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Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P.

901 Main Street, Suite 3700
Dallas, TX 75202

Phone: (214) 744-3700
Fax: (214) 747-3732
Toll Free: (800) 451-0093

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Combating the Growing Problem of Tax Fraud and Identity Theft

By Michael A. Villa, Jr. on July 13, 2015

Identity theft in which a taxpayer’s name and tax identification number are stolen and used in order to obtain fraudulent refunds continues to be a growing problem for the IRS and the victim taxpayers. In 2010, the IRS identified 338,753 incidents of identity theft, by 2013 that number had grown to over 2.5 million.  Taxpayers who believe their personal information has been used fraudulently with the IRS can complete Form 14039, the Identity Theft Affidavit, and submit it to the IRS.  However, victim taxpayers may experience unexpected and lengthy delays before remedial steps are taken by the IRS.

The Treasury Inspector General for Tax Administration (“TIGTA”) issued a report in March 2015 and found that the IRS took an average of 278 days to resolve tax accounts with identity theft problems, despite the fact that the IRS was informing taxpayers that their case would be resolved within 180 days.  In addition, TIGTA noted that identity theft cases were assigned to 7 different IRS employees prior to the case being resolved.  Even more problematic was the fact that 17% of the cases resolved by the IRS still contained errors and were not correctly resolved by the IRS. 

Although these findings are alarming, the findings in the 2015 TIGTA report were actually an improvement as compared to a similar report issued in 2013.  For example, in the 2013 TIGTA report, the IRS was taking an average of 312 days to resolve cases and accounts were assigned to an average of 10 IRS employees during the process.   

In addition to improving response time to identity theft complaints, the government is continuously trying to create enforcement mechanisms to track down the offenders and those who enable them.  Increased enforcement efforts are particularly important when considering there have been at least 270 data breaches in 2015, exposing more than 100 million records that could be used to access SSNs, steal taxpayer's refunds and fraudulently file returns. 

In order to curb this ever increasing problem, IRS-CI is putting together a team of investigators specifically to track down cyber-crime.  The 12 person team based in Washington will be culled from the 2,500 agents currently working in IRS-CI.  They will develop cases and work with field offices across the country as well as other law enforcement agencies.  This type of dedicated team is necessary when the time spent on identity theft has grown from about 3 percent three years ago, to as much as 50 percent in some field offices.

In addition to the IRS cyber-crime unit, the Financial Crimes Enforcement Network (“FinCEN”), U.S. Department of the Treasury, continues to monitor certain geographic areas where problems appear to be more prevalent.  On July 8, 2015, FinCEN issued a Geographic Targeting Order to combat identity theft in connection with Federal tax refunds in two South Florida Counties (Miami-Dade and Broward counties). 

FinCEN can issue a GTO that imposes additional recordkeeping and reporting requirements on certain businesses in a geographic area.  This particular GTO requires check cashers to temporarily enhance the identification requirements on customers cashing tax refund checks. 

The GTO requires check cashers in Miami-Dade and Broward counties to obtain and record additional identifying information about customers cashing tax refund checks over $1,000. This includes a copy of the customer’s identification, a digital photograph of the customer taken at the time of the transaction, the customer’s phone number, and in accordance with Florida law, the customer’s thumbprint.  More detail on the GTO can be found at: http://www.fincen.gov/news_room/nr/pdf/20150710GTO.pdf

Even though this particular GTO only impacts two counties in South Florida, business owners and tax professionals would be well advised to regularly check with FinCEN to see if their geographic area and businesses have been “deputized” in the war on identity theft. 

Please contact Mike Villa at (214)744-3700 or mvilla@meadowscollier.com if you have questions or wish to discuss this information further.