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IDENTITY THEFT AND TAX FRAUD: GROWING

PROBLEMS FOR THE INTERNAL REVENUE SERVICE

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

NOVEMBER 4, 2011

Serial No. 112–96

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 November 4, 2011 ........................................................................ 1

Statement of:

George, J. Russell, Treasury Inspector General for Tax Administration;

Steven T. Miller, Deputy Commissioner for Services and Enforcement,

Internal Revenue Service; and Ronald A. Cimino, Deputy Assistant

Attorney General for Criminal Matters, Tax Division, U.S. Department

of Justice ........................................................................................................ 12

Cimino, Ronald A. ..................................................................................... 29

George, J. Russell ...................................................................................... 12

Miller, Steven T. ........................................................................................ 41

Nugent, Hon. Richard B., a Representative in Congress from the State

of Florida ....................................................................................................... 5

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

Cimino, Ronald A., Deputy Assistant Attorney General for Criminal Matters, Tax Division, U.S. Department of Justice, prepared statement

of ..................................................................................................................... 31

George, J. Russell, Treasury Inspector General for Tax Administration,

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

Miller, Steven T., Deputy Commissioner for Services and Enforcement,

Internal Revenue Service, prepared statement of ...................................... 43

Nugent, Hon. Richard B., a Representative in Congress from the State

of Florida, prepared statement of ................................................................ 8

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

of New York, prepared statement of ........................................................... 4

(1)

IDENTITY THEFT AND TAX FRAUD: GROWING

PROBLEMS FOR THE INTERNAL REVENUE

SERVICE

FRIDAY, NOVEMBER 4, 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 9:30 a.m., in room

2154, Rayburn House Office Building, Hon. Todd Platts (chairman

of the subcommittee) presiding.

Present: Representatives Platts, Towns, and Connolly.

Also present: Representative Nugent.

Staff present: Michael R. Bebeau, assistant clerk; Molly Boyl,

parliamentarian; Mark D. Marin, director of oversight; Tegan

Millspaw, research analyst; James Robertson, professional staff

member; Beverly Britton Fraser, minority counsel; Ashley Etienne,

minority director of communications; Jennifer Hoffman, minority

press secretary; and Adam Koshkin, minority staff assistant.

Mr. PLATTS. The committee will come to order.

I appreciate everyone’s attendance here today. I do apologize

with—I know I’m going to be challenged with scheduling conflicts.

I know on our side of the aisle a House Republican Conference that

was scheduled unfortunately for the exact same time on the balanced budget amendment at the last minute. But we are glad to

have everyone’s participation with all of our witnesses.

Today’s hearing is a continuation of the subcommittee’s examination of the serious problem of tax fraud across the country. In June,

this subcommittee held a hearing on tax fraud perpetrated by identify theft. We heard testimony from three witnesses who had their

identities and tax returns stolen. This hearing will address recent

developments in tax fraud and evaluate the government’s efforts to

identify and prevent fraud.

Tax fraud is a rapidly growing problem, and identity theft related fraud is particularly concerning. In order to steal someone’s

tax return, all the perpetrator of this type of fraud needs is a name

and a Social Security number. This information is then used to

submit a fraudulent claim. If a victim has not filed taxes yet, the

criminal is even able to steal the victim’s tax return.

In 2008, the Internal Revenue Service identified over 50,000

cases of identity theft related fraud. In 2010, that number had in-
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creased to approximately 248,000. Many cases go undetected, and

the actual number of identity theft tax fraud could be much higher.

Identity thieves obtain personal information from many sources,

including doctors’ offices, school systems, and human resources departments. Some thieves get information from the Social Security

death index and file fraudulent claims under the names of deceased

individuals. In 2010, IRS paid over $12 million to people who were

listed as deceased. Service members who were killed in action defending this great Nation are often targets of identity thieves who

use their information to steal tax returns from their families.

Tax credit fraud is another growing problem. The Treasury Inspector General for Tax Administration found that in 2010 IRS

issued $4.2 billion in tax credits to individuals who were unauthorized to work in the United States. IRS has not recovered that

money.

Additionally, TIGTA discovered that IRS improperly issued ap- proximately $3.2 billion in educational tax credits. Some of those

educational credits went to prisoners.

Although tax fraud is a serious crime, it is difficult to investigate

or prosecute the perpetrators of these crimes. All potential cases

are reviewed by the Department of Justice and must be approved

before IRS can investigate. IRS also has limited resources to investigate criminal activity and rarely investigates tax return fraud because the average amount per return is $3,400.

While this is a small number, it can be devastating to the victims

who had their identities and tax returns stolen. It also quickly adds

up to millions of dollars of improper payments each year that go

to criminals.

IRS has been working to address the increasingly serious problem of tax fraud, and it deserves credit for its efforts. However,

more must be done to address this issue.

Today, we will hear from our witnesses about the process of investigating tax fraud and IRS’s work with the Department of Justice to prosecute the perpetrators of this fraud. We will also learn

about the work IRS and TIGTA are doing to better identify and

prevent fraud before it occurs.

I certainly thank our witnesses in advance for their testimony

here today and the written testimony they have supplied, and I

would emphasize that a lot of our focus here today is going to be

about protecting taxpayers’ money so that we don’t lose money to

this type of fraud.

But a very important aspect of our June hearing and again today

is the fact that this is how—we want to focus on how the Federal

Government is protecting American taxpayers against these crimes

and how we then assist the victims of these crimes when they

occur and that we not lose sight of the fact, you know, that this

is the real lives of American citizens, law-abiding citizens, that are

tremendously impacted when tax identity fraud occurs.

With that, I’ll yield to my distinguished colleague, the ranking

member of the subcommittee from New York, Mr. Towns.

Mr. TOWNS. Thank you very much, Mr. Chairman, for holding

this hearing on identity theft and tax fraud, growing problems, of

course, which we have been dealing with now for—this is the second time, the second hearing.
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In 2011 alone, the IRS has already identified over 582,000 taxpayers that were the subject of identity theft, and this is more than

double the incidence from only 3 years ago. Clearly, we have to do

a better job protecting the taxpayer and the Treasury from criminals. Our witnesses today will help us understand how this can be

done.

One of the first priorities we must address is the quality of assistance given to taxpayers victimized by employment or tax refund

fraud. The testimony does not paint a pretty picture of how the IRS

is handling this aspect of its responsibilities. It is unacceptable to

have innocent taxpayers waiting 12 to 18 months to verify their

identity before a replacement refund check is issued. We can and

should do better.

Another obvious problem is what is being done to prevent criminals from filing fraudulent tax returns using stolen identification?

I fully understand that identities are stolen, traded, and misused

in places far away from the IRS. It is also clear that neither the

IRS nor law enforcement nor anyone else can predict when criminal behavior will occur or stopping criminals bent on breaking the

law. However, if there are resources, both human and technological, to prevent criminals from filing fraudulent returns, every

effort should be made to do so.

If the IRS, the Inspector General, or the Department of Justice

does not enforce the law against those who defraud the Treasury

and victimize taxpayers to identity theft, there will be no deterrent

or punishment for criminals.

I hear of budgetary limitations, staff limitations, a lack of training programs, and legal limitations that prevent more investigations and prosecution of these crimes. We cannot sit back and do

nothing because of limitations. The criminals are becoming more

sophisticated in defrauding the government. We have to become

more creative in our solutions. Because if they find out that we

cannot do anything about it, that means that the numbers that we

just talked about earlier will continue to increase.

I look forward to the testimony today. I hope our witnesses will

guide us through the present limitations to working solutions

against the problem of identity theft and tax fraud. And let me just

say to all the witnesses that, you know, this committee is not an

‘‘I got you’’ committee. You know, some of the committees around

here are the ‘‘I got you’’ committee, and they want to get you.

But we’re not here to do that. We want to be the ‘‘help you’’ committee, to be able to make certain that people who are having problems, that there is a solution to the problem within a quick period

of time and to prevent the problem from continuing to grow.

So thank you very much.

Representative Nugent, good to see you here as well.

[The prepared statement of Hon. Edolphus Towns follows:]
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Mr. PLATTS. The gentleman yields back.

And certainly I fully agree with the ranking member that our

purpose and assignment here is to partner with our colleagues in

the House, our colleagues throughout the Federal Government on

how we can well serve our fellow constituents, our joint constituents, all Americans, and to get a good result, not to play gotcha but

to just work with you to get good results.

We are honored to join with—not a member of our committee but

another colleague—a distinguished Member of our freshman class

here in Congress, Congressman Rich Nugent of Florida’s Fifth District.

Congressman, we’re honored to have your testimony as one who’s

seen the challenge of tax fraud firsthand in your district. I know

you’re going to share that story with all of our guests here today.

Mr. Nugent was sheriff of Hernando County, Florida, prior to

joining Congress so brings perspective not just as a Member of the

House but also as a long-time dedicated law enforcement official.

So, Rich, we’re delighted to have you here with us; and you’re

recognized for a statement.

STATEMENT OF HON. RICHARD NUGENT, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF FLORIDA

Mr. NUGENT. Thank you, Mr. Chairman.

First, I want to take just a moment to thank the subcommittee

and especially Chairman Platts and Ranking Member Towns for

the opportunity to speak here today.

Although tax fraud and identity theft is a nationwide problem,

I want to make the subcommittee aware of what’s happening in the

Tampa Bay area in my district. Recently, Tampa Bay—or Tampa

Police Department started noticing that many of their most notorious drug dealers were no longer on the street. Officers pulled one

of their previous dealers over during a routine traffic stop and discovered massive amounts of prepared debit cards, ledgers containing Social Security numbers, and laptop computers in the back

of the car.

