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Sunday November 23, 2014

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IRS May Reduce Services

On November 5 Acting IRS Commissioner Danny Werfel spoke to the American Institute of Certified Public Accountants National Tax Conference in the nation's capital. Werfel expressed concern about the budget reductions at the IRS. He indicated, "Ultimately there is a budget constraint that we have, and we have to make some tough choices along the way."

Werfel noted that the IRS has already discontinued some services for accountants and other professionals as a result of budget reductions. From 2010 to 2013, the IRS experienced approximately a $1 billion budget reduction. The Service reduced staffing by approximately 8,000 employees. It also attempted to find other efficiencies. The IRS estimates that it saves $60 million per year by reducing print materials and placing employee benefits and compensation information online.

Werfel noted that even with these reductions, there now are 3,000 IRS staff who are in the stolen identity refund fraud (SIRF) section. Last year, the SIRF department processed 794,000 identity fraud refund cases.

Werfel noted, "The progress that the IRS has made against identity fraud would not have been possible without directing resources away from other enforcement activities and our service programs." However, he continued by observing that a budget funding amount below the White House requested level would potentially lead to program reductions even on the identity fraud unit.

Both the House and Senate Budget Committees have passed preliminary budgets for fiscal year 2014. The IRS budget in the Senate bill is $12.07 billion. This represents a $276 million increase from the prior year. However, the House budget for the IRS reduces funding by 24% to $9 billion. If the IRS budget is reduced, there will necessarily be fewer staff. The IRS may be forced to limit telephone and internet taxpayer services.

Editor's Note: The IRS budget and the balance of the government departments are the subject of the Joint Budget Committee meetings. All of the budgets must be passed by the January 15 deadline to avoid another shutdown. With the great difference between the House and Senate IRS budget numbers, it is quite possible that there will be a reduced budget next year.

Tax Fraud of $3.6 Billion

The Treasury Inspector General for Tax Administration (TIGTA) has released the latest report on the IRS efforts to reduce identity fraud refunds.

In Tax Year 2010, over 1 million returns with questionable or stolen Social Security numbers were submitted. TIGTA estimates that the fraudulent refunds that year were $5.2 billion.

In Tax Year 2011, a more aggressive IRS program to reduce identity fraud refunds did have some success. There were 1.1 million returns with questionable or stolen Social Security numbers. The Inspector General estimates that the fraudulent refunds were $3.6 billion. This is a reduction of $1.6 billion compared to the prior year.

In addition, the IRS has been reviewing fraudulent Individual Taxpayer Identification Numbers (ITINs). The 141,000 problem ITINs in 2011 led to undetected tax refunds of approximately $385 million.

The Inspector General also criticized the IRS for not being able to detect multiple deposits to one bank account. Some bank accounts have received 20 to 80 refunds. These almost certainly are fraudulent and should be detected by the IRS.

Acting Commissioner Danny Werfel agreed that the TIGTA report highlighted important issues. The IRS has taken several actions in response to the report.

First, it plans to deactivate ITINs for years 2012 and earlier. Second, there will be better software filters that will be able to locate the suspicious returns. Third, the 3,000 SIRF staffers will receive better training. Fourth, the project is under way to detect multiple deposits to one bank account.

Editor's Note: The IRS has had some success in these continuing efforts to combat identity theft and fraud. This is important because lawful taxpayers should be protected from the challenges of dealing with identity theft. If an identity thief steals a Social Security Number and quickly files for a refund before the lawful taxpayer files his or her return, resolving the conflict may involve many hours and substantial difficulties.

Published November 8, 2013
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