Tax-Related ID Theft Growing Problem For IRS, Taxpayers


Employers and others collecting, retaining or reporting employee or other tax identification numbers or other sensitive information for tax withholding or reporting purposes should take appropriate steps to protect that information against possible identity theft or other misuse. 

The wealth of sensitive personal identification information and financial records makes tax records a highly attractive source of data for identity thieves.  According to the Internal Revenue Service (IRS), tax-related identity theft incidents have risen significantly in recent years. Identity theft case receipts increased by more than 650 percent from FY 2008 to FY 2012. At the end of FY 2012, the IRS had almost 650,000 identity-theft cases in its inventory servicewide. The IRS reports the problem has grown worse as organized criminal actors have found ways to steal the Social Security numbers (SSNs) of taxpayers, file tax returns using those taxpayers’ names and SSNs, and obtain fraudulent tax refunds. Then, when the real taxpayer files a return claiming the refund, that return is rejected. The impact on victims is significant. More than 75 percent of taxpayers filing returns are due refunds, which average some $3,000 and are not paid until the IRS fully resolves a case.

When the IRS Commissioner testified in 2008 about identity theft before a Senate Finance Committee hearing. he stated: “My overall goal as the IRS Commissioner is that when a taxpayer [who is an identity theft victim] contacts us with an issue or concern, we have in place a seamless process that gets the issue resolved promptly.” Later that year, the IRS established an “Identity Protection Specialized Unit” (or “IPSU”), which was designed to provide centralized assistance to victims of identity theft. The National Taxpayer Advocate supported the commitment to centralized and prompt victim assistance.

Since that time, the IRS has created numerous task forces and other teams in recent years in an attempt to improve its identity theft processes, yet victims still face the same “labyrinth of procedures and drawn-out timeframes for resolution” that they faced five years ago. The IRS is instructing its employees to advise identity theft victims that it will take 180 days – half a year – to resolve their cases. Complicated cases inevitably will take longer. Thus, the IRS’s procedural changes are not providing faster relief.

The report also says the IRS has decided to reverse course and decentralize victim assistance. It recently created specialized units within each of 21 individual functions to work on identity theft cases, apparently under the belief that most identity theft cases involve a single issue that the relevant specialized unit can work most efficiently. The report expresses concern about this backtracking from a centralized approach.

The Taxpayer Advocate Service (TAS) itself handled nearly 55,000 identity theft cases in FY 2012, most of which involved multiple issues that required actions by multiple units. The report expresses concern that creation of 21 specialized units will erode the centralized role of the IPSU, require taxpayers to speak with multiple functions, increase the time it takes to resolve cases, and heighten the risk that some issues may not be addressed.

“Taxpayers need ‘one-stop shopping’ – a single point of contact they can work with to resolve all issues in their cases – and the IRS needs a ‘traffic cop’ to make sure that all units complete their actions and that parts of cases do not fall through the cracks,” Olson said. “And six months is an unacceptable period of time to expect taxpayer-victims to wait. The IRS must do more to provide the prompt and seamless assistance to identity theft victims that Commissioner Shulman promised.”

While the IRS continues to work on protecting taxpayer data against theft and investigating and resolving tax-related identity theft cases, businesses that collect, retain and report employee, contractor or other personal financial information for tax related or other purposes are urged to take steps to protect the data that they collect and retain against identity theft.  Since identity theft may begin when a worker misrepresents his or her identity at the commencement of employment, many employers find it beneficial to take reasonable steps to verify the identity and veracity of the documentation that a worker presents when commencing employment.  Once data is collected, businesses and others that have access to personal financial information or other data collected for tax purposes need to recognize their responsibility to safeguard that information against improper use and disclosure under the Internal Revenue Code as well as other applicable laws.  If  confronted with a “no-match” letter from the Social Security Administration or a complaint or other indication that a worker may have misrepresented his or her identity, or another indication of a breach of this data, businesses should contact experienced legal counsel to aid in the proper investigation of these concerns and the resolution of concerns resulting from this investigation.  Where appropriate, the business may need to report its concerns to the IRS or advise a worker or other party reporting a likely identity theft of taxpayer information to the TAS or other appropriate officials. 