Through this and similar routine traffic stops and drug busts,

Tampa Police Department discovered a scheme known as Turbo

Tax. One perpetrator had a ledger containing 100 names of deceased people, and after the investigation it was discovered that

this man had made well over 1,000 false returns and collected close

to $2.4 million.

The Tampa Police Department worked well with the local IRS

agents and U.S. attorneys in their investigations. However, once

they went to the D.C. bureaucrats detailing exactly how criminals

steal the Social Security numbers, file the fraudulent tax returns,

and launder resulting money, the Feds mostly turned a blind eye

to that issue.

Tampa PD have explained how the criminals got Social Security

numbers. Initially, they targeted deceased people, filing returns, information they found on Web sites, like Ancestry.com. Once they

ran out of dead folks, they started stealing Social Security numbers

from living victims. Tampa Police Department has had cases where

information was stolen from nursing homes, schools, and hospitals.

Additionally, James Haley VA Medical Center sent letters to about
6

200 veterans warning them that their identity had been stolen to

file false tax returns. The VA Inspector General is investigating

this case currently.

Tampa Police Department also knows how the criminals are filing the their returns. The actual fraud is not committed by an organized group but by individuals. Tampa Police Department has

busted what the lawbreakers call ‘‘make it rain parties’’ where

criminals get together in a hotel room with Internet access and file

fake return after fake return.

Police know how the money’s being laundered. The criminals

have worked out deals with unscrupulous business owners who

cash their checks or debit cards in exchange for a cut of the money.

In Tampa, the most money seems to be laundered by a select

group of high-cash-flow businesses, including used car dealers and

clothing shops. One business alone received approximately $3.5

million in Treasury money, our money.

How does Tampa Police Department know all this? The criminals

are telling them. Even after they have been read their Miranda

rights, the crooks are laying out their entire process to the cops.

They are freely admitting their crimes because they don’t think

Federal officials would do anything about it; and, unfortunately, it

seems the criminals are right.

As a representative from GAO told the subcommittee in your

June hearing on this issue, IRS identified 248,357 incidents of taxrelated identity theft in 2010. However, the IRS Criminal Investigative Division only had 4,706 active investigations into all types

of fraud.

The IRS and the Justice Department say that these cases aren’t

of sufficient severity for them to look into. Experiences in Tampa

show the lack of action is not reflective of the agents’ desire across

the ground to prosecute but the bureaucracy within the IRS and

their administrators.

Even more infuriating is the Federal agencies are notifying the

IRS of this fraud, but they continue to send checks. In Tampa

alone, the U.S. Postal Service stopped delivery of an estimated

$100 million in fraudulent refunds in a 6-month period.

Media reports also say the company issuing of prepaid debit

cards notified the IRS of concerns. However, the IRS ignored those

warnings and just sent Treasury checks to those suspected

fraudsters.

I cannot understand how other government offices can be telling

the IRS that their checks are going to fraudsters and yet the IRS

continues to pump them out. Given our current fiscal situation, it’s

unconscionable that the Federal Government can be aware of billions of dollars in tax dollars being stolen right out from under our

noses and do very little about it.

I’m here because I want to find a solution to the problem. First,

the IRS needs better controls to keep the fraudulent returns from

ever going out the door. Second, when identity related fraud does

occur, these criminals must be prosecuted, and local law enforcement ought to be involved in the process.

Maybe the IRS doesn’t want to increase anti-fraud safeguards because it might slow down the return process, but I think honest
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taxpayers would rather get the returns a few days later and keep

the money out of the hands of criminals and get their tax return.

In closing, thank you again, Chairman Platts, for the opportunity

to testify this morning. I look forward to working with both Federal

and local officials, as well as my colleagues in Congress, including

the subcommittee, to bring an end to this needless waste of taxpayer dollars.

[The prepared statement of Hon. Richard Nugent follows:]
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Mr. PLATTS. Congressman Nugent, we certainly thank you for

your testimony and especially your personal insights into this challenge that we’re trying to deal with with the IRS both in your district as well as your background in law enforcement. You bring a

great level of expertise to assist this subcommittee in our efforts.

We’re not just glad to have your testimony but ask unanimous

consent that Mr. Nugent will join us on the dais and be part of the

hearing for Q&A is as well.

Mr. NUGENT. Thank you very much.

Mr. PLATTS. We will reset for our second panel and certainly

honored to have three distinguished witnesses with us here today.

First, the Honorable J. Russell George, Treasury Inspector General for Tax Administration. This is a little bit of a homecoming for

Mr. George as former staff director under a distinguished, now

passed on, chairman, Steve Horn of this very subcommittee from,

I think, the mid-’90’s to about 2002.

Mr. George, we’re delighted to have you back and have you both

as an alumnus of the subcommittee staff and also your current

work as Treasury Inspector General for Tax Administration.

Also delighted to have Mr. Ron Cimino—I will try to make sure

I get that correct for you—Deputy Assistant Attorney General for

the Tax Division at the U.S. Department of Justice; and the distinguished Steven Miller, Deputy Commissioner for Enforcement at

the Internal Revenue Service.

Now that you’re all three seated, if I could ask you to rise. The

practice of the full and all of our subcommittees here is to swear

in our witnesses.

If you would raise your right hands.

[Witnesses sworn.]

Mr. PLATTS. Let the clerk reflect that the witnesses all answered

in the affirmative.

We are going to do our best to be efficient with your time. It’s

our understanding that we’re going to have votes on the floor somewhere in the next half hour to 45 minutes, hopefully closer to an

hour; and our hope is we can get your oral testimony here today.

We have your written testimony and then get to Q&A with members of the committee and not have you wait too long, if at all,

based on floor votes.

So if you can try to limit your testimony, written—your oral testimony to 5 minutes and then allow us to get into a good exchange

as part of the Q&A.

So, Mr. George, if you would like to begin.

STATEMENTS OF J. RUSSELL GEORGE, TREASURY INSPECTOR

GENERAL FOR TAX ADMINISTRATION; STEVEN T. MILLER,

DEPUTY COMMISSIONER FOR SERVICES AND ENFORCEMENT, INTERNAL REVENUE SERVICE; AND RONALD A.

CIMINO, DEPUTY ASSISTANT ATTORNEY GENERAL FOR

CRIMINAL MATTERS, TAX DIVISION, U.S. DEPARTMENT OF

JUSTICE

STATEMENT OF J. RUSSELL GEORGE

Mr. GEORGE. Thank you, Mr. Chairman—Chairman Platts,

Ranking Member Towns, Mr. Nugent. Thank you for the invitation
13

to testify on the issue of identity theft and tax refund and tax

fraud.

There are two primary types of identity theft that relate to tax

administration. The first involves an individual using another person’s name and/or Social Security number to file a fraudulent tax

return to generate a tax refund, which I will refer to as a tax fraud

identity theft. The second involves using another person’s identity,

for example, the names, Social Security number, or both, to obtain

employment, which I will refer to as employment-related identity

theft.

In 2008, TIGTA recommended that the IRS develop and implement a strategy to address both of these types of identity theft.

Since then, the number of tax-related identity theft incidents has

grown significantly.

Although the IRS acknowledges that it does not know the exact

number of open or closed identity theft cases, as of August 31st of

this year IRS incident tracking reports indicated that the number

of taxpayers affected by identity theft has more than doubled since

2008 to over 580,000 taxpayers this year alone.

TIGTA is currently evaluating whether the IRS has effectively

provided assistance to victims of identity theft. Our preliminary observations are that the IRS’ processes are not adequate to communicate identity theft procedures to taxpayers. This results in increased burden for these victims.

We have analyzed recent identity theft cases and found that the

IRS’ process for assisting victims is very lengthy. As was pointed

out earlier, a typical path for an identity theft refund case that is

not complex may take as long as 18 months to resolve.

Standard IRS processes and organizational structure hinder

timely and effective case resolution. High telephone call demand,

limited resources, and a growing identity theft inventory make it

difficult for customer service assisters to prioritize identity theft

cases. The assisters who work the majority of identity theft cases

also work the IRS’ toll-free telephone number responding to telephone taxpayer inquiries.

Identity theft cases are not always a priority even though an untimely case resolution could result in significant taxpayer burden

as well as an improper payment. Identity theft case processing is

highly decentralized, and coordination among the IRS functions is

limited.

Procedures pertaining to identity theft are not arranged for efficient access. They are inconsistent and are scattered throughout

the Internal Revenue manual.

The different systems used by the various functions prevent accurate tracking and reporting of identity theft workloads and their

effect on tax administration. There is no mechanism or system in

place to track cases in process or time spent working cases.

Total time spent on a case can vary significantly, and sometimes

cases can stay open for months with little or no activity as the assisters answer calls or work other types of cases.

In fiscal year 2011, the IRS began issuing identity protection

Personal Identification Numbers, referred to as PINs, to tax payers

who have been previously identified by the IRS as victims of identity theft. The PIN will indicate the taxpayer provided the IRS
14

with information that validates their identity and that the IRS is

satisfied the taxpayer is the valid holder of the Social Security

number.

Currently, the IRS provides the identity protection PINs only to

taxpayers who have been a victim of identity theft that has affected

the filing or processing of their Federal tax return. The PIN is not

available to taxpayers who claim to have been a victim of identity

theft but who have not had problems filing their tax returns.

While the financial sector offers customers the option of providing additional protection on their accounts, the IRS should consider adopting such practices. Providing protection only after the

taxpayer has been victimized does not serve the American taxpayer

well.

A substantial number of unscrupulous taxpayers submit fraudulent tax returns to the IRS for the sole purpose of receiving a tax

refund. From January 1st through September 10th of this year, the

IRS reported that it received over 1.6 million tax returns with more

than $12 billion claimed in fraudulent tax refunds, and yet it prevented the issuance of $11.5 billion of that money.

