More than a million taxpayers who were victims of employment-related identity theft from February 2011 to December 2015 were identified by the IRS, yet the agency failed to notify those victims, according to a recent report from the Treasury Inspector General for Tax Administration (TIGTA).
The report, Processes are Not Sufficient to Assist Victims of Employment-Related Identity Theft, indicates that the IRS also has failed to establish a method for alerting the Social Security Administration (SSA) of earnings not associated with identity theft victims.
Employment-related identity theft occurs when a taxpayer’s identity – typically a Social Security number – is used by a crook to get a job. Taxpayers may first discover they are victims when the IRS sends them a notice of a discrepancy in the income reported on their tax returns.
The disclosure comes from the IRS’s Automated Underreporter Program (AUR), which matches what’s reported on tax returns with the income reported on W-2s. The TIGTA audit was done to evaluate the AUR process.
The IRS announced in April that it would begin notifying new victims of this type of identity theft in January 2017. Victims who were identified before then won’t be notified at first, but the IRS will figure out if it’s feasible to do that once the program begins.
So, what’s being done about it? In the wake of failed pilot projects and programs intended to correct the problem, TIGTA recommended that the IRS develop a process to identity all victims of employment-related identity theft and include those identified before January 2017.
The IRS’s response? The agency agreed, and implementation is scheduled for March 15, 2017. The IRS noted that it’s possible victims identified before 2017 will be notified sometime during 2017. After that first year, the IRS will evaluate the process and figure out how to handle previously identified victims.
“This course of action will efficiently utilize the IRS’s limited resources and prevent taxpayer confusion by preventing multiple notices from being issued to the same taxpayer,” the IRS states.
TIGTA also recommended that the IRS should develop a tracking process to ensure that tax examiners complete Form 9409, IRS/SSA Wage Worksheet, and send them to the Social Security Administration via tracked mail with a return receipt requested.
The IRS also agreed with this recommendation, and implementation is scheduled for Dec. 15, 2016.
A heavily redacted recommendation by TIGTA and response from the IRS involves closed AUR cases from 2011 involving more than 2,000 employment-related identity thefts that tax examiners inaccurately processed. TIGTA projects that the IRS inaccurately processed 227 cases. A redacted IRS response indicated that it partially agreed and that implementation had already occurred.
“To put this rate into perspective, we note that, in fiscal year 2014, the AUR system closed 3.7 million cases; as such 227 cases represent less than .01 percent of the total closures,” wrote Karen Schiller, IRS commissioner for the Small Business/Self-Employed Division.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.