House Appropriations Subcommittee on Financial Services and General Government Hearing
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Chairman Crenshaw, Ranking Member Serrano, and Members of the Subcommittee, thank you for the opportunity to testify on our recent work related to the most significant challenges currently facing the
The
For FY 2013, TIGTA has recovered, protected, and identified monetary benefits totaling
KEY CHALLENGES FACING THE IRS
In this section of my testimony, I will discuss several of the most significant challenges now facing the IRS as it administers our Nation's tax laws, as the Subcommittee has requested.
TAXPAYER SERVICE
Providing quality customer service is the
As a result of the Balanced Budget and Emergency Deficit Control Act, n5 the IRS was required to reduce planned spending from its appropriated accounts by
These continuing budget constraints make it difficult for the IRS to effectively assist taxpayers. As demand for taxpayer services continues to increase, resources have decreased, thereby affecting the quality of customer service that the IRS is able to provide. I would like to provide you with some specific examples.
First, the IRS continues to struggle in providing high quality customer service over the phone. These struggles result in long customer wait times, customers abandoning calls, and customers redialing the IRS toll-free telephone lines n8 for service. Despite other available options, most taxpayers continue to use the telephone as the primary method to make contact with the IRS. In
Second, the
Third, the number of taxpayers assisted by
In FY 2014, TACs will no longer prepare tax returns, provide tax transcripts, or provide the status of tax refunds. In addition, TAC assistors will answer only basic tax law questions during the filing season and will not answer any tax law questions outside of the filing season. Taxpayers will be referred to Volunteer Income Tax Assistance sites for free tax return preparation or to applications on the
The IRS also assists taxpayers who have been victimized by identity theft. In
IMPROPER PAYMENTS
The Improper Payments Information Act of 2002 n12 requires Federal agencies, including the IRS, to estimate the amount of improper payments made each year. Agencies must report to
The first step in an agency's estimation of improper payments is to conduct annual improper payment risk assessments to identify programs at risk for significant improper payments. TIGTA has reported that the risk assessment process performed annually by the IRS may substantially underestimate the amount of improper payments in tax administration. Specifically, the IRS performed a risk assessment of 15 revenue program funds selected by the
However, prior TIGTA reports indicate that the risk of improper payments for some of these program funds could in fact be significant enough to warrant reporting and tracking under the Improper Payments Information Act of 2002. For example, we reported in
In addition to the EITC, the IRS administers numerous other refundable tax credits. n16 The number of these credits has varied over time because some credits are available for a limited period that is set by law. Refundable credits were designed to help low-income individuals reduce their tax burden or to provide incentives for other activities. The EITC, created in 1975, n17 is used to offset the impact of
Although refundable credits provide benefits to individuals, the unintended consequence of these credits is that they can result in the issuance of improper payments and can be the targets of unscrupulous individuals who file erroneous claims for these credits.
I would now like to highlight some of our work relating to the refundable credits still in existence, providing improper payment estimates and amounts when available; the
Earned Income Tax Credit - The IRS continues to report that more than 20 percent of EITC payments are issued improperly each year. In FY 2013, the IRS estimates it issued between
The IRS is unlikely to achieve any significant reduction in EITC improper payments despite having implemented numerous processes to identify and prevent such payments. For FY 2013, the IRS reported that its efforts protected approximately
However, we have conducted a number of audits that have identified specific actions that the IRS could take to reduce EITC improper payments. n22 While the IRS has implemented some of our recommendations, it has not taken action to address key recommendations aimed at preventing or reducing improper EITC payments. For example, we reported in
The IRS estimates that two-thirds of EITC claims are prepared with the assistance of paid tax return preparers. As such, the IRS established the Return Preparer Program and began implementing new preparer requirements in FY 2011. These requirements include: 1) requiring all individuals who sign a tax return as a paid tax return preparer to register and obtain a Preparer Tax Identification Number (PTIN); and 2) establishing competency testing for all paid tax return preparers. The IRS stated in its 2012 report to TIGTA on EITC improper payments that the regulation of tax preparers will drive increased EITC compliance, decrease fraud, and reduce the improper payment rate.
There have been some legal challenges to these new tax preparer regulations.
