Criminal Investigations of Identity Theft Increasing at IRS

The Internal Revenue Service opened 1,100 criminal investigations of tax fraud by June 30 of this year, exceeding the 2012 total with three months remaining in the fiscal year.

The agency has doubled the number of employees working on tax-fraud cases to more than 3,000 and is approaching last year’s total of 5 million suspicious tax returns rejected, interim IRS leader Danny Werfel told a congressional committee today in Washington.

Those efforts would be complicated by additional budget cuts proposed in Congress, Werfel said. A budget cut of about $1 billion since 2010 has led the agency to cut about 8 percent of its full-time staff, or about 8,000 workers, he said.

With further cuts, “we would no longer be able to sustain our current level of effort on identify theft without significantly weakening other programs,” Werfel said.

House Republicans have proposed reducing the agency’s budget by 24 percent.

Werfel’s testimony to a subcommittee of the House Oversight and Government Reform panel comes as the agency is mired in controversies over its scrutiny of Tea Party groups, spending on conferences and payment of bonuses to agency officials.

President Barack Obama forced out Werfel’s predecessor, acting IRS commissioner Steven Miller, and yesterday nominated John Koskinen to take over the agency.

“Refund fraud caused by identity theft is one of the biggest challenges facing the IRS today,” Werfel told the House subcommittee.

Death Records
Criminals with access to taxpayers’ identifying information—sometimes from death records or employer payroll files—can create fraudulent tax returns and obtain refunds before the actual taxpayer is aware of the theft.

Obama’s 2014 budget plan included proposals to curb a rise in identity theft occurring through tax returns. It called for a $5,000 civil penalty for tax-related identity theft, restricting access to Social Security death records and allowing employers to avoid putting Social Security numbers on W-2 wage reporting forms.

For fiscal year 2012, the IRS’s identity-theft unit received about 450,000 cases, up 78 percent over the previous year, according to the National Taxpayer Advocate, an independent organization within the agency. This year, the IRS has resolved 565,000 cases, Werfel said.

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IRS Ramps up Criminal Investigations

The Internal Revenue Service’s Criminal Investigation unit released an annual report Friday showing that it increased investigations, prosecutions and convictions of tax evaders and preparers last year.


Initiations of criminal investigation amounted to 5,125 cases in fiscal 2012 while the number of investigations completed was 4,937, an increase of 5 percent compared to fiscal 2011. Convictions totaled 2,634 in fiscal 2012 while the conviction rate edged up slightly to 93 percent.

The IRS also investigated and prosecuted more tax preparers last fiscal year. It initiated 443 investigations in fiscal 2012, up from 371 in fiscal 2011. There were 276 prosecution recommendations in fiscal 2012, an increase from 233 in fiscal 2011. Sentencings rose to 172 in fiscal 2012 from 163 in fiscal 2011.

The 28-page report summarizes a wide variety of IRS CI activity on a range of tax-related issues during the year ending Sept. 30, 2012.

“The key to our successes is perseverance and dedication to working complex financial investigations aimed at stopping tax fraud, identity theft, offshore tax evasion, public corruption, money laundering and other financial crimes,” said IRS Chief of Criminal Investigation Richard Weber in a statement. “This annual report showcases some of the many significant cases that were completed by CI during fiscal year 2012 and the many program areas we cover as an organization. These cases are just a few examples of the thousands of investigations initiated by CI last year, as we continue to make our mark as the finest financial investigators in the world.”

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