why not do it again

next year? That might be the way you make your living from this

point on, until something is done about it.

So I think that we need to look at the possible legislation that

would encourage local law enforcement to also get involved, even

if it is $1,000, 500. It doesn’t matter; it is not theirs. And I think

that until we come up with something of that nature, I think that

this is going to continue. And I must say that we need to do everything we can to make certain that it does not continue, and I think

that we might need to look at some legislation here.

I yield back.

Mr. PLATTS. I thank the gentleman and share the gentleman

from New York’s interest in pursuing this further, specifically on

the prosecution standpoint, with our conversation with the Commissioner and with GAO of what, if any, current statutes prohibit

the sharing of information from the IRS with local law enforcement. They partner with Justice, but as I kind of referenced earlier, when we are talking about a $3,000 case here, $4,000, Justice

has limited resources as well, but our local law enforcement, they

are pretty efficient in these type cases.

So I think, and this is something I have conveyed to our citizens

who are with us, that when this hearing ends this effort doesn’t

end, and that we will continue to work in a nonpartisan way with

the committee, with GAO, with the IRS officials to see how do we

strengthen that ability, because I am one that believes exactly

what you said, if we don’t start sending a message that, whether

it is $1,000 or $100,000, we are coming after you. If you steal

money from American taxpayers and you victimize law-abiding citizens, we are not going to just ignore that; we are going to go after

it and try to hold you accountable. So I look forward to doing that.

Yielding myself time now. I think, first of all, to our three victims here, one, a sincere thanks for your willing to tell your stories,

because by being here you help raise public awareness of this issue;

you have personalize it, you humanize it. But this isn’t just about

improper payments being made by the Federal Government to

criminals; this is one piece of a huge, huge pie of improper payments.

The official number, most recent, is $125 billion a year of improper payments being made, and what is going on here one part

of that, millions and millions of dollars going out in fraudulent tax

refunds. So your helping to tell your stories is very important.

And in each of your statements you capture it in different ways,

from the need for us to work with the Commissioner and his staff

to strengthen the training of IRS agents in how we assist victims

of crime, which is what each of you are. And you stated it in different ways but I think stated it very well. Ms. Petraco, ‘‘I am here

today to tell you that I am a victim of identity theft. I am forever

changed.’’ Ms. Thompson, ‘‘The way I feel, I have been treated by

the IRS system has made me a victim a second time.’’ Ms. Hawa,

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your statement, ‘‘They continue to treat me as if I am the one to

blame, adding even more stress to the situation.’’

That is not acceptable, and the Commissioner acknowledged that

and I appreciate the Commissioner’s colleagues staying to hear

your stories. If you haven’t had the chance, Deputy Commissioner

Beth Tucker, who is here with us, she was part of my meeting with

Commissioner Shulman yesterday, understands the importance of

us doing right by you and all victims of this type of criminal conduct, and I think captures the early reference that each of you unfortunately dealt with IRS agents who were not living up to the

standard of assistance, as you well reflected in your statements, in

your testimony. Deputy Commissioner Tucker is a 27-year employee of the IRS, dedicated to doing right by you, and her presence

here today reflects that, along with her colleagues.

I guess a couple specific questions, and Mr. Towns touched on a

number of them from a prosecution standpoint of what you have

been told or what action you are aware of. On how the interactions

with the IRS went, a couple additional questions. Ms. Hawa, I

want to make sure I understand one part of your written testimony

and what you shared here today. You were contacted in October

2009, I believe by writing, in writing, that you owed an amount of

$1,895 back to the IRS.

Ms. HAWA. Correct.

Mr. PLATTS. And that amount was the difference between what

you were lawfully supposed to get and the amount that the criminal had gotten fraudulently, correct?

Ms. HAWA. That is correct.

Mr. PLATTS. By this time, though, you were already dealing with

representatives of the IRS, employees to kind of go after this, the

identity theft that occurred, correct?

Ms. HAWA. Yes, but I didn’t have one person I was dealing with;

I would just talk to the Identity Protection Specialized Unit. Every

time I called it was a different agent, so I didn’t know how consistent my profile showed that I was a victim.

Mr. PLATTS. OK. That kind of captures what the Commissioner

and I talked about the training aspect, that there is a breakdown

in the training system, not just in the training, but the internal

tracking system I guess is how I described it; that you were already

in the system working on identity theft, and I assume probably

maybe 7 or 8 months in to dealing with that, because this was the

fall, yet the system kicked out, hey, we overpaid you. Well, they did

overpay, but not you.