Despite the court's ruling in the
We reported in
As of
Additional Child Tax Credit - In 2009, we reported a significant increase in ACTC claims by filers who were ineligible or unable to obtain a Social Security Number. n28 These individuals are not authorized to work in
For Processing Year n30 2005, a total of 796,000 ITIN filers claimed ACTCs totaling
With this increase in claims for the ACTC, there has also been an increased demand for ITINs in order to file these returns. For Fiscal Year 2011, the IRS processed more than 2.2 million ITIN applications. n32 Along with the increased demand for ITINs comes an increased risk that individuals may submit questionable applications to obtain an ITIN for use in filing a tax return to erroneously claim the ACTC. In
In a
We are currently conducting an audit to assess the
American Opportunity Tax Credit - The Recovery Act amended the Hope Scholarship Credit n36 to allow a refundable tax credit -- called the American Opportunity Tax Credit (AOTC). The AOTC allowed individuals to receive a credit for higher education expenses up to
As part of our Recovery Act oversight, we reported in
Premium Tax Credit - The Affordable Care Act provides for a refundable tax credit to offset an individual's health insurance expenses. Beginning in TY 2014, some low to moderate income individuals eligible to obtain health insurance through one of the State Exchanges or the Federal Exchange (collectively referred to as the Exchanges) n41 may be eligible for a refundable credit to assist them in paying monthly insurance premiums. The amount of the credit is determined by an individual's income in relation to the Federal poverty level, among other factors. In
Like other refundable credits, there is a risk for improper payments with the Premium Tax Credit. For example, Advanced Premium Tax Credits are computed using a number of factors, including an individual's projected 2014 income, family size, etc. The Exchanges rely on information provided by individuals during the application process as well as information provided by third-parties, including the IRS, to estimate an individual's eligibility to receive the credit. However, it is not until the individual files his or her TY 2014 tax return during CY 2015 that the IRS will know the individual's actual income for 2014 and the amount of the tax credit the individual is entitled to receive.
Individuals who receive an Advanced Premium Tax Credit will reconcile the amount received to the amount of Premium Tax Credit they are eligible to receive based on their actual 2014 income and family size when they file their 2014 tax return. Individuals who are eligible to receive the Premium Tax Credit but did not receive an advanced credit can claim the credit on their 2014 tax return. Individuals who received more than they were entitled to in the form of an Advanced Premium Tax Credit will be responsible for repaying all or part of the credit paid. The IRS will assess the additional credit on the taxpayer's account and attempt to collect it.
We have developed a multi-audit strategy to evaluate the
Currently, we are in the process of evaluating the accuracy of the
Fuel Tax Credit - Individual taxpayers may claim credits for Federal excise taxes paid on fuels used for tax-exempt purposes, such as farming and off-highway businesses. During Processing Year 2011, approximately
IDENTITY THEFT AND TAX REFUND FRAUD
While refundable tax credits increase the risk of potentially fraudulent tax refunds, other issues concerning tax administration can also pose a significant risk for improper payments. For example, the IRS does not have third-party information to effectively verify income and withholding when tax returns are processed. The IRS is also challenged with the rapidly growing problem of identity theft tax refund fraud, including the use of Social Security Numbers of and by prisoners to file false tax returns, and tax fraud related to the use of stolen Employer Identification Numbers (EIN). n48
Identity Theft
The IRS has described identity theft as the number one tax scam for 2014. n49 The IRS has made this issue one of its top priorities and has made some progress; however, significant improvements are still needed.
As of
In
In addition, we expanded our TY 2011 analysis to include tax returns where the primary Taxpayer Identification Number on the tax return is an ITIN. We identified more than 141,000 TY 2011 tax returns filed with an ITIN that have the same characteristics as IRS-confirmed identity theft tax returns. Potentially fraudulent tax refunds issued for these undetected tax returns totaled approximately
A common characteristic of tax returns filed by identity thieves is the reporting of false income and withholding to generate a fraudulent tax refund. Another aspect to this problem is that many individuals who are victims of identity theft may be unaware that their identity has been stolen and used to file fraudulent tax returns. These individuals are typically those who are not required to file a tax return. n52
The IRS continues to expand its efforts to identify fraudulent tax returns and prevent the payment of tax refunds by processing all individual tax returns through identity theft screening filters. These filters look for known characteristics of identity theft cases to detect fraudulent tax returns before they are processed and before any tax refunds are issued. In Processing Year 2012, there were 11 filters that identified approximately 325,000 tax returns and prevented approximately
Tax returns detected by the various expanded filters are held during processing until the IRS can verify the taxpayers' identities. IRS employees attempt to contact these individuals and request information to verify that the individual filing the tax return is the legitimate taxpayer. If the IRS cannot confirm the filer's identity, it suspends processing of the tax return to prevent the issuance of a fraudulent refund.