Businesses needing assistance with investigation or mitigation of a potential theft of tax or other sensitive data, see www.cynthiastamer.com or contact attorney Cynthia Marcotte Stamer.

For Help With Compliance, Risk Management, Investigations, Policy Updates Or Other Needs

If you need help with these or other health benefit or other human resources, employee benefit, insurance, compensation or other compliance, risk management, enforcement or management concerns, the author of this update, attorney Cynthia Marcotte Stamer may be able to help.

A Fellow in the American College of Employee Benefit Counsel, State Bar of Texas and American Bar Association, Vice President of the North Texas Health Care Compliance Professionals Association, the Former Chair of the ABA RPTE Employee Benefit & Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice Chair of the ABA TIPS Employee Benefit Committee, an ABA Joint Committee on Employee Benefits Council Representative, and Past Chair of the ABA Health Law Section Managed Care & Insurance Section, Ms. Stamer is nationally and internationally recognized for her experience and skill aiding clients with a diverse range of employment, employee benefits, health and safety, public policy, and other compliance and risk management concerns. 

Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, a member of the Editorial Advisory Board and expert panels of HR.com, Employee Benefit News, InsuranceThoughtLeadership.com, and Solutions Law Press, Inc., management attorney and consultant Ms. Stamer has 25 years of leading edge experience helping employers; health and other employee benefit plans and their sponsors, administrators, fiduciaries; TPAs, insurers, governments, employee leasing, recruiting, staffing and other professional employment organizations; and others design, administer and defend innovative workforce, compensation, employee benefit  and management policies and practices.   Her experience includes extensive work representing advising these and other clients, governmental bodies, insurance and financial services organizations, third party administrators and others to develop, design, defend and administer creative health, disability, severance and other employee benefit and compensation arrangements, products and services.  She also helps these and other clients monitor, address and respond to federal, state, and international health care and insurance and other regulatory, legislative, audit and enforcement developments. Ms. Stamer  has worked, extensively on these and other workforce and performance related matters.  In addition to her continuous day-to-day involvement helping businesses to manage employment and employee benefit plan concerns, she also has extensive public policy and regulatory experience with these and other matters domestically and internationally.  A former member of the Executive Committee of the Texas Association of Business and past Government Affairs Committee Legislative Chair for the Dallas Human Resources Management Association, Ms. Stamer served as a primary advisor to the Government of Bolivia on its pension privatization law, and has been intimately involved in federal, state, and international workforce, health care, pension and social security, tax, education, immigration, education and other legislative and regulatory reform in the US and abroad.  She also is recognized for her publications, industry leadership, workshops and presentations on these and other human resources concerns and regularly speaks and conducts training on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, and many other national and local publications. For more information about Ms. Stamer and her experience or to get access to other publications by Ms. Stamer see here or contact Ms. Stamer directly. Ms. Stamer regularly works with agencies, publishes and speaks extensively on human resources and employee benefits,  medical and other privacy and data security, health and managed care industry regulatory, staffing and human resources, compensation and benefits, technology, public policy, reimbursement and other operations and risk management concerns.  Her publications and insights  on HIPAA and other data privacy and security concerns appear in the Health Care Compliance Association, Atlantic Information Service, Bureau of National Affairs, World At Work, The Wall Street Journal, Business Insurance, the Dallas Morning News, Modern Health Care, Managed Healthcare, Health Leaders, and a many other national and local publications.    You can get more information about her HIPAA and other experience here.

If you need help with these or other compliance concerns, wish to ask about arranging for compliance audit or training, or need legal representation on other matters please contact Ms. Stamer at (469) 767-8872 or via e-mail here. 

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This entry was posted on Monday, January 14th, 2013 at 11:24 PM and is filed under Corporate Compliance, Employers, GINA, Health Plans, HIPAA, Human Resources, Insurance, Internal Controls, Internal Investigations, Privacy, Risk Management, Whistleblower. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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