Struggling to deal with an explosion in tax refund fraud among street criminals, the Internal Revenue Service has stumbled a few times as it tries to make changes.
IRS officials says it has erected filters that are supposed to detect fraudulent tax returns before refunds are sent, but authorities say criminals are still managing to bilk U.S. taxpayers at least as much as they did last year. Tampa police say crooks stole hundreds of thousands of dollars in the Tampa area alone last year.
In the meantime, in the first few weeks of the tax season, the filters blocked about 140,000 legitimate tax returns, according to Ryan McCormick, staff director for a U.S. Senate subcommittee chaired by Sen. Bill Nelson, D-Fla., who has overseen hearings on the issue.
The people who filed the blocked returns were sent a letter directing them to call a special number. The IRS had not sufficiently staffed the line, though, meaning nine out of 10 callers couldn't get through, and those who did had to wait on hold for more than an hour, national Taxpayer Advocate Nina Olson told Nelson's subcommittee.
The agency also issued personal identification numbers to 250,000 people who were previously victims of identity theft. The idea is to block future use of those people's identity by blocking their future electronic returns unless accompanied by the new PIN numbers.
However, Olson said, 9,000 letters containing the numbers were returned to the agency as undeliverable, and those people won't know why their electronic returns will be blocked.
On another front, the federal agency says it has found a way to partially address complaints from local law enforcement officials frustrated by laws that prevent the IRS from sharing tax information, hindering local investigations into rampant tax refund fraud.
The IRS told Nelson's committee it hopes to launch a pilot program in which the agency will seek waivers from tax fraud victims allowing the federal government to share fraudulently filed tax returns with law enforcement.
But at least until now, the IRS has told the victims that they do not have the right to see or copy tax returns that were fraudulently submitted in their names. So the question becomes – if they have no right to see the information themselves, how can they sign a waiver giving that right to someone else?
The answer, it seems, is the IRS is changing its position and may allow victims access to fraudulent returns. But the change has not yet taken effect and it's not clear when it will be in effect.
McCormick said the IRS told him in a briefing on Thursday that it now plans to allow tax fraud victims to have access to the fraudulent forms filed in their names.
"I don't know that they've gotten that filtered out to all of the revenue agents, so that they're necessarily sending out the information on first request for the victims," McCormick said. "That's something we need to follow up on."
McCormick said the agency reserves "the right not to share the information if they think it's going to impair tax administration, so it's not entirely clear how committed they are to this idea that the victims, they want victims out there trying to track down the fraudsters themselves. This is something we need to flesh out with them a little bit."
McCormick said it's not clear what constitutes something that would "impair tax administration."
Tampa lawyer William Stainton has been battling with the IRS since he and his wife, Joanne, learned their tax return had been blocked because someone else filed a tax return in Joanne's name.
Stainton said the IRS turned down his request for a copy of the fraudulent return. Stainton and his wife are due a refund of more than $9,000, and Stainton said he hopes to use the fraudulently submitted return to identify the thief and file a lawsuit.
After being informed of the apparent change in IRS policy, Stainton again contacted the IRS on Friday morning. Stainton said the IRS representative he spoke to told him he couldn't see the form because officials are "worried about people who get that return, if they find out who did it, they might go to their house or confront them or take some action.
"That was sort of a surprising statement for an IRS representative to make in my mind because, although I understand the concern, the idea that the government's going to withhold the identity of someone who's committed a crime against you because you may do something about it, I think is ridiculous to say the least," Stainton said.
He said after he told the representative what he had heard about the new policy, she became defensive, told him his wife needed to call and hung up on him before he could ask whether they should submit a written request for the form.
Nelson's spokesman Brian Gulley said the senator will be monitoring the IRS' progress and its implementation of the pilot program. Gulley said IRS officials didn't give a definitive time frame, although they said it would be moving forward soon.
"We want to see this thing up and running and see initially how it seems to work," he said. "If it all seems to fall apart down the road, then we'll have to drag them back up there."
The program is expected to be implemented in Florida, which McCormick called "ground zero for these kinds of cases." McCormick said if it's successful here, it may move to other states.
In addition to meeting with Nelson's staff, IRS officials met with local, state and federal law enforcement in Tampa earlier this month to hammer out some of the issues and details.
"Those details are still in the works, but it's not the solution," Tampa police spokeswoman Andrea Davis said in reference to the program. "We at a local level will not be able to investigate our way out of this problem. It needs to be fixed at the point at filing and we're hopeful the IRS will be putting safety measures in place to keep people safe."
Hillsborough Sheriff's Cpl. Bruce Crumpler, whose department sees about 20 new tax fraud identity theft victims every day, said it's not clear yet how the pilot program will work, but he was optimistic it will be an improvement.
Crumpler said he hopes the IRS will share information beyond the fraudulent tax returns, such as Internet protocol addresses where the returns were filed.
It's not realistic to think the program will help solve every case, Crumpler said, and even with waivers from victims, the IRS will still have restrictions on information sharing. "But it will give us something to go with."