In
Finally, the IRS has significantly expanded the number of tax accounts that it locks by placing an indicator on the individual's tax account. n54 In Processing Year 2011, the IRS began locking taxpayers' accounts where the
Between
Despite these improvements, the IRS could continue to expand the use of characteristics of confirmed identity theft cases to improve its ability to detect and prevent the issuance of fraudulent tax refunds. As we reported in
To improve the
In addition, in
Identifying potential identity theft tax fraud is the first step. Once the IRS identifies a potential identity theft tax return, it must verify the identity of the individual filing the return. However, verifying whether the returns are fraudulent will require additional resources. Using IRS estimates, it would cost approximately
Without the necessary resources, it is unlikely that the IRS will be able to work the entire inventory of potentially fraudulent tax returns it identifies. The IRS selects only those tax returns for which it can verify the identity of the taxpayer and/or the income based on available resources. If the IRS does not have the resources to work the remainder of the potentially fraudulent tax returns it identifies, the refunds for those returns will be issued. The net cost of failing to provide the necessary resources is substantial, given that the potential revenue loss to the Federal Government of these tax fraud-related identity theft cases is billions of dollars annually.
TIGTA Criminal Investigations of Identity Theft and Impersonation Scams
Identity theft has a negative impact on the economy, and the damage it causes to its victims can be personally, professionally, and financially devastating. When individuals steal identities and file fraudulent tax returns to obtain fraudulent refunds before the legitimate taxpayers file, the crime is tax fraud, which falls within the programmatic responsibility of
Tax fraud-related identity theft extends beyond the borders of
Currently, TIGTA is investigating several cases that involve international identity theft potentially impacting nearly 30,000 victims with estimated fraudulent tax refund claims of between
IRS employees are entrusted with the sensitive personal and financial information of taxpayers. Using this information to perpetrate a criminal scheme for personal gain negatively impacts our Nation's voluntary tax system and it can generate widespread distrust of the IRS. TIGTA aggressively investigates IRS employees involved in identity theft-related tax refund fraud and refers these investigations to the
In
TIGTA investigated an IRS employee who accessed a family member's tax return information that was stored in an IRS database and used that information to file a false amended tax return. She directed the tax refund generated from the false tax return to her own address. The IRS employee pled guilty in
In another case, a former IRS employee was indicted for wire fraud and aggravated identity theft in
TIGTA also investigates tax preparers who misuse their clients' information to commit identity theft-related refund fraud. For example, TIGTA investigated a tax preparer who stole the personal identifiers of her clients and filed numerous fraudulent tax returns without their permission or knowledge. The tax preparer, who was indicted in
In another case, TIGTA investigated a tax preparer who stole the personal identifiers of several individuals and unlawfully disclosed the information to others to fraudulently obtain tax refunds. According to the indictment, the subject of the investigation worked as a tax preparer from
In addition to these TIGTA investigations, the IRS announced in
Criminals have been impersonating the IRS for years. While the fraud schemes may change, the motive remains the same: to bilk honest taxpayers out of their hard-earned money. Scammers and thieves often prey on immigrants and the elderly and sometimes even resort to threats. For example, in the summer of 2013, TIGTA began receiving numerous complaints from around the country about suspicious callers claiming to be IRS employees collecting taxes from recent IRS audits. The callers demanded that the tax payments be made to pre-paid credit cards and threatened arrest, suspension of business or driver's licenses, and even deportation if the callers' demands were not met. In many cases, the callers became hostile and insulting. Investigative information indicates that the calls originated from outside
Identity theft and other fraud schemes targeting senior citizens continue to be on the rise. Sweepstakes and lottery scams, e-mail and phishing scams, and investment scams are among the top ten fraud schemes used by criminals to target seniors. n77
Tax Refund Fraud
Verification of Income and Withholding
Access to third-party income and withholding information at the time tax returns are processed is the most important tool the IRS could use to detect and prevent tax fraud resulting from the reporting of false income and withholding. While the IRS has increased its detection of fraudulent tax returns at the time tax returns are processed and has prevented the issuance of billions of dollars in fraudulent tax refunds, it still does not have timely access to third-party income and withholding information needed to make any substantial improvements in its detection efforts.
Expanded access to the National Directory of New Hires could immediately provide the IRS with this type of information that could help prevent tax fraud. Currently, the
Improvements can also be made to the income and verification processes when tax returns are identified by the IRS as potentially fraudulent. In
Prisoner Fraud
Refund fraud associated with the use of Social Security Numbers of and by prisoners to file false tax returns remains a significant problem for tax administration. The IRS informed us that the number of fraudulent tax returns identified by the IRS as filed using a prisoner SSN has increased from more than 18,000 tax returns in CY 2004 to more than 186,000 tax returns in CY 2011. The refunds claimed on these tax returns increased from
In
We also found that the review process used by the IRS to compile the 2009 prisoner data file n85 lacked managerial oversight to ensure the accuracy and reliability of this file. This omission is critical because the Prisoner File is used by the IRS to identify potentially fraudulent prisoner tax returns at the time a tax return is filed and prior to issuance of the refund. In
Stolen or Falsely Obtained Employer Identification Numbers
Individuals attempting to commit tax refund fraud commonly steal or falsely obtain an EIN to file tax returns reporting false income and withholding. A valid EIN for the employer must be provided in support of wages and withholding reported on individual tax returns. Individuals who report wages and withholding on a tax return must attach a Form W-2, Wage and Tax Statement, n89 to a paper-filed tax return to support the income and withholding reported. For an e-filed tax return, the filer must input the information from the Form W-2 into the e-filed tax return.
