We wish everyone a happy holiday. Next week will be a light week at PT as we celebrate with our families.
As ID theft became more prevalent over the past decade or so, victims seeking to address the theft ran into a stone wall at the IRS in their efforts to come to an understanding of the theft and their efforts to fix the problems it caused. The IRS took the position, after receiving advice from its Chief Counsel interpreting the relevant sections of IRC 6103, that it could not give to victims the fraudulent return filed with their own name on it if they told the IRS that the return was not their return. In those circumstances, the IRS interpreted the disclosure provisions of the code to prevent giving the true taxpayer, i.e., the victim, a copy of a return filed by someone else. The IRS position could make it extremely difficult or impossible for the victim to unwind the situation since they were operating in the dark as to what caused their problem. Practitioners who knew that the IRS would decline to give the true taxpayer a copy of the fraudulent return if they said their client was the victim of identity theft took to asking for transcripts and return copies first and then reporting the ID theft in order to circumvent this problem.
In 2011 the Chair of the ABA Tax Section asked each committee to propose a legislative fix to a problem facing their committee. As chair of the Low Income Taxpayer Committee, on behalf of the committee I worked with others and drafted a legislative fix to 6103 that would allow the true taxpayer to see any return filed with their identifying information on the return as the person filing the return. Like most of my ideas, this one lacked sufficient pizzazz to make it off the ground based on the initiative of just the committee recommendation; however, on May 6, 2015 a Senator wrote to the IRS expressing concern with the IRS policy of not providing returns fraudulent using the name and identifying information of a taxpayer to the victim. In responding to this letter less than four weeks later, the IRS obtained a new opinion from Chief Counsel’s office reinterpreting section 6103 and allowing victims to obtain copies of the fraudulent returns. It is interesting how an inquiry from the right source can influence the outcome of a legal opinion. After changing its position, the IRS established the Fraudulent Return Request Program on November 3, 2015.
On November 8, 2016, the Treasury Inspector General for Tax Administration (TIGTA) issued a report examining the new program. Because this issue is important to me and to my clients, I read their report with interest.read more...
TIGTA reports provide terrific insights into IRS processes. The reports themselves follow similar patterns and do not have a spellbinding writing style, but they convey information that those outside the IRS would otherwise miss. For that reason almost every report written by TIGTA deserves a quick glance. This report, in typical fashion, provides interesting data on how well the IRS has responded to the requests of victims for the fraudulent returns with their identifying information and the typical findings that the IRS has not set up the best process and has not followed the process it set up.
After reversing its legal position on its ability to provide victims with copies of fraudulent returns filed using their information, the IRS established the Fraudulent Return Request (FRR) program. The TIGTA report stated that the IRS received more than 5,000 requests for fraudulent returns during the first year. In order to obtain a copy of the fraudulent return, identity theft victims must snail mail a signed letter containing their name, SSN, mailing address and the tax year of the fraudulent return. The letter must contain the statement “I declare that I am the taxpayer.” The taxpayer must also send a copy of a government-issued ID.
A representative can also make the request for the fraudulent return. The rep needs to sign a statement that reads “I declare that I am a person authorized to obtain the tax information requested.” In addition the rep must submit his or her own name, TIN, mailing address and how he or she represents the victim. Some of this seems redundant with the power of attorney (POA) form but the IRS must want to make doubly sure that the rep has this authority.
Once the IRS receives the request for the fraudulent return it has an internal time frame of 30 days to acknowledge receipt of the request and 90 days to fulfill the request or ask for more time. The report states that the IRS will not “release a redacted copy of a tax return for any identity theft case open and still being worked.” Since getting a copy of the fraudulent return can provide significant assistance to the victim in explaining that they are the victim, this limitation surprises me. Once you prove that you are a victim, the need to see the fraudulent return diminishes. I cannot understand why the IRS would adopt this policy limitation that makes it harder for victims to prove the theft. If the IRS has decided that it can legally provide a copy of the return to the true owner of the person whose identity has been used on the return why does it matter that the IRS has declared the person a victim of identity them before it releases the information to the true owner of the identity? The TIGTA report does not explain or question the thinking behind this position.
The report describes the process that the IRS will use if it rejects the request. My recent interaction with the IRS identity protection unit did not leave me with a great deal of confidence in that unit. For my client it sent a letter stating that it agreed he was the victim of identity theft and that if we had questions we should contact Ms. X. I called Ms. X and requested a copy of an account transcript showing that the assessment was reversed. Ms. X told me that it was not her job to provide account transcripts and that I should seek a copy elsewhere. I pointed out to her that because of the identity theft indicators I could not use E-Services to obtain the transcript or call and wait on the phone to successfully request one. Ms. X let me know that was not her problem and I should not be badgering her.
While thinking about how I should go about obtaining a transcript to make myself comfortable that the problem was indeed solved, my client received another bill for the tax assessed as a result of the theft of his identity. So much for the fixing of his account. I had a reasonably high degree of confidence that calling Ms. X again would not solve the problem so we called the general number for the identity theft unit and had a totally unsatisfactory call which was described in the recent post by Caleb Smith. After that call we were left with no alternative but to contact the Local Taxpayer Advocate’s office. I hate to contact the advocate’s office, not because the office is unhelpful, but because I feel that I have enough knowledge to solve problems without bothering them. They did assist in getting the liability removed from my client’s account after which we received another letter from the identity theft unit inviting us to contact Ms. X, the extremely unhelpful employee we originally encountered, if we had any questions or concerns. We passed on this offer of assistance but I wonder how many others Ms. X has sent down the same path to purgatory that she did with us.
In its report TIGTA found that the IRS did not meet its internal guidelines in processing requests for the fraudulent returns. The most prevalent mistake involved redaction errors. The IRS has a redaction protocol for the fraudulent so that the victim will not learn the name and address of the person using their identity and it did not always redact everything in the protocol. The IRS sometimes released the return without getting a complete copy of everything it should receive in the request for the return. To fix the problems related to insufficient requests TIGTA suggested that the IRS develop a form to make it easier for persons requesting the fraudulent returns to followed the prescribed list of items wanted by the IRS. This suggestion makes sense although it did not seem to rise to the level of a formal recommendation requiring a response.
The second suggestion intrigues me because I recently made a similar suggestion to the Tax Court based on software suggested to me by a colleague at Harvard. Since more than 40% of the errors identified by TIGTA were attributable to redaction errors, TIGTA suggested that the IRS automate the redaction of the documents before turning them over. It pointed out that the IRS is testing software to redact information from Form 990. In the Tax Court a very high percentage of the pro se cases I review when I go to the clerk’s office have unredacted information making it easy to pick up the taxpayer’s SSN. If the redaction software works for the IRS, it should consider making it available to the Tax Court which could use it to clean up the submissions it receives and assist taxpayers who fail to redact. This, in turn, might make the Tax Court more comfortable making its public records more publicly accessible.
The TIGTA report discussed here describes a process that might be helpful to practitioners although getting the fraudulent returns filed using your taxpayer’s identifying information may still be easier if you request the returns before alerting the IRS to the existence of identity theft. The report focuses only on issues related to the new process of giving fraudulent returns to the victim and not to broader problems of identity theft. Still, the report provides useful information for those whose clients suffer from the theft of their identity.