Report finds widespread fraud in taxpayer ID program

A recently released report shows widespread tax fraud in connection with the federal government’s Individual Taxpayer Identification Number program.

The U.S. Treasury inspector general report accuses the IRS of discouraging employees from reviewing applications for the ID numbers, which are generally from non-resident workers.

The inspector general specifically said there were 154 mailing addresses that were used 1,000 or more times on applications, including 15,795 numbers assigned to a Phoenix address.

The report, which evaluated the processing year 2011, also found inadequate controls can result in the numbers being assigned to people who have not proved their identity or foreign status, which can result in fraudulent tax returns.

The inspector general also found 10 individual addresses were used for filing 53,994 tax returns and receiving $86.4 million in fraudulent tax refunds. For example, 23,994 tax refunds totaling $46.3 million were issued to an address in Atlanta; and 2,507 tax refunds totaling $10.4 million were issued to an address in Oxnard, Calif.

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In addition, the Treasury’s Inspector General for Tax Administration reports found 10 bank accounts received 23,560 tax refunds totaling more than $16 million -- including: 2,706 tax refunds issued to a single account totaling $7.3 million.

The report was sent to the IRS on July 16, and released more than three weeks later.

Congressional lawmakers are demanding answers by the end of the month.

Rep. Charles Boustany, R-La., told IRS Commissioner Douglas H. Shulman in a letter that IRS employees “are discouraged from flagging potentially fraudulent ITIN applications.”

Boustany, chairman of a House Ways and Means Committee’s oversight subcommittee, also suggested the IRS has a training problem – failing to prioritize fraud prevention.

The IRS issued a statement in response to the report that said in part the agency has recognized issues with the ITIN process and that top officials are have “moved quickly and aggressively to address issues that were identified.”

“ We have already taken major steps to strengthen our documentation standards required in order to obtain an ITIN, and we have significantly increased our scrutiny of applications,” the letter also stated.  In addition, the IRS has obtained new tools and equipment to help employees improve their ability to detect fraudulent documents."