TIGTA identified 767,071 TY 2011 e-filed individual tax returns with refunds based on falsely reported income and withholding using a stolen or falsely obtained EIN. n90 TIGTA estimates that the IRS could issue almost
. 277,624 were stolen EINs used to report false income and withholding on 752,656 tax returns with potentially fraudulent refunds issued totaling more than
. 8,046 were falsely obtained EINs used to report false income and withholding on 14,415 tax returns with potentially fraudulent refunds issued totaling more than
These 767,071 returns with potentially fraudulent refunds issued is in addition to the approximately 1.2 million undetected TY 2011 tax returns we identified as having characteristics of an identity theft tax return discussed earlier in our testimony.
The IRS has developed a number of processes to prevent fraudulent refunds claimed using stolen and falsely obtained EINs. As previously noted, third-party information is not available to effectively detect the reporting of false income and withholding at the time tax returns are processed. Nonetheless, the IRS has both tax information and other data that can be used to proactively identify tax returns with income reported using a stolen or falsely obtained EIN. Using these data, the IRS could have identified 53,169 tax returns with refunds issued totaling almost
IMPLEMENTATION OF THE AFFORDABLE CARE ACT
The Patient Protection and Affordable Care Act n91 and the Health Care and Education Reconciliation Act of 2010 (Affordable Care Act) contains an extensive array of tax law changes that will present many challenges for the IRS in the coming years. The ACA provisions provide incentives and tax breaks to individuals and small businesses to offset health care expenses. They also impose penalties, administered through the tax code, for individuals and businesses that do not obtain health care coverage for themselves or their employees. The ACA represents the largest set of tax law changes in more than 20 years and represents a significant challenge to the IRS.
ACA-related Customer Service
In
However, changes in the implementation of ACA tax provisions may result in increased demand for customer service assistance resulting in more contacts with the IRS. Depending on the nature of any changes made to ACA tax provisions, the
Security Over Federal Tax Data
The information technology and security challenges for the ACA are considerable and include implementation of interdependent projects in a short span of time, evolving requirements, coordination with internal and external stakeholders, cross-agency system integration, and testing. ACA implementation will have a significant impact on existing systems, so there must be bandwidth to support all provisions. Finally, projects must be staffed with personnel who have the required knowledge and skills to efficiently deploy new technologies. To manage these challenges, the IRS created a
The Exchanges will request income and family size information for each applicant and their family members who are qualified to apply for health insurance and will forward the request to the IRS.
The IRS, using Federal tax data, will determine the applicant's historical household income, family size, filing status, adjusted gross income, taxable
TIGTA issued a report on the
TIGTA remains concerned about the protection of confidential taxpayer data that will be provided to the Exchanges. The Federal tax data provided to HHS and the Exchanges will be protected through the
Protection Against Fraudulent ACA Claims on Tax Returns
The Exchanges will use the income and family size information received from the IRS as well as information provided by the applicant and other data sources in finalizing the income amounts and family size. TIGTA is currently evaluating the accuracy of the data that the IRS provides to the HHS for use in enrolling individuals and calculating the Advanced Premium Tax Credit, and plans to issue a report this year. n96 We plan to assess the protection of Federal tax data provided by the Program in the future. n97
There could be many reasons why the Credit originally claimed by the taxpayer is different when the tax return is filed. For example, the taxpayer's income could have changed from the prior year when he or she applied for health coverage, or the taxpayer's family size may have increased or decreased from the prior year.
TIGTA is concerned that the potential for refund fraud and related schemes could increase as a result of processing ACA Premium Tax Credits unless the IRS builds, implements, updates, and embeds ACA predictive analytical fraud models into its tax filing process.
The IRS has developed a plan to prevent, detect, and resolve fraud and abuse during ACA tax return processing. The plan, when fully developed and implemented, is designed to leverage third-party reporting from the Exchanges and new computer analytical capability built into the Return Review Program. n98 The plan calls for the development of the ACA Validation Service which will be used to identify improper ACA-related refunds. The ACA Validation Service will be designed to perform screening for improper refunds and will also identify fraudulent schemes that include multiple returns. The IRS plans to rely on the Electronic Fraud Detection System and/or the new Return Review Program to provide the systems to identify and prevent ACA-related refund fraud.
