This past week, Commissioner Koskinen touted the Security Summit at the Network Branded Prepaid Card Association conference. I was going to make a joke about how fun that conference sounds, but as someone who counts down the days to this week’s ABA Tax Section meeting I am aware that I live in a glass house. The Security Summit is a partnership of IRS, the private sector and state tax agencies in efforts to combat refund fraud and identity theft (the link above is to the IRS web page outlining the initial steps IRS has taken in its Security Summit as well as statements from third party partners). As we have discussed, refund fraud and identity theft present major challenges for the IRS. Commissioner Koskinen has pointed to the IRS’s recent initiatives in that area and partnership with the private sector as a successful model for tax administration. That the IRS is partnering with the private sector to take on that challenge, including looking into better ways for taxpayers to authenticate their identities, is an interesting development that will hopefully help IRS fight the organized and often international bad guys that try to find soft spots in the IRS’s security.
This partnership between the public and private sectors raises some interesting big picture tax administration issues beyond that associated with refund fraud alone. We often in this blog get into the weeds on many issues of tax procedure and administration. Tax law is complicated, and tax procedure is at times arcane. Add into the mix the growing importance of administrative law, with its clear as mud principles, and you make for a complicated body of law.
In the blog in addition to identity theft we have discussed some of the issues that highlight the relationship between the private and public sector; for example, we have discussed private debt collection, the government’s use of outside counsel in the Microsoft litigation, the expanded whistleblower provisions, the IRS’s involvement with private market insurers as part of ACA, and the harsh penalties that the IRS can impose on third parties who fail to honor levies. I also have discussed extensively in the blog (and elsewhere) the IRS efforts to more directly regulate unlicensed tax preparers and expanded due diligence rules for refundable credits that have nudged preparers ever so closer to doing pre-filing compliance checks for certain issues (though as last week’s updated tax gap figures show refundable credit noncompliance is s small fraction of the overall individual underreporting; a topic for another post). Just a couple of weeks ago we also reported on Senator Warren’s proposal to have the government play a much bigger role in the tax return prep space (generating headlines like Senator Warren Wants to Take Down Turbo Tax).
On May 13 in DC at the National Tax Association spring symposium Tax Policy at the Crossroads I will be moderating a panel that examines the role of the private sector in tax administration. I am interested in teasing out principles that can help move the discussion away from the rhetoric that sometimes clouds the discussion of the private sector’s role in tax administration. In times of reduced resources, partisan opposition to much of what the IRS does, and expanded IRS responsibilities the question is not whether the IRS has to rely on and work with the private sector; the real issue is how should that relationship evolve. The panel will look at some specific issues associated with the topic, including the role tax return preparers and software providers play with respect to individual tax return filing. It will then shift gears and look at the role financial institutions play in combatting tax evasion, an issue that is front and center in light of scandals like the Panama Papers and expanded US and international efforts to uncover hidden accounts and get to true beneficial ownership. It will include views from the industry, with Intuit’s Chief Tax Officer Dave Williams, former Block executive Bob Weinberger and E&Y’s John Staples, as well as academics Kathleen DeLaney Thomas and Tracy Kaye. We will also try to identify some operating principles that can assist in situating the discussion in differing contexts. It is an interesting and controversial issue that we will not resolve in 90 minutes.
About Leslie Book
I spent some time on April Fools Day helping a client determine whether a letter she received, purportedly from IRS, was legitimate. My conclusion was that the Letter 4281G (Rev 2-2016) was a scam. As usual, I was wrong. However, I still think there was some good evidence:
1) The letter was dated April 5, 2016 but received Friday, April 1, just before the Contact Telephone Number office closed for the weekend. (I know, IRS mails letters all the time with future dates.)
2) The letter has five paragraphs with headings. The first three explain, “We learned that criminal actors attempted entrance to the IRS Get Transcript Application at IRS.gov, on or before May 25, 2015. At that time, access to that online system was shut down. However the actors potentially used your personal information . . .If SSNs for a spouse and other adults are also listed on your tax return, they’ll receive similar letters.”
The taxpayer is married but her spouse did not receive a similar letter until two weeks later.
Do IRS bureaucrats write letters referring to criminal “actors”? How do Hollywood and Broadway feel about this? I am also suspicious when government business letters use contractions like “they’ll” and “we’ve.” But I guess I am just old-fashioned.
Mostly, my opinion was that these paragraphs were lifted from an authentic IRS letter, to create a sense of legitimacy. A search of the IRS website for Letter 4281G turned up nothing, and a Google search turned up messages from others questioning the legitimacy of the notice.
3) The final paragraphs state, “We don’t know if someone will misuse your tax information, but for your protection, we’ve arranged for you to receive a free Equifax identity theft protection product for one year. Use of this product doesn’t imply our approval, guarantee or endorsement of Equifax’s or any other company’s products, services or business methods. The IRS won’t be a party to any agreement made between you and Equifax . . .Equifax will review your credit file daily if you enroll and provide: Alerts of key changes to your Equifax, Experian and TransUnion credit reports, access to your credit report, . . .”
“If you enroll and provide” — I think they mean, Equifax will provide, you don’t have to provide it. And what’s the difference between providing access to three credit reports, and the generic “your credit report” ? The major problem with this Letter 4281G, though, was that there were no instructions on how to sign up for the Equifax services.
I warned my client to be wary of phone calls over the weekend, asking if she had received the letter and wanted to sign up for Equifax right away.
The first page of the notice later received by her husband, Letter 4281F, was identical in its first page. However, the second page had four paragraphs of instructions on how to contact Equifax, and added information on how to request a “fraud alert” on your credit report.
Somewhere at IRS there is an office where some analysts sit around and decide, “Hey, let’s send a short letter with no Equifax instructions to the wife first, and then two weeks later let’s send a long letter to the husband with the Equifax details. This will help generate calls to our dedicated help line and make it look like we are doing something about the problem.”
Or maybe not.
Replying to Bob Kamman:
Imagine how much it would help if the IRS would send letters like that to victims of IRS insiders. For example when Monica Hernandez embezzled withholding that was reported on Forms 1099, it would have been possible to search the original 1099 reports to find who actually had withholding that was mysteriously absent from their administrative records.
Usually the IRS’s letters have either no visible mailing date (if mailed from the UK or Germany etc.) or a mailing date later than the date printed in the letter (sometimes by more than 30 days, including one that was registered), but I’ve also received one that had a mailing date earlier than the letter. I’ve also received at least one that used contractions.
I think you’re a bit unfair with this: ‘Somewhere at IRS there is an office where some analysts sit around and decide, “Hey, let’s send a short letter with no Equifax instructions to the wife first, and then two weeks later let’s send a long letter to the husband with the Equifax details.’
Surely we should be happy when they improve the usefulness of their letters. We should complain when they make changes to decrease the usefulness and cause confusion, as the blog owners have pointed out in other postings.
When IRS letters started to contradict each other, I was suspicious enough to contact the FBI, which still had an office at the US embassy in Tokyo after their IRS office closed. The FBI did nothing. But now we can see that the FBI would have had a chance to catch Monica Hernandez a lot earlier than they did. Around 10 years later the IRS sent an administrative transcript showing mutually contradictory entries which may well be the basis for mutually contradictory letters. So it seems all those letters were genuine.