Tax-related identity theft is a growing concern despite the IRS’

efforts to address this serious problem. It is critical for the IRS to

deter and detect identity theft before it occurs within the tax return process. The IRS needs a better process to identify and respond whenever identity theft fraud occurs.

While the IRS has undertaken important steps and initiatives to

prevent the occurrence of identity theft, additional controls could

minimize and prevent future incidences.

Thank you, Mr. Chairman for the opportunity to present testimony.

[The prepared statement of Mr. George follows:]
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Mr. PLATTS. Thank you, Mr. George. Mr. Cimino.

Mr. CIMINO. Mr. Chairman.

STATEMENT OF RONALD A. CIMINO

Mr. CIMINO. Mr. Platts, Ranking Member Towns and members of

the subcommittee. Thank you for the opportunity to appear before

you this morning to discuss the Department of Justice’s efforts to

combat tax refund fraud arising from identity theft. The Department greatly appreciates the commitment that the chairman, the

subcommittee——

Mr. PLATTS. Please put your microphone on.

Mr. CIMINO [continuing]. And staff have made to highlight the

serious crimes of identity theft and fraud.

The Department recognizes the critical need to address this evergrowing problem of identity theft. Combating computer theft, including identity theft, is one of the Department’s top priorities as

set forth in the current strategic plan.

As the Attorney General has said, our core mission is to pursue

justice for criminal acts, and that pursuit includes justice for victims of crime. In criminal matters involving identity theft and Federal tax crimes, the IRS investigates these matters and refers them

to the Department.

Thereafter, the Tax Division supervises and directly prosecutes

some of these matters. The Tax Division prosecutors work closely

with assistant U.S. attorneys across the country to develop and

prosecute these tax refund crimes.

As part of that process, Federal prosecutors also ensure that victims’ rights are respected. These cases are prosecuted by both the

Tax Division prosecutors and assistant U.S. attorneys, either separately or jointly.

This close working relationship enables the Department to share

knowledge and leverage our resources in order to combat refund

fraud across the country. While each prosecution may only involve

the single defendant or small group of defendants, in the majority

of cases the number of incidents and victims is significantly greater.

Regardless of the number of victims or the amount of the refund

involved, the Department evaluates the merits of each case to determine whether the crime can be proven beyond a reasonable

doubt. There are cases in various stages in which the Department

is investigating and prosecuting perpetrators of identity theft and

tax fraud. As described in my testimony, my written testimony,

there are statutory restrictions on my ability to comment on the

specific facts of these cases.

However, I can assure the subcommittee that the Department

continues to vigorously prosecute these cases to the fullest extent

of the law. While prevention and early detection are always the

first and best line of defense, the Department recognizes that prosecution is also a critical tool when it comes to combating identity

theft and tax fraud.

As Deputy Commissioner Miller has stated in his testimony, the

IRS is committed to continuing to look for new and innovative ways

to detect and stop identity theft. The Department is also committed

to stopping identity theft. Our mission to pursue justice can only
30

be attained if victims receive justice as well. While the Department

will never be able to fully eradicate crimes such as identity theft

and tax fraud, our persistence, dedication, and success in prosecuting these cases sends a clear message to those who would engage in such conduct that they will be found accountable for their

actions.

I would like to thank you, Mr. Chairman, for the opportunity to

appear this morning and I’m happy to take any questions.

Mr. PLATTS. Thanks for your testimony.

[The prepared statement of Mr. Cimino follows:]
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Mr. PLATTS. Commissioner Miller.

STATEMENT OF STEVEN T. MILLER

Mr. MILLER. Good morning, Chairman Platts, Ranking Member

Towns, Mr. Nugent, I appreciate the opportunity to speak today.

Over the past few years, the IRS has seen a significant increase

in identity theft. Identity theft and the harm that it inflicts is a

problem that we are taking very seriously. At the start, let me say

quite plainly that the IRS is confronted with the same challenges

as every major financial institution in preventing and detecting

identity theft.

We cannot stop all identity theft. However, we are better than

we were, and we will get better still. We have to balance the need

to make payments in a timely manner with the need to ensure that

claims are proper and taxpayer rights are protected.

Let me describe our current efforts in terms of fraud prevention

first and victim assistance after that. First, up-front protection of

fraud. In 2011, the IRS to date has protected $1.3 billion in refunds

from being erroneously sent to identity thieves. And for 2012, the

following is in place. Despite a very tight budget, we are adding

staff in this area.

New for 2012 is up-front screening filters that will improve our

ability to spot false returns before a refund is issued. This includes

a series of improvements for decedent identity information.

For returns caught in these screens, new procedures are in place.

Before any refund, we will correspond with the sender. We are

issuing special identification numbers, the PINs, to expedite filing

for those taxpayers whose identities have been stolen, and we are

accelerating the matching of information returns in order to have

a better shot at stopping the fraud up front.

There are new procedures to allow us to match returns to lists

of taxpayer information that law enforcement officials believe may

have been stolen. We will be doing that up front, and we have improved collaboration with the software developers and others to determine how we can better partner to prevent theft.

In addition, the investigative work done by our Criminal Investigation Division continues, and we will increase the resources

available and redouble our efforts to work with other law enforcement in this area. That’s our work on prevention.

We are also taking a number of actions to help victims of identity

theft. We are implementing new procedures and adding staff to resolve cases faster and minimize the disruption to innocent taxpayers. Newly formed special units will do this work.

The PINs I spoke about earlier will assist the identity theft victims in filing future returns. Next week we begin the process of

issuing more than 250,000 such PINs. We have also updated training for our telephone representatives and developed training for all

other public-facing employees. Outreach to the public will continue

as well.

Let me conclude, our work here is critical. We see identity theft

as affecting the way people view our agency and, as importantly,

as eroding people’s view of their obligation to pay taxes. We cannot

be lax in stopping fraud and we must improve our treatment of victims.
42

I can’t tell you that we’re going to beat this problem 1 year, but

I can say that our work in 2012 is a solid start and not the end

of our efforts. And obviously I’ll be happy to answer any questions.

Mr. PLATTS. Thank you, Commissioner Miller.

[The prepared statement of Mr. Miller follows:]
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Mr. PLATTS. I yield myself 5 minutes to begin the questioning

and again thank each of you for your testimony as we work jointly

to try to address this growing problem and better protect American

taxpayers and to prevent American citizens from being victimized.

And I want to start with the issue of how we are assisting victims. And, Commissioner Miller, you and I have spoken about this

issue prior to this hearing as we did with the Commissioner back

in June, that we recognize we’re talking about criminal acts here

and the victims of crime.

And I’d be interested I guess first, your response both here today

and in the written testimony of the Inspector General, when they

look at a typical way that a victim of identity theft within IRS has

been handled, where they first learn of it in February, report it,

and then work their way through the Inspector General kind of references, what they see based on their findings, a typical case where

you know they—the law-abiding citizen, when they go to file their

return in February and finds out somebody has already filed a return under their name and Social Security number—that they

work through February, April, July, September, October November,

December and January as a typical response till that person’s case

is resolved.

And my understanding of the standard procedure is that when

one of these cases come to light in February or March, that is basically put into what’s called a duplicate case filing system and basically set aside until, at the earliest, sometime after April 15th

when the filing deadline hits.

That’s not giving much priority to the victims of crime, which is

what we’re talking about here.

So I guess, Mr. Miller, your response of how you assess the Inspector General’s review and, you know, what we are doing to

change that, because that’s not an acceptable level of response.

Mr. MILLER. And I agree with the presentation that you have

just given. Let me break this up into about three pieces. First, as

to Mr. Russell’s report, we have not seen his actual report. The

first we saw it was Wednesday night so it’s hard for us to exactly

judge and deal with point by point.

But I will say, not our understanding, and we don’t think it’s correct that the typical case—whereas as he used in his written testimony, the best case is 18 months, we don’t think that’s right. We’re

going to go back and we’ll take a look. But, you know, I am also

going to say I’m quite sure it has happened, right? I don’t think

it’s typical. I know it’s happened.

Mr. PLATTS. When you take that look, if you could submit to the

committee for the record what you find is the typical average response from the time that person says I’ve been that victim and

their case is resolved.

Mr. MILLER. Be more than happy to do that.

[The information referred to follows:]

[NOTE.—The information referred to was not provided.]

Mr. MILLER. The second piece that you talked about is is this a

priority for the service, and it’s a tough answer. The answer is that

when it happens early in the year, that’s when the same people

who are doing this work are doing phone work.
52

Is it a priority, is it a first priority? Yes. But the question is, are

we going to do phone work or are we going to do these cases? We

need to do a better job going forward of doing both. That’s a resource issue for us, to be blunt.

I think, I think probably in 2011 we did more phone and less

paper. I believe for 2012 with the resources that I’ve made available we’ll do more paper. There’s still going to be resource shortages. And while we will try to get to this work, there’s an awful

lot of work that goes on during that timeframe. We need to process

returns.

We need to, you know, deposit checks. We need to answer the

phones. And our phone level of service is not something to wave

the flag about either at this point due to resources. We’re down to,

you know, 7 out of 10 people getting through. And next year, you

know—this year, rather, in 2012, it’s likely to go down from that.

So we have some tough choices to make up front. But I will tell

you we’re going to do better this year. We’ve made more resources

available to work both of these things.

The final piece, and that really is the final piece, the final piece

is we are going to get better at this. And we are putting in place

units, specialized units in accounts management, in submission

processing, in the other places where identity theft presents itself,

in order to work these cases quicker, to work them with folks that

understand the processes better. They will be trained; we will do

a better job this year.

Mr. PLATTS. And you reference in your testimony the training

that you’re doing, which clearly is necessary.

Mr. MILLER. Right, it is.