The applications for processing electronic and paper tax returns will need to be modified before
TIGTA performed a system development audit of the Return Review Program n99 and determined that roles for program-level governance were not yet established for the Return Review Program, and that the key role of system integrator was not documented or clearly communicated. As a result, there is limited assurance that Return Review Program systems development activities will achieve expected benefits or meet time-sensitive business and information technology requirements for addressing the
ACA Provisions Impacting the Current 2014 Filing Season
Several ACA tax-related provisions became effective for CY 2013 that affect individuals with high incomes including the creation of a new net investment income tax, n100 and an increase in the employee-share of the
Taxpayers will begin filing tax returns with these tax changes during the 2014 Filing Season. In addition to reprogramming its computer systems to properly reflect these changes, the IRS had to issue guidance to taxpayers and tax return preparers explaining each of these provisions and revise or develop new tax forms, instructions and publications to reflect the tax law changes. We have a review ongoing to determine if the IRS has correctly implemented these provisions, which includes analyzing tax returns to ensure that they are accurately processed. n102
A serious challenge confronting the IRS is the Tax Gap, which is defined as the difference between the estimated amount taxpayers owe and the amount they voluntarily and timely pay for a tax year. The most recent gross Tax Gap estimate developed by the IRS was
The largest component (approximately 84 percent) of the Tax Gap is based on taxpayers' underreporting taxes due. The IRS addresses this gap by attempting to identify questionable tax returns when they are received and processed and by conducting examinations of tax returns filed to determine if there are any adjustments needed to the information reported on the tax returns. Additional taxes are assessed and collected.
The next component (10 percent) of the Tax Gap is based on taxpayers underpaying taxes due. The IRS addresses this gap by issuing notices and contacting taxpayers to collect the delinquent taxes. The IRS is authorized to take enforcement action, such as filing liens and seizing assets, to collect the taxes.
The smallest component (6 percent) of the Tax Gap is based on taxpayers who do not file tax returns when they are due. This component also may not have taxes withheld or make estimated taxes. The IRS analyzes data from third parties (such as Forms W-2 or Forms 1099) to identify taxpayers who should have filed a tax return, and either prepares a substitute tax return or contacts the taxpayer to obtain the delinquent tax return.
The scope, complexity, and magnitude of the international financial system also presents significant enforcement challenges for the IRS. At the end of CY 2012, foreign business holdings and investments in
As advancing technology continues to allow more cross-border transactions, the IRS is increasingly challenged by a lack of information reporting on many of them. In addition, the varying legal requirements imposed by different jurisdictions lead to the creation of complex business structures that are not easy to understand, making the determination of the full scope and effect of cross-border transactions extremely difficult.
As this global economic activity increases, so do concerns regarding the International Tax Gap. n104 While the IRS has not developed an accurate and reliable estimate of the International Tax Gap, non-IRS sources estimate it to be between
The IRS also currently faces the challenge of implementing the Foreign Account Tax Compliance Act (FATCA). n105 FATCA was enacted to combat tax evasion by U.S. persons holding investments in offshore accounts. Under this Act, a U.S. taxpayer with financial assets outside
Concerns about the International Tax Gap have also led to increased enforcement efforts on international information reporting requirements and increased assessments of related penalties. For example, the IRS has automated the penalty-setting process for the Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, which has resulted in a total of
In addition, the IRS established the International Campus Compliance Unit to expand its audit coverage of tax returns with international aspects and to increase compliance among international individual taxpayers. For FY 2011 through
We reviewed enforcement revenue trends and noted that in FY 2007, the IRS collected over
One enforcement program whose resources have been significantly reduced is the Automated Collection System (ACS). The ACS function attempts to collect taxes through telephone contact with taxpayers before cases are assigned to revenue officers who make in-person visits to collect delinquent taxes. The ACS has 16 call sites in the Small Business and Self Employed Division and Wage and Investment Division. However, ACS staff was reduced from 2,824 contact representatives in FY 2010 to 2,140 (24 percent) contact representatives in FY 2013. In addition, three call sites were taken off-line in
Another impact on the ACS program is how resources are applied to its growing workload. In FY 2013, the ACS prioritized answering telephone phone calls from taxpayers over working delinquent accounts, which resulted in the ACS spending only 24 percent of its resources on working inventory and 76 percent on answering taxpayers' questions. The shift from working inventory has had consequences on the ACS's core mission of collecting delinquent taxes. In an ongoing audit, we reviewed ACS business results from FY 2010 through FY 2013 and determined:
. New inventory is outpacing closures, so the inventory is growing.
. Inventory is taking longer to close, and the cases are older.
. When cases are closed, more are closed as currently not collectible.
. Fewer enforcement actions are taken.
. More, and older, cases are being transferred to the growing inventory of cases available to be assigned Collection Field personnel. n109
Leveraging external resources, such as whistleblowers, can help improve tax compliance.
Modernizing information systems could potentially allow the IRS to post more comprehensive tax return information to its computer systems, which could facilitate the examination process and expedite taxpayer contacts for faster resolution.
