The Internal Revenue Service Needs to Improve ID Protections for Taxpayers

Fans of the country’s two most popular sports might feel at a loss this week as the NFL season ended with New England Patriots defeating the Atlanta Falcons in Super Bowl LI, and baseball fans are anxiously awaiting Opening Day which is over a month away. In the meantime, Americans can turn their attention to the thrills of tax filing season. While tax season lacks the excitement and big names that sports seasons have, not even the Patriots’ offensive scheme nor the nuances of baseball’s unwritten rules come anywhere near matching the level of complexity contained in the Tax Code. While referees and umpires can huddle together to make sure they made the right call, or, in certain cases review the play on video, it isn’t so easy for taxpayers looking for help with a tax problem.

In all seriousness though, the Internal Revenue Service (IRS) has provided some tools to help taxpayers file their taxes, which are due this year by April 18, 2017. While the IRS does not determine the tax rates or the number of tax breaks, it does enforce the Tax Code and, to a degree, attempts to help taxpayers navigate the Code and address identity theft or fraud.

According to a recent Government Accountability Office (GAO) report, the IRS made great strides in their telephone service to taxpayers in the offseason between the 2015 and 2016 filing season. Although there was a 2 percent increase in the volume of incoming calls, the wait time was cut from 23 minutes to 11 minutes. The number of taxpayers that reached live assistance increased from 37% of callers to 71%. These differences are largely due to the offseason acquisitions of key full-time equivalents to help tackle the 114 million calls the IRS received in 2016. Despite these improvements, there still remains significant taxpayer assistance issues within the IRS.

One major problem for taxpayers of late had been identity theft (IDT), especially after a massive security breach of taxpayer data in 2015. Unfortunately, the IRS has fallen short in its ability to timely assist taxpayers who are concerned about identity theft (IDT). According to the GAO report, which examined randomly selected IDT cases from the last fiscal year, “IDT refund fraud occurs when a fraudster obtains an individual’s Social Security number, date of birth, or other personally identifiable information (PII), and uses it to file a fraudulent tax return seeking a refund.” The IRS estimates that nearly $15 billion worth of fraudulent refunds were attempted in the 2015 calendar year and that they were able to deny nearly 85%, or nearly $12.3 billion, of those fraudulent requests. Generally, the IRS is able to identify fraudulent claims when personally identifiable information is used twice resulting in duplicative claims, meaning that somebody had filed a bogus return using someone else’s taxpayer ID information.

When addressing IDT cases, the IRS has improved its ability to close cases quickly, reducing the average duration of a case from 242 days in 2012 to 106 days in 2016, but overage rates in IDT cases – that is the percentage of IDT cases that the IRS takes 45 days or more just to respond to – increased from 0.7% in fiscal year 2015 to 8.8% in fiscal year 2016. According to GAO’s case studies, these delays are due to the inability of IRS assistors to receive documents from other IRS units in a timely manner, the continual reassignment of assistors to different cases, and the mismanagement of the IDT case inventory.

Questions have also been raised about the IRS’s internal controls after some refunds were issued before IDT cases were investigated and resolved. Two major reasons for these mistakenly issued refunds are that (1) the holds on accounts were set to expire after a given amount of time, and after that time the system would automatically release the funds before the review was finished and (2) assistors simply released the funds before the case was resolved due to a lack of training and understanding about the codes on taxpayers’ accounts. The IRS disagrees with the claim that there is a lack of training causing premature releasing of funds, but failed to provide the GAO with significant data to show an alternative reason. These delays and improperly structured internal controls hinder the IRS’s ability to help victims of identity theft and resolve fraudulent claims for the sake of both taxpayers broadly and the victims.

Taxpayers should be pleased that the IRS has improved many of its taxpayers services and information, but it clearly has a long way to go in protecting taxpayers from fraudulent activity. Due to the ever increasing complexity of the Tax Code, taxpayers will be full of questions during this filing season and the IRS must be ready to help solve those issues. Though improvements have been made in seasons past, that does not mean they are guaranteed to continue. The IRS must make a continual commitment to excellence if they are going to improve services to taxpayers during this season and in future seasons.