Mr. PLATTS. But it’s also an organizational challenge because I

think you identified, what the Inspector General identified, is that

you have the individuals that are on the front lines of the phones

also being the one charged with assisting victims. And so to meet

the needs of the phone calls, you’re in essence setting the victims

assistance aside—as the Inspector General referenced, the duplicate function—so that it’s treated as just a duplicate case and not

given a priority.

And I guess as I’ve shared with you previously and again today,

when it comes to a victim of a crime, we need to make that a priority.

Mr. MILLER. I understand.

Mr. PLATTS. And I don’t think we’re adequately doing that. I

think you understand the importance of that and the training that

you’re doing. I commend you for that approach and—but I think it

is an organizational structural issue here that you need to, you

know, have a victims assistance unit that is not worried about

meeting their other obligations over here but is focused specifically.

These are law-abiding citizens who are trying to comply with, as

we all know, a very complex code. We bear the blame here in Congress for that, but they’re trying to do their part, and then they get

victimized and we need to do a better job of assisting them.

And a quick follow-up, and then I’ll yield to the ranking member.

I know I’m over my time.

But if you assume that you were even close in the Inspector General’s findings, it’s identified in February and it’s the following Jan-
53

uary or so until it’s resolved, in this written testimony there’s also

statements that they found that even when the victim of the crime

is being given notice that your case is resolved, you’re good, that

it’s anywhere from 2 or more weeks till the payment, the refund,

is actually provided. So, you know, what’s the delay there?

You’ve gone through 10, 11 months. They get a letter saying, yep,

we understand. We’ve gotten it straightened out, but they still

wait, you know—you know—in the statement it says release of tax

refunds can take from 2 to 12 weeks to post. That’s pretty outrageous, you know, that it’s done but it still takes us up to 3

months. So I don’t know if that’s an issue that you’ve looked at yet,

but we need to.

Mr. MILLER. So I can come back with more information on that,

Mr. Chairman. But in my understanding it will take 2 weeks, probably, because we work in cycles. It might take, depending on when

it occurs in that 2 weeks, 4 weeks, never really should take 12

weeks, and I need to take a look at what TIGTA is looking at to

work through that.

Mr. PLATTS. Right. But in your response there, I would emphasize again, we need to prioritize assistance to the victims, to not

put them in the normal cycle. We’re going to issue checks in 2

weeks or 4 weeks or 6 weeks. Now these guys have waited 11

months after being victimized. So I think we—what I hope you’ll

look at is how do we prioritize these, not just put them in the normal routine standard operating procedure. But, no, they have already, you know, waited long enough to simply get what they are

owed, in essence, by us.

So I appreciate you taking those concerns back and understand

that you—I do not expect to have all the answers here today, but

that we—we are on the same page as far as trying to do right by

the victims.

With that I yield to the ranking member, Mr. Towns, for the purpose of questions.

Mr. TOWNS. Thank you very much, Mr. Chairman.

Let me begin with you, Mr. Cimino. How many attorneys currently work on tax fraud issues in the Department of Justice across

the United States?

Mr. CIMINO. Congressman Towns, I can’t—I can’t respond the

number across the country, and I can get back with you with a little more detailed information, but I can try to respond to your

question.

Within the Tax Division we have 100 or more prosecutors solely

devoted to tax fraud. Most of those positions are filled by line attorneys who have two roles. One is to ensure that the investigation

that the Internal Revenue Service has conducted and submitted to

us is adequate for a successful prosecution.

And the second role is to actually prosecute those cases across

the country. We do that ourselves. We do that cooperatively with

the U.S. attorney’s offices as co-counsel with them, and a great

bulk of the cases are actually handled by the 94 U.S. attorney’s offices’ staff across the country.

Each year there’s a certain number of cases forwarded to us by

the IRS, and we try to process them as quickly as we can to move

them on.
54

I hope that answers your question, sir.

Mr. TOWNS. Well, I guess you answered my question but I guess

what I’m really thinking about is, isn’t it time for you to start

partnering with local law enforcement? Don’t you think we should

do more of that?

Mr. CIMINO. In response to your question, we——

Mr. TOWNS. I’m aware of section 6103.

Mr. CIMINO. We do, in fact, have joint task forces with local and

State law enforcement working with task forces in the various U.S.

attorneys’s offices. The State and local officials are deputized under

the U.S. Marshals program and work in a cooperative spirit. This

usually occurs in a grand jury setting.

Mr. TOWNS. Let me ask you, do you have any information on

them, the conviction rate—in terms of the actual conviction rate?

Mr. CIMINO. In terms of all cases across the country that are taxrelated historically, and I have been with the Department since

1973, it has always been higher than 90 percent; frequently 95, 96

or 97 percent of a conviction rate for the charges of the crime.

Mr. TOWNS. You know, if you think that if we partnered more

with local law enforcement the number would go down—do you

think that would happen if we partnered more with local law enforcement, would the number go down? Do you think that; or would

it remain basically the same?

Mr. CIMINO. I can’t, could not venture. I’m sure that our local

and State law enforcement are very effective prosecutors.

The problem, perhaps, Congressman, is that in partnering we

have to be prosecuting Federal crimes, and in that sense my answer to you is no. I think almost every U.S. attorney welcomes the

assistance of those people who are deputized to work in Federal

task forces.

Mr. TOWNS. Let me just go to you, Mr. Miller. You indicated that

you think you would be able to do a whole lot better. You know,

are you getting additional resources?

Mr. MILLER. No, sir. We have had to obviously carve out another

400 or so people to make a dent in this work, which is almost doubling the footprint that we have in this area for identity theft.

Mr. TOWNS. You know, I’m concerned that, you know, when you

take from somewhere else, that something else happens.

Mr. MILLER. Yes, sir.

Mr. TOWNS. You know, and that’s my concern. So it seems to me

that we need to take a serious look and evaluate, maybe, and listen

to the testimony from Representative Nugent. Maybe we need to

increase the amount, you know, of investigators to be able to—and

we might be able to close part of the deficit. Because I’m certain

that if you would analyze, and bringing more people on, and then

going out and dealing with fraud and abuse, I think that, who

knows, that we might make a profit. It might be an increase.

So I think that we need to look at the possibility of getting more

workers to stop what’s going on because it seems to me that they

are under the impression that it’s okay. Because when you look at

the fact that in 2008, 51,000 cases, and in 2009, 169,000 cases, and

in 2010, 248,000 cases, and then in 2011 582,000 cases, and who

knows what’s going to be in 1912 and 1913.

Mr. CONNOLLY. Would my colleague yield for an observation?
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Mr. TOWNS. I would be delighted to.

Mr. CONNOLLY. I couldn’t agree with him more. Sadly, this committee is headed in exactly the opposite direction. We approved legislation yesterday that would guarantee at least a 10 percent reduction in this agency and all Federal agencies.

Mr. TOWNS. Well, you know what they say in my neighborhood

back in Brooklyn, New York, ‘‘We’ll hustle it backward.’’

Mr. Chairman, you know, I think that—I know my time has expired, so I’ll yield back.

Mr. PLATTS. I thank the gentleman. And before I yield to Mr.

Nugent, I do appreciate the concern expressed about legislation we

moved yesterday, but I would emphasize that it’s a 10 percent reduction overall. And as we kind of just debated in committee yesterday, meaning that we as a Congress and the Federal Government needs to better prioritize, you know, what are our most important responsibilities. So it doesn’t mean that this agency would

go down by 10 percent. Maybe it’s other agencies that are less important or less important assignments.

So, overall employment would be 10 percent.

Mr. TOWNS. I think——

Mr. PLATTS. I would yield.

Mr. TOWNS. Mr. Chairman, undoubtedly you yield. Thank you. I

appreciate it. For a moment I thought I was chairman.

Mr. PLATTS. And the distinguished gentleman has been chairman

in the past, as have I. We keep swapping chairs.

Mr. TOWNS. Hold that thought. No, I would just say it seems to

me that we need to look at the possibility that bringing in additional revenue is important, and maybe this is an agency that

should be increased. I mean, I think that’s the point I’m making

and that if we increased it, who knows, because I think that is one

other thing that we’re not examining here.

Some folks that are victims do not even report it. Because when

I look at them taking people from another place, then the phone

center, I mean people will then—can’t get through, they can’t

make—I mean, I’m concerned about that.

And then there’s the other issue of how many people are just

ripped off and don’t even report it, don’t even talk about it because

of the fact that it’s difficult to be able to get through to the center.

So there are those kinds of things.

I yield back, Mr. Chairman.

Mr. PLATTS. Reclaiming my time. And Mr. Towns references a

very important issue. We know that many of those whose identities

are stolen are individuals who would not need to file a return. And

so they, you know, don’t know that a fraud’s been committed

against them because they would not have otherwise filed one. So

the actual number of fraud cases, because those individuals don’t

even know it, are not able to help identify it and allow us to then

prosecute the wrongdoer.

We do have votes up on the floor. My intent here is to get to Mr.

Nugent’s questions and then Mr. Connolly, and then we will have

to take a brief recess, shoot over for votes, come back and try not

to have you waiting here any longer than you have to.

So, Mr. Nugent, you are recognized for 5 minutes for questions.
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Mr. CONNOLLY. Mr. Chairman, just on that, I’m probably going

to go and vote. So we’ll reconvene after votes?

Mr. PLATTS. We will.

Mr. CONNOLLY. Cool.

Mr. NUGENT. Thank you, Mr. Chairman and the members of the

panel for being here today. You know, as a local law enforcement

official for so many years, we worked hand in hand a lot of times

with the U.S. attorney’s office in adopting cases that we worked,

that turned out to be federally prosecutable, and we would partner

with DEA, FBI, ICE, to bring that forward to the U.S. attorney’s

office.