The IRS considers the Customer Account Data Engine 2 (CADE 2) program to be critical to its mission and it is the
Simplifying the tax code could help taxpayers understand and voluntarily comply with their tax obligations and limit opportunities for tax evasion.
Finally, penalties are an important tool because they discourage taxpayer behavior that contributes to the Tax Gap.
MANAGEMENT ACTIONS IN RESPONSE TO PRIOR REPORTED ISSUES
TIGTA follows up regularly on management actions in response to recommendations in our reports. Two notable examples that we are currently following up on are the reports on Exempt Organizations and IRS spending on conferences.
TIGTA previously reported n113 that the IRS used inappropriate criteria for selecting and reviewing applications for tax-exempt status. This resulted in substantial delays in processing certain applications and unnecessary information requests being issued to certain organizations.
In its response to our report on conference spending, n115 IRS management agreed with all of our recommendations. Since the issuance of our report, the IRS has addressed many of our recommendations with interim guidance that it plans to formalize through updates to the Internal Revenue Manual. n116 Once the IRS finalizes its guidance, TIGTA plans to conduct a follow-up audit to determine if controls implemented by the IRS address the recommendations we made.
We at TIGTA take seriously our mandate to provide independent oversight of the IRS in its administration of our Nation's tax system. As such, we plan to provide continuing audit coverage of the
Chairman Crenshaw, Ranking Member Serrano, and Members of the Subcommittee, thank you for the opportunity to share my views.
n1
n2 IRS, Management's Discussion & Analysis, Fiscal Year 2013.
n3 Pub. L. No. 105-206, 112
n4 Pub. L. No. 111-5, 123
n5 Pub. L. No. 112-25, 125
n6 A rescission cancels part of an agency's discretionary budget authority and is usually established as a percentage reduction to the budget authority.
n7 Sequestration involves automatic spending cuts of approximately
n8 The IRS refers to the suite of 29 telephone lines to which taxpayers can make calls as "Customer Account Services Toll-Free."
n9 TIGTA, Ref. No. 2013-40-124, Late Legislation Delayed the Filing of Tax Returns and Issuance of Refunds for the 2013 Filing Season (Sep. 2013).
n10 The average amount of time for an assistor to answer the call after the call is routed to a call center staff.
n11 TIGTA, Ref. No. 2013-40-129, Case Processing Delays and Tax Account Errors Increased Hardship for Victims of Identity Theft (Sep. 2013).
n12 Pub. L. No. 107-300, 116
n13 Pub. L. No. 111-204, 124
n14 TIGTA, Ref. No. 2013-40-015, Improper Payments Elimination and Recovery Act Risk Assessments of Revenue Programs Are Unreliable (Jan. 2013).
n15 TIGTA, Ref. No. 2011-41-083, Billions of Dollars in Education Credits Appear to Be Erroneous (Sep. 2011).
n16 The maximum benefit an individual will receive if a nonrefundable credit is claimed inappropriately is to fully offset his or her tax liability resulting in the individual owing nothing. Refundable credits do not have such limitations. Refundable credits can result in tax refunds even if no income tax is withheld or paid; that is, the credits can exceed the tax liability.
n17 Tax Reduction Act of 1975 [Sec.] 204, 26 U.S.C [Sec.] 32.
n18 The ACTC is the refundable portion of the Child Tax Credit. This credit phases out for taxpayers depending upon their income level. Taxpayers with earned income of less than
n19 Pub. L. No. 111-148, 124
n20 Due diligence requirements require paid tax return preparers to gather, verify, and maintain specific information when filing a tax return claiming the EITC.
n21 IRS, Report on Earned Income Tax Credit (EITC) Improper Payments Executive Order 13520: Reducing Improper Payments (
n22 TIGTA, Ref. No. 2005-40-133,
n23 TIGTA, Ref. No. 2009-40-024, The Earned Income Tax Credit Program Has Made Advances; However, Alternatives to Traditional Compliance Methods Are Needed to Stop Billions of Dollars in Erroneous Payments (Dec. 2008).
n24 Brannen v.
n25 Loving v.
n26 TIGTA, Ref. No. 2013-40-124, Late Legislation Delayed the Filing of Tax Returns and Issuance of Refunds for the 2013 Filing Season (Sep. 2013).
n27 TIGTA, Ref. No. 2012-40-119, The Majority of Individual Tax Returns Were Processed Timely, but Not All Tax Credits Were Processed Correctly During the 2012 Filing Season (Sep. 2012).
n28 TIGTA, Ref. No. 2009-40-057, Actions Are Needed to Ensure Proper Use of Individual Taxpayer Identification Numbers and to Verify or Limit Refundable Credit Claims (Mar. 2009).