Ms. HAWA. Right.

Mr. PLATTS. They overpaid the other person the full amount.

Also, when you were dealing with not those in the Identity Protection, the specialized unit, but also understand that two of the general agents that you dealt with were not aware that there was a

specific unit to deal with victims of identity theft?

Ms. HAWA. That is correct. This year, when it happened to me,

I had lost the number for the Identity Theft Unit, so I called the

general 800 number, just thinking that they would transfer me

over, and when I asked, they had no idea what unit I was even referring to, and they were giving me different instructions on how

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to deal with filing my paper return, addresses to send to and what

I really needed to file.

Mr. PLATTS. Right. Not understanding the scope of the issue you

were trying to deal with?

Ms. HAWA. That is correct.

Mr. PLATTS. Because you had, unfortunately, been through it before. You knew what was going on and trying to get to the bottom

of it.

Ms. HAWA. Right.

Mr. PLATTS. I am grateful for the Commissioner’s statement that

those agents that don’t typically deal with identity theft, that is

part of their review of how they can strengthen their training, so

when someone such as yourself calls in.

One other specific question to you, Ms. Hawa, is that am I correct in understanding that after 2009 and you were supposed to be

flagged, but were you also given a PIN number, or you were supposed to be given a PIN?

Ms. HAWA. I had requested a PIN because I had heard

murmurings of people being issued out PINs when this first happened to me. Even a gentleman that had this happen to him earlier

in 2000 and he said that he received a PIN, or some sort of

verification method so it didn’t happen to him again.

So I requested that immediately and they told me that they were

going to look into it, and I never received it. But in 2010 I was not

impacted at all, so I thought that the worst was over, so I wasn’t

going to bother the IRS for a PIN number. But then this year,

when I found out it happened to me all over again, when I called

the IRS to see why my profile wasn’t flagged, as they had promised, they didn’t know why and they had no explanation.

Mr. PLATTS. So it was actually back in 2009 where you were told

it would be flagged, you asked for a PIN, that didn’t happen, but

you thought you were still flagged, but then in 2011 that didn’t

work.

Ms. HAWA. That is correct.

Mr. PLATTS. And that kind of comes to our discussions with the

Commissioner, with Mr. White, that hopefully if we are able to expand that PIN process, that it will be more exact, and the three

of you being examples. If next year you have to have that personal

identification number, that it is not a question of it being flagged,

but, hey, only you can file and be able to, with one caveat, and Mr.

White hit it, is depending on how you receive that, if it was electronically, like personal email, versus mail or even mail, that PIN

isn’t stolen in some fashion. But that certainly would be another

hurdle to guard against it.

I think I had one or two other ones. I appreciate everyone’s patience here.

Ms. Thompson, Mr. Towns, I think, pretty well covered this.

When you were dealing with the York City Police Department detective, understanding that because of the person identified as

being the criminal here was in New Jersey, they weren’t going to

be pursuing it, IRS would. Were you told over the phone that they

would be pursuing it or were you told by the detective that his understanding from the IRS?

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Ms. THOMPSON. When the two IRS agents came a couple months

ago to talk to us, they had told the detective that he could not arrest her, that the IRS would.

Mr. PLATTS. OK, and that was kind of when we engaged from a

casework standpoint, they came out to look into your case from the

Philadelphia office?

Ms. THOMPSON. Yes.

Mr. PLATTS. But you have not received any feedback about that

since then from either of those agents?

Ms. THOMPSON. No, nothing at all.

Mr. PLATTS. OK.

A final question, Ms. Petraco. When you were in the York Office

and understandably rattled, one, because you were just trying to

figure out what is going on here, and then already being a little

concerned and then being told that you were a victim of identity

theft, and then the engagement that happened in a public setting,

I guess just in general, did the agent that you were dealing with

understand, get it when you didn’t want to say the information

publicly, with other people sitting there listening? Was there just

an understanding, sorry about that, or was it just more they didn’t

realize what they were doing?

Ms. PETRACO. I think my tone of voice when I said no, no, get

the information off the form, she goes, OK, OK. So I just don’t

think she really thought about what she was saying or, you know,

just really didn’t put it all together.

Mr. PLATTS. It was more just pro forma, name and Social Security Number.

Ms. PETRACO. Right. Right.

