IRS Fraud Detection Failures. Shulman's Job on the Line?
by Terri Eyden on
By Ken Berry
A new report released this week by the Treasury Inspector General for Tax Administration (TIGTA) accuses IRS agents of "looking the other way" while illegal immigrants were assigned false Individual Taxpayer Identification Numbers (ITINs). Now a key member of the House's tax-writing committee is calling for IRS Commissioner Doug Shulman to resign.
According to the TIGTA report, IRS supervisors discouraged its employees from investigating when applications for ITINs were processed, focusing instead on speed over accuracy. This allowed nonresidents to create fictitious identities that were then used to generate fraudulent tax refunds.
Specifically, TIGTA reported that 154 mailing addresses were used 1,000 or more times on applications in 2011, including 15,795 ITINs assigned to a single Phoenix, Arizona address. The report also revealed that ten individual addresses were used to file 53,994 tax returns generating a total of $86.4 million in fraudulent tax refunds. For example, 23,994 tax refunds totaling $46.3 million were issued to a single address in Atlanta, Georgia, while 2,507 tax refunds totaling $10.4 million were issued to one place in Oxnard, California. Also, the report cited ten bank accounts that received 23,560 tax refunds totaling more than $16 million, including 2,706 tax refunds amounting to $7.3 million that were issued to a single account.
The report blames inadequate procedures as the main reason that numbers were assigned to individuals who had not proven their identity or foreign status. "IRS management has not established adequate internal controls to detect and prevent the assignment of ITINs to individuals submitting questionable applications," said the Treasury Inspector General J. Russell George. He referred to "an environment which discourages employees from detecting fraudulent applications."
George did acknowledge that the IRS has already announced it is taking steps to improve the process. The IRS has agreed to implement expanded training and review procedures to better detect fraudulent applications.
The IRS announcement was not enough, however, to placate Representative Sam Johnson (R-TX), who serves on the House Ways and Means Committee. In the strongest condemnation yet of the IRS failures, Johnson said in a letter to Commissioner Shulman, "The appalling management of the ITIN program is a clear example of failed leadership and the buck must stop with you." The IRS has not commented on Johnson's demand for Shulman's resignation.
- TIGTA: IRS Can Take Action to Recognize/Investigate Fraud Indicators 
- TIGTA Reviews IRS Tax Exempt/Government Entities Antifraud Program