n29 An Individual Taxpayer Identification Number is available to individuals who are required to have a taxpayer identification number for tax purposes, but do not have and are not eligible to obtain a Social Security Number because they are not authorized to work in
n30 The calendar year the tax return or document is processed by the IRS.
n31 TIGTA, Ref. No. 2011-41-061, Individuals Who Are Not Authorized to Work in
n32 ITIN processing uses the full-time equivalent of 463 IRS employees.
n33 TIGTA, Ref. No. 2012-42-081, Substantial Changes Are Needed to the Individual Taxpayer Identification Number Program to Detect Fraudulent Applications (July 2012).
n34 TIGTA, Ref. No. 2013-40-052, Review and Verification of Individual Taxpayer Identification Number Applications Has Improved, However, Additional Processes and Procedures Are Still Needed (May 2013).
n35 TIGTA, Audit No. 201340031, Efforts to Reduce Erroneous Refundable Child-Based Tax Credit Payments, report planned for
n36 The Hope Scholarship Credit was established to assist middle-class families with the costs associated with a college degree.
n37 Pub. L. No. 112-240,126
n38 TIGTA, Ref. No. 2011-41-083, Billions of Dollars in Education Credits Appear to Be Erroneous (Sep. 2011).
n39 Institutions of higher education are required to provide each student with a Form 1098-T, Tuition Statement, that reports payments received or amounts billed for qualified tuition and related expenses, scholarships and grants given, adjustments made for a prior year, and the name and location of the institution. Educational institutions are required to provide a Form 1098-T to students who attend their institution and a duplicate copy to the IRS.
n40 TIGTA, Audit No. 201440015, Efforts to Identify and Prevent Erroneous Education Credits - Follow-up, report planned for
n41 Exchanges are intended to allow eligible individuals to obtain health insurance, and all Exchanges, whether State-based or established and operated by the Federal Government, will be required to perform certain functions.
n42 A refundable tax credit to assist individuals and families in purchasing health insurance coverage through an Exchange.
n43 An Advanced Premium Tax Credit is paid in advance to a taxpayer's insurance company to help cover the cost of premiums.
n44
n45 TIGTA, Ref. No. 2013-23-119, Affordable Care Act: Improvements Are Needed to Strengthen Systems Development Controls for the
n46 TIGTA, Audit No. 201340335, Affordable Care Act: Accuracy of the Income and Family Size Verification and Advanced Premium Tax Credit Calculation, report planned for
n47 TIGTA, Audit No. 201230024, Fuel Tax Credits, report planned for
n48 An EIN is a Federal Tax Identification Number used to identify a taxpayer's business account. The EIN is used by employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts and estates, government agencies, certain individuals, and other types of businesses.
n49
n50 TIGTA, Ref. No. 2013-40-122, Detection Has Improved; However, Identity Theft Continues to Result in Billions of Dollars in Potentially Fraudulent Tax Refunds (Sep. 2013).
n51 TIGTA, Ref. No. 2012-42-080, There Are Billions of Dollars in Undetected Tax Refund Fraud Resulting From Identity Theft (July 2012).
n52 Individuals who generally are not required to file a tax return include children, deceased individuals, elderly, and individuals who earn less than their standard deduction or earn non-taxable income such as some
n53 The IRS indicated that it had identified 218,156 tax returns and prevented approximately
n54 When an account is locked, tax refunds are not processed.
n55 The IRS database that stores various types of taxpayer account information. This database includes individual, business, and employee plans and exempt organizations data.
n56 TIGTA, Ref. No. 2008-40-182, Processes Are Not Sufficient to Minimize Fraud and Ensure the Accuracy of Tax Refund Direct Deposits (Sep. 2008).
n57 TIGTA, Ref. No. 2013-40-122, Detection Has Improved; However, Identity Theft Continues to Result in Billions of Dollars in Potentially Fraudulent Tax Refunds (Sep. 2013).
n58 TIGTA, Audit No. 201440001, Detection and Prevention of Identity Theft on Individual Tax Accounts - Follow-Up.
n59 Formerly, the
n60 Phishing is an attempt by an individual or group to solicit personal and financial information from unsuspecting users in an electronic communication by masquerading as trustworthy entities such as government agencies, popular social websites, auction sites, online payment processors, or information technology administrators.
n61
n62
n63 N.D.N.Y. Plea Agr. filed
n64
n65
n66
n67
n68 N.D. Ga. Executed Arrest Warrant dated
n69 N.D. Ga. Crim. Compl. dated
n70 N.D. Ga. Plea Agr. filed
n71 N.D. Ga. Crim. Info. filed
n72
n73 Id.