And the difference in this scenario, though, is working with the

IRS. And it seems like we’re—you know, when you talk about

leveraging resources, particularly where everybody, everybody is

cutting back, I think we’re missing the boat as it relates to tapping

into that local law enforcement.

Just as in the city of Tampa—you know, not all the crooks live

in Tampa, and they’re accounting for, you know, millions and billions of dollars in tax fraud alone. And this is real tax dollars, dollars that are already in the Treasury that are now flowing back

out.

So my question is, if you understand the code and understand

the U.S. regulation, is there a way to better partner with more eyes

on the ground to help you enforce? And I would submit that to Mr.

Cimino or Mr. George.

Mr. GEORGE. Why don’t I start? The IRS has limitations placed

on it, as you made reference to, under the U.S. Code, specifically

title 26, section 6103, which severely limits the type of information

that the IRS can share.

Now, while it limits it, it doesn’t restrict it. There are certain circumstances, if someone’s life is at threat or there are other exigent

circumstances, you know, with the permission of the Department

of Justice, the IRS can get permission to work with State and local

officials. But sometimes that is a very cumbersome process. Sometimes it really, as you acknowledge here in the Tampa instance, it

just would be so cumbersome that it just needs to be looked at

closely, I think. And that is, again, section 6103 needs to be looked

at by Congress in terms of whether 25, 30 years after Watergate,

when most of these restrictions were put up, whether those same

restrictions are necessary today.

Mr. NUGENT. And particularly with, you know, the advent of the

Internet, because we’re looking at mostly filings that police law enforcement has coming across, you know, the e-filings and the ability to raid the Treasury.

Mr. Cimino.

Mr. CIMINO. I agree with you, I think there can be more cooperation, Congressman.

Mr. TOWNS. Microphone, Mr. Cimino. Will you turn your mike

on.

Mr. CIMINO. As I mentioned in response to an earlier question,

there is a procedure in place when there are Federal grand juries

involving widespread crime that local law enforcement are deputized to work in the grand jury under the direction and aegis of the
57

U.S. attorney, but that is for Federal crimes and we certainly can

explore whether that can be used more effectively in this area.

Mr. NUGENT. Mr. George, you had mentioned that in looking at

the legislation to, I guess, to more massage that while respecting

taxpayer privacy, which is a huge concern for all of us, but at the

same time protecting the U.S. Treasury from being raided. So you

asked, or what you’re saying is that we absolutely need to look at

how we can do, through legislation, help from a law enforcement

perspective to Mr. Cimino and the U.S. attorney in the Tax Division.

Mr. GEORGE. Yes. And I should have actually, Mr. Nugent,

prefaced my earlier response by pointing out that the Secretary of

the Treasury has delegated tax policy to the Office of Tax Policy,

so I am not speaking on behalf of the Department in terms of advocating, you know, substantive tax policy changes in this area.

But the ironic part about 6103 is that even the alleged cheater

can be protected, because the IRS is unable to share, unless certain

circumstances exist, information about that person’s tax return.

So if you have two competing taxpayers, in the instance we’re

discussing here, someone who has taken the persona of another

person, you know, until the IRS figures things out, their hands are

tied in many respects unless someone consents—the taxpayer can

always consent to the release of his or her information. But there—

this is a very cumbersome area, as I said before, and it needs to

be looked at again.

Mr. NUGENT. And one last, just to follow up. As it relates to the

front end of this, obviously if you can shut the spigot off it would

obviously then, you know, reduce the burden on investigators, reduce the burden on the U.S. attorney’s office and the courts. So I

would suggest to you that we need to do more specifically as it relates to shutting the spigot off in regards to trying to—you know,

we push out the returns as quickly as possible.

But by the same token as the chair had mentioned, once it’s

identified, the real taxpayer trying to get his return is through a

laborious process to get there. So I would suggest or recommend

that the IRS really come back with a plan to Congress and particularly to this committee as to how you’re going to do that.

Thank you, Mr. Chair. I yield back.

Mr. PLATTS. The gentleman yields back. We’re going to try to get

a few more questions in before running over for the votes. I think,

Mr. Towns, you’re going to head over.

Mr. TOWNS. Yes.

Mr. PLATTS. I’ll take another round, and then I know Mr.

Connolly is coming back and Mr. Towns.

I want to follow up, Mr. George, when you were just talking

about the challenges that Mr. Nugent raised, and as you referenced, that even the perpetrator of the crime then has to give

permission for anything related to their conduct in committing that

crime is still protected.

Is that a possible amendment to the existing law where, you

know, we’re balancing privacy issues here? But once the IRS is able

to certify, yes, this person, the lawful citizen who finds out in February, hey, somebody already filed. They come in, they present all

the documentation, Social Security card, other ID, whatever they
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need to do in the affidavit, establishing that I am the legitimate

John Smith. And that has been established and the IRS is able to

confirm that and certify that yes, you are, that would then trigger

within the law that the information of the perpetrator of the identity theft is no longer protected and does not have to give permission.

Is that a way of trying to get to the issue, you know, where

that—the information could be shared to make it easier to prosecute?

Mr. GEORGE. The short answer is yes, once this process is played

out. But it’s during the course of it that it’s really, you know, sometimes really nonsensical or counterintuitive.

Mr. PLATTS. And it would need, as we talked earlier, Commissioner, to really expedite that process of who is, you know, the lawful taxpayer here, the sooner the better as far as then trying to go

after the wrongdoer.

Mr. GEORGE. But that ties into the overall complexity of the process that you made reference to when you were addressing Mr. Miller earlier. There’s no question that it’s very complex and cumbersome for the average taxpayer in this predicament to get this

matter to the point where that determination is made. And so the

IRS, they literally have about 16 different divisions within them

that handle these types of cases and these types of allegations.

They need a more unified process in place to do this more efficiently and effectively.

Mr. PLATTS. And that goes to Commissioner Miller, the issue, the

structure, the organizational structure that, in prioritizing assistance to the victims, that if we do that better and centralize that,

we also then maybe help centralize this whole matter, you know,

challenge so that we can better go after, you know, the perpetrator

of the crimes.

Mr. PLATTS. The issue of prosecution—and Mr. Nugent shared

the amazing story of Tampa and the $100 million plus, you know,

the dollar amounts, but my understanding is the average tax fraud

is about $3,400.

I guess, Mr. Cimino and Mr. George, on your understanding, or

maybe specifically from Department of Justice in pursuing—we understand you are looking at those cases where it is $5 million, or

$10 million or $100 million—what is the likelihood of that person

who files five cases averaging $3,500 of the Department of Justice

saying we’re going to go after them as well?

Mr. CIMINO. Chairman Platts, there’s no one factor that goes into

the prosecutorial decision of whether we will or will not prosecute.

We look to all factors and I can assure you if, even if there were

a single false return, if the circumstances justify it, we would look

at it to see if it warranted prosecution.

Mr. PLATTS. Mr. George, do the numbers show that, that we are

prosecuting, you know, those. Because the way, the way I read all

the testimony in our June hearing that, you know, if it’s $3,400 or

$4,000, $5,000, the reality is we don’t go after those, and the bad

guys know that. So they feel free to continue to engage in this unlawful conduct because they know we’re not going to pursue it.

Mr. George.
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Mr. GEORGE. You know, while I am not the Inspector General of

the Department of Justice, anecdotally, not only in the text context,

it’s just overall, DOJ has to make choices because of the limited resources that they have. And I’m not in a position to say what the

threshold is for prosecuting particular cases. Mr. Cimino may be in

a position to respond to that. There’s no question that the lower the

dollar amount, the less likely they’re going to expend a lot of resources.

Mr. PLATTS. And that’s my understanding of the data as well.

Mr. CIMINO. If I can further respond, Congressman Platts. Almost all cases that we see at the Tax Division that the IRS has

investigated have multiple claims for refund and frequently multiple defendants acting in a conspiracy.

I think the three cases that I included in my testimony, those

that were Mr. Miller’s, and probably across every U.S. attorney’s

Web page reflects that and, you know, there’s the reality of our

work. What I was trying to respond to, is there a situation where

a small dollar case would be prosecuted? And that’s what I was trying to refer to.

Mr. PLATTS. Yes. And this one really goes to Mr. Nugent, about

partnering in the law enforcement community and finding a way

to allow that partnering, and I would say incentivize it maybe it’s

where—I know we do it in some areas of prosecution of drug cases

where there’s a financial incentive, you know, for the locals to partner with the Federal officials in the recovery of the dollars, and

maybe that’s the way to do it.

Commissioner Miller, the cases that go to Justice really have to

first be identified by IRS saying we want Justice to help. Your

Criminal Investigation Division really makes that first determination. Is that really accurate?

Mr. MILLER. I think it is, I think it is. But there are constant

conversations going on between the Department of Justice and the

IRS about what we—what we would do.

If I could, if I could, Mr. Nugent, we do partner with locals. What

happened in Tampa is what happened in Tampa.

But I will say we have more than 20 task forces going on as we

speak today. We have 32 investigations in Tampa, and we have

spent in 2011, 225,000-plus hours on identity theft.

So I don’t want, I don’t want the committee to think that we’re

doing nothing here. We really are. We might have had a foot fault

in Tampa, admittedly, and we are doing better in Tampa and we

are taking steps to get better in Tampa. We’re also taking steps to

get better on the front end. With the type of things that we saw

in Tampa, I hope won’t happen in 2012 with what we put in place.

Mr. PLATTS. That might be a good place to break.

Mr. Nugent, did you have another comment.

Mr. NUGENT. Well, just to go back to that, and let me set the

record straight as it relates to the IRS agents, criminal investigators in Tampa, nothing but the highest praise for the individual investigators.