Mr. PLATTS. And not thinking that wait a minute, I have to be,

I ask that because it is again on the issue of training of the sensitivity of this information that we are always on guard, because I

am like each of you described your own approaches. My wife thinks

I am the top shredder at home; anything that has any king of identifying goes into that shredder. For years I have been trying to be

very protective because of this very concern, and it sounds like

each of you have tried to do that and, unfortunately, it wasn’t

enough; not because of lack of effort on your part.

I don’t have any further questions.

Mr. Towns, do you?

Mr. TOWNS. No, I don’t. I really don’t. As I indicated, though, I

just think that a lot of things could sort of fall through the crack

and not be dealt with. For instance, if the person is in another

State and it is not a lot of money, that it could very easily almost

be ignored because if you have to, if it is $750, so, therefore, why

would you spend $15,000 to collect the $750? So you just sort of

pass it along. And that is my concern.

So I am not sure that, we need to look at that because if they

are saying that the person in York cannot make the arrest, and I

am not sure that the arrest is going to be made, and I think the

fact that there is no communication, to me, is very troubling, because the person that is the victim should be informed as to what

is really going on, and I think that is something that really needs

to look at, because also understand, in terms of the IRS, how much

do you want to spend to collect $500? So I think that we have to

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look at this and I think that we have a role to play here, and it

is not just the blame game.

Mr. PLATTS. No, not at all.

Mr. TOWNS. I think you do some things legislatively to sort of

make it possible for anybody that takes anybody else’s money, that

they should be charged.

Mr. White.

Mr. WHITE. Just following up on that point, I agree completely

with the point, and I think the solution is to take the profit out

of the crime, and you do that with better filters. So, in the short

term, if these PIN numbers can be made to work, that would reduce the profit from the crooks; they lose the ability to make money

off of IRS. Longer term, if there could be more pre-refund checking,

again, that takes the profit out of the crime. Because you are absolutely right, IRS doesn’t have the resources, and never will, and

probably should not, to chase $500. It costs them much more than

that to collect it. So it has to be prevented up front.

Mr. TOWNS. But the person that is the victim feels differently,

and I think that is the way they should feel.

Mr. WHITE. Absolutely. That is why this is such an insidious

crime. For the victims it is a big deal.

Mr. TOWNS. Right.

On that note, I yield back, Mr. Chairman.

Mr. PLATTS. Thank you, gentleman. And I would maybe wrap

that discussion you just had where I started in the kind of three

primary issues, is if we do better up front on internal controls and

the PIN being one example of that, and even the filtering system,

and that is why in my questions or comments earlier about the

more flags that go off. I think, Ms. Petraco, you went through in

your testimony all the things that have not changed in 28 years;

your status, your address.

The filtering system itself, if it is a January return asking for a

debit card refund and without any substantiating documents, that

should be a big red flag. If we get into those who may be likely

identity theft victims, we have the PIN. The more we do up front

reduces the number of fraud cases, so that when they do occur

there are fewer to pursue to throw the book at, to go after Mr.

Towns’ point that the message is $3,000 or not, we are coming after

you, because otherwise if someone knows every year I can get an

extra $3,000 to $5,000, do it once a year. So reduce the number so

then there are fewer to go after to really hold accountable.

And then third is in doing that we do better with victims’ assistance, because I am not a law enforcement professional, but my understanding is where there is criminal conduct and victims of

crime, an important part of the healing process is the victim being

kept fully informed all the way through that process of pursuing

the criminal, the wrongdoing, to know that ultimately it is not just

that they remain whole, as you are going to be made whole, you

are going to get your refunds, but that justice was served.

And I think that is when we have, no matter what the dollar

amount, that we are not pursuing them, justice isn’t served. That

prevents that ultimate healing process for the victims. So I think

prevention, prosecution, victims’ assistance, and I think by his

statements the Commissioner understands that and is committed

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to that not just today, but has been. But we need to partner with

him and with the Deputy Commissioner and this committee and

Appropriations and make sure that we are well devoting the necessary time, effort, and resources to this issue.

So my thanks again for our four witnesses here on this panel, to

our IRS officials who are still here, and Commissioner Shulman on

the first panel. You certainly have helped raise great awareness of

this issue and allowed us as a committee to be more effective going

forward to try to make sure that you three certainly are never

again victimized in this way, as well as other Americans are not

victimized as you have been, and we do right by you and do right

by taxpayers in better protecting their hard-earned dollars that

they send to the Federal Government.

We will keep the hearing open for 2 weeks for any additional information that either was requested or that you want to submit to

the committee to supplement the record. With that, this hearing

stands adjourned.

[Whereupon, at 4:05 p.m., the subcommittee was adjourned.]

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