n74
n75
n76
n77 Top Ten Scams Targeting Seniors,
n78
n79
n80 TIGTA, Ref. No. 2013-40-083, Income and Withholding Verification Processes are Resulting in the Issuance of Potentially Fraudulent Tax Refunds (Aug. 2013).
n81 TIGTA, Ref. No. 2011-40-009, Significant Problems Still Exist With Internal Revenue Service Efforts to Identify Prisoner Tax Refund Fraud (Dec. 2010).
n82 Pub. L. No. 110-428, 122
n83 Pub. L. No. 111-198, 124
n84 Pub. L. No. 112-240, 126
n85 The IRS annually compiles a list of prisoners (Prisoner Data File) from the
n86 TIGTA, Ref. No. 2013-40-011, Further Efforts Are Needed to Ensure the Internal Revenue Service Prisoner File is Accurate and Complete (Dec. 2012).
n87 TIGTA, Audit No. 201340016, Prisoner Fraud - Follow-Up, report planned for
n88 TIGTA, Ref. No. 2011-40-009, Significant Problems Still Exist With Internal Revenue Service Efforts to Identify Prisoner Tax Refund Fraud (Dec. 2010).
n89 The IRS requires employers to report wage and salary information for employees on a Form W-2. The Form W-2 also reports the amount of Federal, State, and other taxes withheld from an employee's paycheck.
n90 TIGTA, Ref. No. 2013-40-120, Stolen and Falsely Obtained Employer Identification Numbers Are Used to Report False Income and Withholding (Sep. 2013).
n91 Pub. L. No. 111-148, 124
n92 TIGTA, Ref. No. 2014-43-006, Affordable Care Act: The Customer Service Strategy Sufficiently Addresses Tax Provisions; However, Changes in Implementation Will Create Challenges (Dec. 2013).
n93 Exchanges are intended to allow eligible individuals to obtain health insurance, and all Exchanges, whether State-based or established and operated by the Federal government, will be required to perform certain functions.
n94 TIGTA, Ref. No. 2013-23-034, Affordable Care Act:
n95 TIGTA, Audit No. 201320029, Review of the
n96 TIGTA, Audit No. 201340335, Affordable Care Act: Accuracy of the Income and Family Size Verification and Advanced Premium Tax Credit Calculation, report planned for
n97 TIGTA, Audit No. 201420302, Security Over Federal Tax Data at Health Insurance Exchanges, report planned for
n98 The Return Review Program is the key automated component of the
n99 TIGTA, Ref No. 2013-20-063, Improvements Are Needed to
n100 The ACA created a new tax that is equal to 3.8 percent of an individual's net investment income for the tax year or the excess of the individual's Modified Adjusted Gross Income over
n101 The ACA increased the employee-share of the
n102 TIGTA, Audit No. 201440014, 2014 Filing Season Implementation, report planned for
n103 The voluntary compliance rate is an estimate of the amount of tax for a given year that is paid voluntarily and timely.
n104 Taxes owed but not collected on time from a U.S. person or foreign person whose cross-border transactions are subject to U.S. taxation.
n105 Pub. L. No. 111-147, Subtitle A, 124
n106 TIGTA Ref. No. 2013-20-118, Foreign Account Tax Compliance Act: Improvements Are Needed to
n107 TIGTA, Ref. No. 2013-30-111, Systemic Penalties on Late-Filed Forms Related to Certain Foreign Corporations Were Properly Assessed, but the Abatement Process Needs Improvement (Sept. 2013).
n108 TIGTA, Ref. No. 2013-30-113, The International Campus Compliance Unit Is Improving Individual Tax Compliance (Sept. 2013).
n109 TIGTA, Audit No. 201330017, Review of the Automated Collection System Inventory Management, report planned for
n110 TIGTA, Ref. No. 2012-30-045, Improved Oversight Is Needed to Effectively Process Whistleblower Claims (Apr. 2012).
n111 TIGTA, Ref. No. 2012-20-122, Customer Account Data Engine 2 System Requirements and Testing Processes Need Improvements (Sep. 2012).
n112 Computer models that analyze extremely large quantities of data to seek out data patterns and relationships that could indicate potential tax fraud schemes.
n113 TIGTA, Ref. No. 2013-10-053, Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review (May 2013).
n114 TIGTA, Audit No. 201410009, Status of Actions to Improve Identification and Processing of Applications for Tax-Exempt Status - Follow-Up.
n115 TIGTA, Ref. No. 2013-10-037, Review of the
n116 The Internal Revenue Manual is the primary official source of IRS instructions to staff that relate to the administration and operation of the IRS.
Read this original document at: http://docs.house.gov/meetings/AP/AP23/20140226/101771/HHRG-113-AP23-Wstate-GeorgeJ-20140226.pdf
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House Appropriations Subcommittee on Financial Services and General Government Hearing
House Appropriations Subcommittee on Financial Services and General Government Hearing
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