The problem came in regards to when Tampa identified specific

cases, that that’s where it broke down. And the ability that Mr.

George talked about in trying to prosecute cases to—particularly

when they identify not only those that, you know, profit from it,
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but also where they were money-laundering the cards and the T

checks directly, and that’s where they ran into a brick wall.

And the frustration on the local law enforcement level is that

while we work really well with the U.S. attorney’s office and other

portions of Justice, that’s just not the case as it relates to IRS, not

the agents in the field but the bureaucracy that they’re working

under. And so as times change, that’s why I think we’re having

these hearings, that we’ve got to get past how we used to do it and

figure out how we’re going to do it, particularly with the advent of

computers. And we watch the bad guys; they morph faster than we

can.

Mr. MILLER. Agreed.

Mr. NUGENT. And so I think that’s where we need to move forward as a committee but also as a Congress.

Mr. PLATTS. Certainly, Mr. Nugent, I look forward to working

with you on the issue of what legislative changes we need to look

at and giving more authority and power.

Mr. NUGENT. Thank you for allowing me to sit up on the dais

with you and allowing me to testify in front of you.

Mr. PLATTS. Well, we’re glad to have you and, again, your knowledge as it relates to your district really gives us a good working

knowledge of how to better protect what happened in Tampa not

happening again. And, again, we do look forward to working with

you.

We are going to recess to the call of the chair. We’ve got two

votes, so hopefully we’ll be over and back in about 10 to 15 minutes

max. We are going to be limited, you know, when we come back

again, but we’ll try to wrap up in that next session because there

will be another round, actually several rounds, and we don’t want

you sitting all day waiting for us.

But I know Mr. Connolly is coming back, Mr. Towns. I know

when I come back to get to a little bit what we started on, which

is the preventive efforts up front, so we don’t have to worry about

assisting victims if we can prevent them from being victims. And

so I think that’s where we will pick up when we come back.

So this hearing stands adjourned—I’m sorry, recessed to the call

of the chair.

[Recess.]

Mr. PLATTS. The hearing stands reconvened. I appreciate our witnesses and everyone’s patience while we—got my exercise for the

day running over and back.

So as I referenced before we recessed, I want to get into some

of the efforts of prevention. And, Commissioner Miller, one of those

issues is—regards the issue of e-filing and the impact that it’s had

in a wonderful way as one who does e-file myself, that expedited

refund process. And I think most Americans are glad to get their

money back that they’re entitled to as quickly as possible, but it

also seems to correlate with the numbers that we see in increased

level of fraud, if you’ll look at the kind of timing of e-file and it’s

has been promoted in greater and greater fashion, and then the

fraudulent case numbers.

And in the Inspector General’s testimony there’s reference to

what you have to do to be able to e-file and reference to the infor-
61

mation that has to be provided, and one of those issues was your

prior year’s adjusted gross income.

And, Commissioner if you could address that issue. What actually is required to e-file besides name and Social Security number,

if anything, and, you know, why don’t we require additional information to make sure we’re guarding against fraud?

Mr. MILLER. So we do, as you mentioned, Mr. Chairman, we do

require sort of an electronic signature, and that requires you to

have your adjusted gross income from the last year as one of the

items. And there are a handful of other items. But it is name, Social and the AGI is that—is one of the shared secrets, along with

filing status for last year, I believe. There may be one other that

I can get back to you on, but those are the types of things we use

today as the electronic signature for the electronic—and a natural

question that you raised in our prior discussion was why shouldn’t

we make that more generally applicable and why doesn’t that work

to block much of this?

And it does work, I’m quite sure, in many areas. Where it would

not work is where there’s been no filing requirement in the prior

year because there the AGI is zero. And so that is an easy way to

go through that system and sign and move through. And we should

work, as we’ve talked about, we should work to see what we can

do better in those circumstances.

Mr. PLATTS. And you touch on the one issue, which is the fraud

that’s committed against those who don’t have to file because their

AGI is beneath the threshold, and so they only know they are victims of identity theft in—regarding tax fraud.

Is the AGI required for every electronic filing?

Mr. MILLER. I believe it’s the manner of how to—how to sign

your return. There is—if you have forgotten it, if you don’t have

it—there’s an alternative method to get a different PIN. And if I’m

wrong on that, Mr. Chairman, I will come back to you. But there

is an alternative if you don’t have your AGI. There is a PIN, a way

to go online and get a PIN with some shared secrets there as well.

Mr. PLATTS. And, Mr. George, is that what you’re referencing in

your testimony, because you say, ‘‘which can include names, Social

Security number, date of birth, prior year’s adjusted gross income.’’

Mr. GEORGE. That’s correct. Mr. Miller is correct. There is that

alternative way in the event you don’t have your AGI.

Mr. PLATTS. So can you walk me through the specifics of what

the alternative is, because to me if you have to have your adjusted

gross income from the prior year, that’s a reasonable requirement

to file. And if we’re going to make, you know, an alternative to

that, I guess I’m not aware of what that alternative process is.

Mr. MILLER. So my understanding, Mr. Chairman, is that you

can go online and you would basically have many of those same

things, which is name, address, Social Security number, I believe

filing status and, again, date of birth as well. And you can get a

PIN mailed to you, and that’s the process right now. And we ought

to look at it to see whether it’s everything it ought to be.

Mr. PLATTS. I’d be concerned, if you can follow up with the committee, what the specific requirements are for that alternative electronic signature. Because if it is basically the same information

that you have to provide anyways—name, Social Security, date of
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birth, not something additional—it’s adding a step that you go

through something.

But, you know, hopefully there is additional information and I’m

not sure if it’s, you know, logical that we want to allow to file electronically if you can’t document—and if it’s zero—zero because you

didn’t file the previous year, but as a way—what I’m looking for

is what are some filters up front to knock out the ability, you know,

for these individuals to file electronically.

And a follow-on to this is my understanding is well over half the

ID theft, fraud cases, are in January in a typical year; am I correct

in that understanding?

Mr. MILLER. I would have to go back and verify that. I think it’s

front-loaded but I don’t know that it’s half. It is occurring throughout the year at this point.

I was just informed by staff that your statement is accurate, Mr.

Platts, mostly January.

Mr. PLATTS. And, again, my review of the data—and I don’t have

all the information that the IRS itself has, but is that more than

half are in January. And I think there’s a reason for that. The perpetrators of the crime know they won’t get their W–2s until the

end of the month, or even the first week of February, so they’re

getting their return in first before the lawful citizen.

So that gets to kind of the follow-on, in addition to the adjusted

gross income, that my hope is that the IRS is looking at how to further or enhance your scrutiny the earlier return is submitted.

Mr. MILLER. We are trying to move up our review of information

returns we’re getting, including the W–2. And we’re putting in

place some filters to try to drop out more returns that look like

they are identity theft.

Mr. PLATTS. And I appreciate the sensitivity of what your filters

are. We don’t want to talk about that here in open—if that can be

provided to the committee.

Mr. MILLER. Happy to do that.

[The information referred to follows:]

[NOTE.—The information referred to was not provided.]

Mr. PLATTS. Because looking at the W–2s, if it’s fraudulent,

you’re not going to get any. So expediting that review is not going

to help because the criminal is not going to send you any W–2s because they don’t have them. So the more—the tighter your filters

are and the more kind of flags that go up, new address, new bank

account, those types of things.

Can we also talk about, then, the IG’s testimony. There was the

issue about Social Security death index and a better use of that.

And is there additional statutory authority that the IRS needs to

better access that information, or it’s just how you’re currently accessing it to guard against deceased individuals being used, names

and IDs of deceased individuals being used to file current returns?

Mr. MILLER. So we have a new sort of approach to deceased identities, and we have locked a bunch of accounts at this point and,

again, we’ll go into much more detail. But in general we have

locked a great number of accounts that don’t have a filing status,

we believe.

There were some decedents who have a filing status there, in

2010 and 2011, for example, they would have a filing, a last return.
63

And those we’ve built new filters to take a look at up front and intend to take a hard view on.

The Social Security list of those who have passed, it is an issue

for us. We are getting it, we are matching it and we’ll do a better

job of that going forward. Ultimately we would, you know, we

would love if Social Security did not—or had a different manner of

posting it, but they are constrained by law and by lawsuit as to

what they can do there.

Mr. PLATTS. And related to that, the Social Security Act limits

your access to the Department of Health and Human Services data

base or national repository of wage and employment information?

Mr. MILLER. That’s the—I believe what we are referring to there,

the new hire date, so-called new hire data base. We actually do use

it in some of our work today. We are permitted by law to use it

in some fashion and we would be more than willing to walk

through that with you as well, and what we might need in terms

of additional authority or resources.

Mr. PLATTS. If we’re talking about the same thing, Mr. George,

correct me if I am wrong, that the use is just related to the earned

income tax credit.

Mr. MILLER. Right now it is.

Mr. GEORGE. That’s correct. They have the ability to do that, but

you touched on a very important point, Mr. Chairman. If they were

given expanded access to an HHS data base, this would help address whether or not someone had wages that they could then cite

early to try to prevent a legitimate taxpayer later on from claiming

their legitimate return. So they do need expanded authority in that

area.

Mr. PLATTS. Commissioner, that’s a perfect example of how, in

reference to Mr. Towns’ opening statement, how we want to partner with you, with the IRS, with the IG, with Justice, you know,

in identifying; because I want to emphasize, I know there’s a very,

very good faith effort being made by you, by the Commissioner, to

combat this challenge and some of its resources, some of its authority.

But, you know, where you need additional resources or a reallocation of your resources, additional authority, we need to hear

that. And so we welcome that feedback of how we can partner with

you, and this gets us specifically with statutory authority to allow

you to have that information that allows you to better, up front,

prevent the fraud from occurring.

