Most Taxpayers Whose Identities Have Been Stolen to Commit Refund Fraud Do Not Receive Quality Customer Service
Most Taxpayers Whose Identities Have Been Stolen to Commit Refund Fraud Do Not Receive Quality Customer Service (PDF)
Source: Special Inspector General for Tax Administration
IMPACT ON TAXPAYERS
The Federal Trade Commission reported that identity theft was the number one complaint in Calendar Year 2011, and government documents/benefits fraud was the most common form of reported identity theft. As of December 31, 2011, the IRS’s Incident Tracking Statistics Report showed that 641,052 taxpayers have been affected by identity theft in Calendar Year 2011. The IRS is not effectively providing assistance to victims of identity theft, and current processes are not adequate to communicate identity theft procedures to taxpayers, resulting in increased burden for victims of identity theft.
WHY TIGTA DID THE AUDIT
This audit was initiated because the number of identity theft cases in the IRS has grown significantly over the last few years, overwhelming IRS resources and burdening taxpayers. Taxpayers testifying before Congress stated that they had to talk to multiple IRS employees and were provided conflicting instructions.
WHAT TIGTA FOUND
Identity theft cases are not worked timely and can take more than a year to resolve. Communications between the IRS and victims are limited and confusing, and victims are asked multiple times to substantiate their identity.
When taxpayers call the IRS to advise it that their electronic tax return was rejected because it appears another individual has already filed a tax return using their identity, the IRS instructs them to mail in a paper tax return with the Form 14039, Identity Theft Affidavit, attaching supporting identity documents. However, the IRS has been processing these tax returns using standard processing procedures.
Identity theft guidelines and procedures are dispersed among 38 different Internal Revenue Manual sections. These guidelines are inconsistent and conflicting, and not all functions have guidelines on handling identity theft issues.
The IRS uses little of the data from the identity theft cases to identify any trends, etc., that could be used to detect or prevent future refund fraud.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS: 1) establish accountability for the Identity Theft Program; 2) implement a process to ensure that IRS notices and correspondence are not sent to the address listed on the identity thief’s tax return; 3) conduct an analysis of the letters sent to taxpayers regarding identity theft; 4) ensure taxpayers are notified when the IRS has received their identifying documents; 5) create a specialized unit in the Accounts Management function to exclusively work identity theft cases; 6) ensure all quality review systems used by IRS functions and offices working identity theft cases are revised to select a representative sample of identity theft cases; 7) revise procedures for the Correspondence Imaging System screening process; and 8) ensure programming is adjusted so that identity theft issues can be tracked and analyzed for trends and patterns.
The IRS agreed with all our recommendations. It has established a governance structure to oversee the enterprise‑wide identity theft initiatives and plans to expand its identity theft indicator codes identifying claims of identity theft. It plans to review its suite of identity theft letters and to update its guidance instructing employees to notify taxpayers acknowledging receipt of documentation. The IRS currently has specialized units in the Accounts Management function working only identity theft cases. Finally, the IRS plans to create a specific quality review for identity theft cases and is currently evaluating options for enhancing its ability to track and analyze the fraudulent identity theft information removed from a taxpayer account.
Taxpayers Do Not Always Receive Quality Responses When Corresponding About Tax Issues (PDF)
Source: Treasury Inspector General for Tax Administration
Highlights of Reference Number: 2011-40-058 to the Internal Revenue Service Commissioner for the Wage and Investment Division.
IMPACT ON TAXPAYERS
In November 1998, the Internal Revenue Service (IRS) issued Policy Statement P-6-12 requiring employees to initiate a response to taxpayer correspondence within 30 calendar days. Although most responses to taxpayers’ correspondence tested were accurate, most responses were not timely. When taxpayers’ issues are not addressed timely, taxpayers are mailed interim letters. However, none of the systemically issued interim letters provide taxpayers with any information specific to their accounts, and the content is not clear regarding what taxpayers need to do.
WHY TIGTA DID THE AUDIT
This audit was initiated to determine whether the IRS was appropriately processing correspondence from taxpayers or their representatives when required to meet its own policy requirements to respond to a taxpayer within 30 calendar days or provide an update on the status of the response.
WHAT TIGTA FOUND Two statistical samples and one judgmental sample from three IRS functions showed that most taxpayers do not receive quality responses to their correspondence.
- Of 73 correspondence cases sampled from the Accounts Management function, only 14 (19 percent) taxpayers received timely and accurate responses.
- Of 48 correspondence cases sampled in the Automated Underreporter Program, all 48 taxpayers received accurate responses, but only 27 (56 percent) of 48 taxpayers received their responses timely.
- Of 73 correspondence cases from the Field Assistance Office, only six (8 percent) taxpayers received timely and accurate responses.
In addition, interim letters, required to be sent to taxpayers if a response cannot be issued within the 30 calendar days, were not always issued. Not all procedures are being followed. Cases are not properly categorized, suspensed, or linked, and the quality review process does not ensure all procedures were followed.
Finally, the IRS is not following Policy Statement P-6-12 guidelines and has not implemented any measures or processes to monitor and evaluate Policy Statement P-6-12 correspondence to ensure taxpayers receive timely responses to their correspondence.
WHAT TIGTA RECOMMENDED
TIGTA recommended and the IRS generally agreed to: 1) clarify instructions to ensure employees follow procedures; 2) revisit Policy Statement P-6-12 guidelines to ensure they reflect the IRS’s current procedures and expectations; 3) complete the study of the interim letters; and 4) update quality review procedures to include a review of correspondence category codes and a determination as to whether cases should have been suspensed and/or linked.
The IRS did not agree with the outcome measures claimed in the report, stating the projections were based on non-representative samples. However, the samples were random samples from the defined universe of cases. As such, TIGTA believes they are representative. The five-year projections are, in fact, forecasts. This type of forecasting is used by the Federal Government in many circumstances.