US Issues Directive to Fight Identity Tax Refund Fraud

by Leroy Baker, Tax-News.com, New York

02 October 2012

As part of an ongoing effort to combat tax refund identity theft, the Justice Department’s Tax Division has issued a new directive to further its efforts and those of the United States Attorneys’ Offices to respond quickly and effectively to such cases.

The Tax Division has supervision over virtually all criminal proceedings arising under the internal revenue laws. Tax refund identity theft, involving the use of stolen identities, has emerged as a fast-growing crime, and strong coordination at all levels of law enforcement is seen as vital to combating it.

Directive 144, which took effect on October 1, 2012 and will last for two years (unless extended), has been issued to further those coordination efforts. It will allow prosecutors in US Attorneys’ Offices in tax refund identity theft cases to open grand jury investigations, to charge criminals who are engaged in such crimes and to obtain seizure warrants for forfeiture of criminally-derived proceeds, all without prior authorization from the Tax Division.

The Internal Revenue Service (IRS) Commissioner Douglas H. Shulman, in recent remarks to the American Bar Association, has pointed out that, as “issues like identity theft have continued to rise and perpetrators have tried to use the tax refund system to commit fraud, we have implemented new filters to detect fraudulent returns and new processes for handling returns”.

He said that the IRS’s efforts were paying off: “So far this year, we have stopped more than 3m returns for review. Of those that we have reviewed, 90% have been determined to be bad. This year to date, we have stopped USD15bn in fraudulent payments from going out the door as compared to USD11bn over the same period last year.”

However, earlier this year, an audit report from the Treasury Inspector General for Tax Administration (TIGTA) had found that the impact of identity theft on tax administration is significantly greater than the amount the IRS detects and prevents.

J. Russell George, the TIGTA, noted that, while the IRS has expanded its efforts to detect and prevent identity theft, they still “found multiple reasons for the IRS's inability to detect billions of dollars in fraud. As identity theft is the most frequent consumer complaint, and at a time when every dollar counts, these results are extremely troubling. Undetected tax refund fraud results in significant unintended federal outlays and has the potential to erode taxpayer confidence in our nation's system of tax administration."

Tax refund identity theft crimes covered by Directive 144 involve the filing or attempted filing of fraudulent tax refund claims, using personal identification information such as Social Security numbers that have either been stolen or are otherwise being unlawfully used. The Tax Division has retained its authority in such cases to review and authorize the filing of charges by indictment and information.

“Directive 144 and the new expedited review procedures are the result of a collaborative effort between the Tax Division and the US Attorneys’ Offices to strengthen law enforcement’s response to stolen identity refund fraud crimes, which are an affront to all honest taxpayers,” said the Tax Division’s Assistant Attorney General, Kathryn Keneally. “The prosecution of these crimes is a national priority, and we will continue to look for the most effective ways to bring this conduct to an end and to punish these wrongdoers.”

“Streamlining the authority to prosecute (tax refund identity theft) investigations is yet another step toward combating this fast growing crime,” said Richard Weber, Chief, IRS Criminal Investigation. “We look forward to working with the US Attorneys in aggressively tackling identity theft which has turned the lives of so many innocent taxpayers upside down when their identities have been stolen by thieves whose sole motivation is greed.”