Mr. MILLER. And we welcome that discussion.

Mr. PLATTS. I yield to the gentleman from Virginia, Mr.

Connolly, for the purpose of questions.

Mr. CONNOLLY. I thank the chairman, and welcome. Mr. Cimino,

by the way, from New England?

Mr. CIMINO. No, I’m from—excuse me, Congressman I’m actually

from Pittsburgh, sir.

Mr. CONNOLLY. Okay, fully rounded Os. Good for you.

We’ve looked at, as Mr. Towns indicated, an almost exponential

increase in the number of identity thefts related to tax administration: 51,000 in 2008, only 3 years ago; 10 times that number today,

582,000 in 3 years. That can only be described as exponential

growth.
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And, Mr. Miller, if I understood you correctly, previously you indicated you had to transfer about 400 people to try to deal with

that; is that right?

Mr. MILLER. We have, yes.

Mr. CONNOLLY. Pardon me?

Mr. MILLER. We have; yes, sir.

Mr. CONNOLLY. And those are—have you hired new people to

handle this problem?

Mr. MILLER. Right now we are going at risk budget-wise for

those individuals.

Mr. CONNOLLY. I can’t hear you.

Mr. MILLER. I’m sorry. Right now we are going at risk. I’m not

sure how we’re going to pay for those, but we’ll find a way.

Mr. CONNOLLY. Okay.

Let me ask a question maybe to Mr. Cimino, but any of you: Is

there sort of a back-of-the-envelope rule of thumb that for every

new IRS person or agent we hire, X amount of revenue goes with

that person? If we, the Congress, make an investment in the IRS

in terms of personnel, what kind of return on that investment can

we expect? I mean, if I—you know, it’s not the same at HUD. But

at IRS there’s a certain expectation it enhances revenue.

Mr. MILLER. I think, sir, the question is better answered by me.

But I think that—I don’t know the exact number but it’s a multiple

of—it’s a positive investment for the Federal——

Mr. CONNOLLY. Absolutely. Would you get back to the record for

us?

Mr. MILLER. We will.

[The information referred to follows:]

[NOTE.—The information referred to was not provided.]

Mr. CONNOLLY. And we understand it’s not a hard and fast rule

but it’s a sort of, as I said, back-of-the-envelope calculation that

every dollar you put in, you reap $1.75 back, whatever it is.

We had a little discussion before and the chairman is right that

the legislation—not his view, mine—ill-advised legislation we

adopted yesterday was a novel management principle, that by

freezing and capping personnel in any enterprise, somehow that’s

a good thing.

I have yet to find a single corporation in America that would

agree with that, that just arbitrarily saying we are going to cut

back 10 percent and stay there.

And if you want to replace anybody, irrespective of criticality of

mission, you know, it’s going to be on a one-to-three ratio. And the

disruption to missions, you know, so be it. Now it is true, as the

chairman indicated, that that’s a global number, but it’s also naive

to believe that wouldn’t affect IRS. IRS is hardly the favorite agency of the majority in this Congress.

So I doubt very much that you’re going to get a carveout. Yesterday when there were amendments, we refused to have a carveout

for veterans. We refused to have a carveout for, you know, criminal

prosecutions and public safety activities. So why we would have a

carveout for IRS, I don’t know.

But let’s just posit theoretically that the impact of that legislation were to become law on IRS. So let’s say, by attrition, over the

next 3 years by the way, you lose 10 percent of your current work
65

force, what would be the impact on identity theft if you had to—

not only you are looking at, Mr. Miller, trying to find 400 people

to serve this exponential growth problem, but now on top of that,

how about a 10 percent reduction?

And it could be worse. What the chairman says is absolutely correct but the obverse is also true. You might have to take a bigger

cut because some other agencies are considered priorities, and they

don’t—there are not sustaining the 10 percent cut.

Mr. MILLER. I guess it’s a difficult—it’s a difficult question to answer.

Mr. CONNOLLY. No, you have to answer it. We passed this bill

yesterday, so you have to start thinking about how would I implement such a bill which could have, under worst-case scenario, a 10

percent reduction in the work force.

Mr. PLATTS. Would the gentleman yield?

Mr. CONNOLLY. Yes.

Mr. PLATTS. I would like to add one clarifying aspect about the

bill is that it does provide the CEO, the President, the waiver authority for the efficient operation of any agency or for critical missions of an agency to exceed that cap, so it does allow—so if the

President thought the IRS needed additional, I just wanted to note

that that was part of the language of the bill.

Mr. CONNOLLY. And I thank the chairman for that clarification,

and he is correct.

However, I would point out that that is an extraordinary waiver.

In other words, we don’t go to the IRS administrator to make a

judgment; we go all the way to the President of the United States

in the White House.

Good luck, Mr. Miller, in getting a waiver from the White House

for your operation. You know, ‘‘We need 10 extra people, Mr. President. Will you sign a waiver so we’ll get around this provision in

this law?’’

I think that’s an extraordinarily high level and I think, frankly,

it doesn’t really solve micro-problems like the one we’re dealing

with here, even though they’re growing exponentially.

Mr. Chairman, I know my time has expired, but I wonder if you

would just allow the witness to answer the question and then I will

be done. Thank you.

Mr. MILLER. So I—obviously a 10 percent cut would be a material reduction in our force and that’s happening already, by the

way. Over——

Mr. CONNOLLY. Mr. Miller, time is limited. Of course, that’s true.

That’s self-evidently true.

My question is: What does this do to your mission given the fact

that we’ve had a 10fold increase in 3 years in identity theft with

respect to tax administration that you are trying to deal with? If

we have a 10 percent reduction in the work force, how would that

affect your ability to deal with this exponentially growing problem?

Mr. MILLER. We will have to decide where we take those cuts,

Congressman, and I don’t know whether they will be—but we will

have to take cuts, yes.

Mr. CONNOLLY. And presumably that would impair your ability

to respond to this growing theft.
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Mr. MILLER. It will force some very tough choices, no question

about that.

Mr. CONNOLLY. Thank you very much. Thank you, Mr. Chairman.

Mr. PLATTS. The gentleman yields back. And we do have a difference of opinion what the bill means. As one that believes we—

Congress and the President—need to better prioritize where we put

our resources, and enforcing our tax laws is one of those priorities.

But I respect the gentleman’s opinion.

But I think the gentleman started to say that you’ve had a reduction.

Mr. MILLER. Right.

Mr. PLATTS. And I would hazard a guess that that’s related to

advances in technology in the last, say, 10 years; that because of

technology and computers, a lot of what we do today, and when we

are talking about filters, is not manual review but electronic review

of data.

Mr. MILLER. Well, yes and no, Mr. Chairman, because taxpayer

rights are such that I can’t just look at a return on the computer

and say it’s a bad return. There’s always a treatment stream after

that that involves a person.

Mr. PLATTS. Absolutely. But that initial review maybe is done

electronically as opposed to manpower.

Mr. MILLER. Most of it is electronic at this point, some of it is

manpower. But certainly the back end of it is, once you find you

have to do something with it, as we talked about with the victims

and everyone else, it needs to be worked to ground by people.

Mr. PLATTS. Absolutely. I appreciate that, especially when you

get into that type of detail.

I yield to the ranking member, Mr. Towns.

Mr. TOWNS. Mr. Chairman, we have a vote on, so I am going to

not ask my questions be answered at this point but to ask them

to respond to us in writing, if that’s okay with you.

IRS can’t give information, even to States or local law enforcement, that may be investigating or prosecuting identity theft crime

under a State criminal statute. Each of the offices represented

today has to deal with this law. So if I could get you to respond

to these questions in writing for me, I would appreciate it.

My question is: Why is this law that was enacted to deal with

crime 40 years ago, still preventing the prosecution of new escalating criminal schemes?

Number two, what would be an appropriate legislative response

to certain sections of 6103 provisions that can enable you to do

your job of stopping these crimes more effectively?

Number three, have there been proposals from any of your offices

on adjusting section 6103 to meet the needs of your agencies in

combating identity theft crimes?

And the last one: What consequences, both negative and positive,

would such a legislative remedy have?

I would appreciate that. And being my voting record is not the

strongest, I need to go make this vote, Mr. Chairman.

Mr. PLATTS. The gentleman yields back.
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I am going to try to wrap up with three main areas here and

then we will conclude the hearing, and appreciate the additional

information that will be provided in in writing. The first is on the issue of the reference of $4.2 billion in fraudulent child tax credits. And it’s my understanding that the IG is

identifying those as paid to individuals here illegally; is that correct, Mr. George?

Mr. GEORGE. Well, I would say paid to people who use I–10’s, not

Social Security numbers, and our research has indicated that most

people who use the I–10 are not in the country legally.

Mr. PLATTS. Okay. So a high propensity of these are likely here

illegally.

Mr. GEORGE. That’s a reasonable conclusion.

Mr. PLATTS. And my understanding from your written testimony

is that of that $4.2 billion number that you have identified, that

to your belief, that none of that has been recovered?

Mr. GEORGE. Yes, that’s correct, sir.

Mr. PLATTS. Commissioner Miller, anything you can share on efforts—and we’re talking about not even millions now, but billions

of dollars of fraudulent payments, taxpayerfunds, have gone out to

likely illegals; and obviously, you know, there’s individuals who intentionally, you know, are violating the law to seek that money.

But is there an ongoing effort to recover it and, if so, what success

are we having?

Mr. MILLER. So I think I would—we will get back to you more

fully in writing.

I don’t think we agree with the number, to start with. We don’t

agree that it’s all fraud, and we do have an enforcement effort underway. I don’t want to say that either. We are working on—because some of it is fraud, there’s no question. Some of it is

mismatching.

