Report: IRS turned blind eye to fraud

The IRS has said that it has already started to beef up its oversight of ITIN applications and will continue to make improvements. 

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But GOP lawmakers slammed the agency’s handling of the issue, with one senior House Republican — Rep. Sam Johnson (Texas) — calling for the resignation of the IRS commissioner, Doug Shulman. 

In all, the IRS processed some 2.9 million returns with ITINs in 2011, to the tune of roughly $6.8 billion in refunds. The inspector general report does not say what percentage of those returns or refunds were fraudulent, and IG officials have said that figure would be difficult to figure out. 

The report found the IRS had scrapped a program that looked to sniff out potential ITIN fraud and did not spend enough time training employees on how to look for signs of fraud.

The inspector general conducted the report after a pair of lawmakers expressed concern that the IRS was essentially rubber-stamping ITIN applications, with agency higher-ups only interested in the number of submissions that could be approved.

An IRS spokeswoman, in response to the report, said that the agency already had started to require more documentation to obtain an identification number.

In June, the agency announced that applicants would need either original or certified copies of birth certificates or passports to get an ITIN, and they could no longer rely on notarized documents. 

The IRS has also agreed to give more training to employees on the issue, with new tax examiners only getting an hour of discussion on spotty documents. Agency employees also told the inspector general they had no incentive to report fraud.

“We are in the process of conducting a comprehensive review of the program to make additional changes before the next tax season to provide further safeguards for the ITIN program,” Michelle Eldridge, the IRS spokeswoman, said in a statement. 

But Rep. Charles Boustany (R-La.), the chairman of the House Ways and Means subcommittee on oversight, sent Shulman a letter seeking more answers on how the IRS runs its ITIN process. 

Boustany noted that a previous inspector general report found that filers with the identification numbers claimed more than $4 billion worth of additional child tax credits in 2010, and another that said the IRS could issue billions of dollars worth of fraudulent refunds over the next five years. 

“It’s one thing if the IRS tries to catch fraud and fails, but it’s quite another when management apparently takes steps to weaken program integrity,” Boustany said in a statement. 

Johnson, the chairman of the Ways and Means subcommittee on Social Security, went further, saying in a statement that “the commissioner and certain IRS officials are essentially aiding and abetting illegal immigrants.”

Sen. Orrin Hatch (Utah), the ranking Republican on the Senate Finance Committee, will also be looking into the issue, according to a spokeswoman.

The inspector general’s report found, among other things, that single addresses in both Phoenix and Dallas were used for more than 15,000 ITIN applications, and that more than 150 mailing addresses in all were used more than 1,000 times. 

One address in Atlanta was used for almost 24,000 ITIN tax refunds in 2011, for a total amount of $46.4 million.

The report also found that agency officials split up a team that was focused on finding possible fraud schemes among ITIN applications after it helped identify more than $43 million in erroneous refunds.