The National Taxpayer Advocate will focus in the next fiscal year on improving the Internal Revenue Service's procedures to protect victims of tax-related identity theft, the advocate said today in her report to Congress on the office's fiscal 2009 priorities.
The IRS during the past year has developed an identity-theft indicator that tracks taxpayer accounts and is considering creating an agencywide office to assist identity theft victims, both of which advocate Nina Olson recommended last year.
“While the IRS is reforming some aspects of its approach to identity theft, the procedures for dealing with victims have been a significant part of the problem,” Olson said.
Identity theft affects taxpayer accounts and tax administration when an individual uses the Social Security number of another person to file a false tax return, get a fraudulent refund or obtain employment under false pretenses, the report stated. . For the innocent taxpayer, identity theft causes the delay or denial of refunds; the assessment of tax debts as a result of income reflected on the fraudulent filer’s return; and the requirement for victims to prove their identity to the IRS year after year, Olson said. Before this year, the IRS had no way to systematically identify taxpayers whose identities were stolen, she said.
By Oct. 1, the service will create a central agency unit to assist identity theft victims so they can get information and have one IRS employee handle their case from start to finish, Olson said. Previously, those victims have had to call many IRS offices to resolve their cases.
Starting in January 2009, the IRS said it will filter tax returns that are filed using SSNs associated with accounts that are coded with a universal identity-theft indicator to distinguish legitimate returns from fraudulent ones. However, Olson is concerned that IRS standards for applying the indicator fail to account for many identity theft cases and the service's business units are establishing their own procedures for applying the indicator without consistent agencywide guidelines in a manual to identity theft procedures.
Olson said she also plans to closely monitor the IRS’ use of private debt collectors, to analyze results from the agency’s cost effectiveness study on the use of those collectors and to carefully review any plans by IRS to expand the case criteria for collection agencies.
Olson has testified before Congress against the use of private debt collectors because of the potential for violations of taxpayers' rights and a lack of transparency of private collection agencies’ procedures, she said. The IRS also pays too much for private debt collection services for the amount of taxes that they bring in, she said.
The service should consider a clearer method for analyzing the private debt collection initiative’s financial and case performance, including an improved monthly reconciliation of collection agency accounts, Olson said.
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