And by the way, when you talk about I–10 holders, that would

be a change of law that you all in Congress would have to make

because that’s not a barrier to getting the credit. So it’s a more

complex sort of answer that I’m more than willing to come back in

in much more detail on.

Mr. PLATTS. And if you can give us—why do you disagree with

the number, you know? I’m glad if you want to do it in writing.

Mr. MILLER. Yes, we’ll do that in writing.

[The information referred to follows:]

[NOTE.—The information referred to was not provided.]

Mr. PLATTS. But what do you find inaccurate in what the IG’s

finding is? And then, specifically, you referenced something that we

would have to do to prohibit somebody here illegally, if there’s

something we’re missing in the law, because it’s certainly not the

intent of Congress and my belief and certainly not what I think

should be our intent—should not be our intent that—if you’re here

illegally, that you get the benefit of a tax credit from the general

Treasury. So if there’s something that we should look at as far as,

again, a statutory change, I would welcome that suggestion, that

recommendation.

Mr. MILLER. Absolutely.

Mr. PLATTS. The issue of the number of tax refunds that are deposited in the same bank account, again in the IG’s testimony ref-
68

erenced in 2008, the IG reported that IRS had not yet developed

a process to ensure that more than 61 million tax refunds were deposited to an account in the name of the actual filer, as required

by Federal direct deposit regulations. And an analysis of the direct

deposit data for 2007 showed that more than 700,000 bank accounts received three or more tax refunds totaling $8 billion.

I can think of times where more than one account, a family, and

perhaps a teenager working, or somebody doesn’t have a bank account—although today I would encourage they should; as I referenced to you yesterday, both of my sons, 15 and 12, have their

own bank accounts—but where there could be instances.

But are we, you know, being dutiful here in identifying if one

bank account is getting 10 or 20 or 30 accounts a day that’s, again,

to me, a huge red flag that should go up that there’s something

askew here.

What, if anything, are we doing to better address this issue that

the IG raises in their testimony?

Mr. MILLER. So, a couple of things. And again this might be

something, again, that we’re going to go to you back in writing on,

because it’s not something I really want to discuss too widely, but

we’re doing a few things.

I agree with you that bells and whistles ought to be going off

when many, many refunds are going into an individual bank account.

That said, there’s no legal barrier to that, I don’t believe, but we

ought to be doing a better job tracking it and we are going to do

that going forward.

We are also working, frankly, with software developers and other

financial institutions to try to better the flow of information between all of those parties and the IRS, and that will help as well.

But in terms of what specifically we’re going to do, that’s something I will be glad to come back to you on.

[The information referred to follows:]

[NOTE.—The information referred to was not provided.]

Mr. PLATTS. Yes. This, you know, is about interactions between

the IG and the IRS 3 years ago, you know, 2008, referencing what

had happened in 2007. So I realize you were not in your position

in 2007 or 2008, but you are today and I appreciate your taking

a serious look at it.

And this is one of those, what I’ll call triggers, you know, of how

to use technology to better identify, you know, intended fraud or

attempted fraud. And, you know, that if one bank account, the

same bank account is going to get three or four, I mean, the higher

the number, the more scrutiny it should get. And I would think

that certainly if it’s five or more, that should get some great scrutiny. Maybe it’s three, but your data probably is going be able to

better identify what that threshold should be.

And if we’re not doing that, I guess my question is why aren’t

we? Because you know, again, the best way to protect the victim

is to prevent the fraud in the first place. And so what I really—

you know, my focus, as I said in the beginning, is when there is

a fraud committed, you know, are we doing everything in our

power to assist the victim of that fraud to get back, you know,
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made whole as quickly as possible? And then up front, how are we

preventing the fraud?

And these triggers, I’ll call these trip wires that should be sending off kind of warning notices that the more of them that are

tripped, the more scrutiny these returns should be getting, and this

is yet one more example of the bank account.

Mr. MILLER. One barrier, Mr. Chairman, obviously, is there are

going to be accounts that are going to be returned, that are going

to receive an awful lot of refunds, absolutely appropriately, some

return preparers, some financial providers of refinance anticipation

loans and other sorts of things. That will be improved going forward as we roll out our system of actually registering return preparers. We will have a better way to track that than we have in

the past.

Mr. PLATTS. The, again, up-front efforts to prevent the fraud, one

of the proposals in Senator Nelson’s bill that he has introduced regarding this issue is that individual taxpayers have the ability, the

option of opting out of e-filing so that somebody can’t do it electronically, they have to actually provide written W–2s. Is that

something that the IRS is looking at in any fashion or would be

willing to consider?

Mr. MILLER. So I think we are just looking at the bill, and I don’t

have a firm reaction from the administration or even from the IRS.

I would say, you know, there would be costs to going back to paper,

obviously, and IT costs to having a toggle switch for an individual

taxpayer. So those are our immediate concerns, but we will work

that.

Mr. PLATTS. Okay. Related to that is instead of going back to

paper, staying electronic, but that a taxpayer could request a PIN

as opposed to being offered one by the IRS, so that you don’t go

back to paper, you stay electronic, don’t have the increased manpower, but someone who hasn’t yet been a victim of identity theft,

but while it was stolen and where they may become a victim, and

they are trying to be proactive rather than after they’ve been victimized, ‘‘All right, now we will get a PIN.’’

Where does that type of consideration stand with the IRS?

Mr. MILLER. So one of the changes in 2012 will be not only are

we sending out these identity theft PINs to folks that we’ve validated, but if you come in, ‘‘I lost my wallet, and I’m worried,’’ we

will take a look to see what your filing requirement is. We will take

a look to ensure you are who you are, and you may very well be

able to get a PIN. That’s something that’s rolling out again in 2012.

Mr. PLATTS. So that is going to be an option, or you are looking

at making it an option?

Mr. MILLER. I think it’s going to be an option. I will have to come

back to you, whether it’s everyone or whether it’s a certain subsection of those folks, but we’re moving in that direction.

Mr. PLATTS. Yes. If you can, again, give us a definitive answer

for the record; is it an option and, if so, and if not, when will a decision be made as to when it becomes———

Mr. MILLER. I believe it is. But let me verify.

[The information referred to follows:]

[NOTE.—The information referred to was not provided.]
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Mr. PLATTS. Thank you. A final question. My understanding—

well, back in January you began looking at how to better address

the issue of identity theft and the fraud related to it, and that you

plan on issuing two reports, one on the assessment of the current

state of your identity theft program and one on the future state,

where you’re going to go.

Are those reports near completion?

Mr. MILLER. So I had seen that in a prior testimony, and I will

have to take a look and figure out what’s going on with those.

There are obvious—we have a couple of teams. One has worked

and focused on the front-end prevention. One has worked on making the victims less victim-like as they go through our system.

Whether they have actual reports—while I have seen many decks,

whether there’s actual reports we will have to come back beyond.

Mr. PLATTS. If you could give us the status of those reports, because it sounds like internally you’re seeking to do, based on my

understanding, what we’re after; which is, to get a better handle

on your efforts, you know, in the big picture, of what you’re doing

proactively, how you’re responding to fraud, how you’re handling

and assisting victims. So we welcome that information.

Mr. MILLER. Absolutely.

[The information referred to follows:]

[NOTE.—The information referred to was not provided.]

Mr. PLATTS. I will give each of you, if you have any final comments you want to make sure are part of the record, there’s something that I did not address or the other members of the panel did

not address.

Mr. GEORGE. Mr. Chairman, I would just simply note that

TIGTA is in the process of taking a review of the IRS’ action as

it relates to identity theft forward, and we anticipate two reports

in the early spring and late summer, or late spring and early summer.

Mr. PLATTS. We would look forward to receiving those as well. I

think the more information we all have of the current situation and

where we’re heading and how to do better by the American people,

the better off the country is going to be financially, and taxpayers

are going to be from being prevented from being victimized.

Mr. Cimino.

Mr. CIMINO. Mr. Chairman, on behalf of the Department, we’re

pleased to be here and try to deal with some of these really critical

issues that the subcommittee has focused on, and I will respond on

behalf of the Department to the questions of the ranking.

Mr. PLATTS. Thank you, Commissioner Miller.

Mr. MILLER. I am happy to be here and will look forward to

working with you and the staff.

Mr. PLATTS. Generous of you to say ‘‘happy to be here’’ when you

are being put on the hot seat. And I know that it’s probably less

fun to be in those seats versus up here asking the questions. My

hope is that each of you understand that it’s not to put you on the

spot, but really to just generate a dialog and, you know, that we

really, you know, get everything on the radar that we think needs

to be addressed.

As an oversight committee, our role is to raise questions and to

get answers to those questions of how we can make government in
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total—in this case the IRS—more efficient, better serving the

American people.

I certainly understand that all three of you and your colleagues

seek to do that every day and in no way want to suggest that

you’re not.

Sometimes it helps when you have an outside set of eyes or

input, you know, kind of get you to look at things outside of maybe

that typical box, and that’s part of the intent of this of hearing.

As I said earlier, our hope is that we will be better successful—

more successful on preventing fraud, protecting tax dollars, but

when it does occur, better assist the victims. And in our June hearing it came through that we had not done a very good job of aiding

those who had been victimized. And, you know, we clearly need to

do much better while protecting the tax dollars of all Americans.

So we’ll keep the record open for 14 days for the additional information that you’re going to provide. And if we have any final questions that we didn’t get to, also we’ll get them to you in a timely

fashion. But we’re grateful for your testimony here today and,

again, your workday and a day out, as well your colleagues and

your various departments and your agencies, and we know we’re

on the same team trying to do a good job for the American people.

This hearing stands adjourned.

[Whereupon, at 11:32 a.m., the subcommittee was adjourned.]

[Additional information submitted for the hearing record follows:]
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