A bipartisan group of lawmakers have introduced legislation that would increase the penalties on tax preparers who alter tax returns for personal benefit without their clients’ knowledge.
The bill, known as the “Fighting Tax Fraud Act,” was introduced Tuesday by Rep. Erik Paulsen, R-Minn., who joined fellow members of the House Ways and Means Committee in sponsoring the bill:
- Chairman Charles Boustany, R-La.
- Ranking Democratic member John Lewis, D-Ga.
- Ranking member Jim McDermott, D-Wash.
The bill would essentially double the current penalties for tax preparers who are involved with identity theft, with the goal of giving the IRS greater incentive to prosecute this type of theft. The legislation came from a recommendation from National Taxpayer Advocate Nina Olson.
Paulsen mentioned the bill during a subcommittee hearing devoted to tax fraud and identity theft.
During that hearing, J. Russell George, head of the Treasury Inspector General for Tax Administration (TIGTA), testified that the IRS risks issuing approximately $26 billion in fraudulent tax refunds tied to identity theft in the next five years.
The TIGTA
report also alleged that the IRS doesn’t know how many identity thieves are filing fraudulent tax returns. The IRS’s Incident Tracking Statistics Report showed that 641,052 taxpayers were affected by identity theft in calendar year 2011.
At the same hearing, IRS Deputy Commissioner Steven T. Miller told lawmakers that “we have improved and we are committed to continuing to improve our programs. We can and will continue to work to prevent the issuance of fraudulent refunds and we can and will continue to work with innocent taxpayers to clear their accounts and/or get them their money faster in a courteous and professional manner.”
The IRS announced plans this year to crack down on suspected identity theft as part of broader efforts to prevent tax fraud. The agency also is stepping up internal reviews to spot false tax returns before issuing refunds, according to George. New screening procedures flag potentially fraudulent returns for closer scrutiny, and once a taxpayer’s identity has been confirmed, the tax return is processed and a refund is issued. If a taxpayer’s identity cannot be confirmed, the IRS is supposed to suspend issuing any refunds.
As a result of its new program, the IRS said it had stopped $1.3 billion in potentially fraudulent tax refunds as of mid-April, George said.