As a CPA and business owner, Rep. James B. Renacci, R-Ohio, has been preparing his own federal income tax return forms for several decades. The final product becomes a thick pile of documents, which the House Ways and Means Committee member submits to the IRS on the extension date in October instead of the regular filing deadline in April.
So it was peculiar for Renacci when a notification letter arrived in May 2015 from the IRS, requesting additional information based on a simple tax return form that the lawmaker and his wife, Tina, had supposedly filed.
"At the time, my first thought was that the IRS just doesn't know what they are talking about because I have not filed a tax return," Renacci told Tax Analysts during an interview April 15.
But in fact the Renaccis had become victims of a stolen identity theft scheme, in which a criminal files a fraudulent tax return using legitimate taxpayers' personal information, including Social Security numbers, mailing addresses, and middle names. Tax return identity theft has become so rampant that the Government Accountability Office last year said it has drastically increased the IRS's high-risk status in tax law enforcement.
The taxwriter on April 19 will testify before the Ways and Means Oversight Subcommittee at a morning hearing on the 2016 tax return filing season, using that platform to tell his personal story and renew his pitch to Congress to adopt the rest of his bill called the Stolen Identity Refund Fraud Prevention Act (H.R. 3832).
Introduced in October 2015, the bill is a product of Renacci's personal experience. Parts of the legislation are now in the Internal Revenue Code thanks to the major year-end tax and spending law (P.L. 114-113). But the lawmaker is still not satisfied, calling the piecemeal approach "frustrating, because I really believe my entire bill should have been passed," Renacci said.
This time, Renacci is optimistic his bill will get more support.
"We've been told that after [the hearing] it will potentially have a markup in the next few weeks," he said of H.R. 3832, which currently has 12 bipartisan sponsors, including taxwriters John Lewis, D-Ga., Peter J. Roskam, R-Ill., and Jim McDermott, D-Wa.
At the hearing, Renacci will focus on three provisions intended to lessen the chances of criminals obtaining legitimate taxpayers' personal information, as well as improving support for people who have become victims. The provisions would establish a central point of contact for identity theft victims, require taxpayer notification of suspected identity theft, and allow taxpayers to opt out of electronic filing.
Two tax return filing compliance provisions in Renacci's legislation became law in December 2015. First, the two-month gap closed between due dates for employers to distribute Forms W-2 and for them to file W-2s with the IRS. All forms are now due January 31.
Second, the IRS is now authorized -- but not required -- to truncate a tax return filer's Social Security number on the W-2 form. The rules, however, will not go into effect until the 2016 tax returns.
While H.R. 3832 does not have a companion measure in the Senate yet, the Finance Committee is planning a hearing on a few identity theft and tax refund fraud measures on April 20.
Getting to the Bottom of It
During the interview, Renacci recounted a lengthy process he went through to understand the notification letter. He contacted the phone number on the letter only to reach a dead end. The next day he called the local Taxpayer Advocacy Service office to learn that a tax return was indeed filed under his family's name: "They were very helpful . . . but they couldn't tell me any more."
At that time, the lawmaker was still was not aware of the online security breach. But when he returned to Washington and contacted the IRS National Office, he finally learned that someone else had filed a fraudulent tax return using his family's stolen personal information.
IRS representatives came to Capitol Hill and showed him the bogus documents, including the Form W-2 that stated it came from the U.S. House of Representatives, Renacci said, adding that a foreign bank account would have received the refund.
He said his information, as well as that of his wife, may have been stolen from a credit file.
Trends in Stolen Identity Refund Fraud
According to the GAO, the IRS detected around $30 billion worth of fraudulent tax refund claims based on data collected from the 2013 tax season. The agency was able to prevent or recover 81 percent of that ($24.2 billion), while it paid out 19 percent ($5.8 billion) in fraudulent refunds. Some policymakers, however, believe that more money could be at stake.
"Because of the difficulties in knowing the amount of undetected fraud, the actual amount could differ from these point estimates," according to the GAO study from February 2015.
Several policymakers argue that the IRS does not have enough resources to combat identity theft refund fraud, especially given that the agency has faced ongoing budget cuts since 2010. Last year Congress approved an extra $290 million for the IRS to improve its failing customer service fraught with long waiting periods -- which Renacci experienced -- but the Obama administration and others still insist that the IRS needs additional financing.
No to Increased IRS Funding
Renacci, however, believes higher levels of funding at the IRS is not the solution.
"In the real world, you have to do with what you have to do," the businessman said, explaining that when the financial crisis hit in 2007, businesses had to operate with fewer resources.
"What did they do? They figured out a way to change their operating procedure. This is what happens . . . in America all the time," he said.
Renacci blames President Obama's landmark healthcare law, enacted in 2010, for taking away resources that the IRS has been seeking for its customer service and cyberprotection. According to an April 2015 report by the Ways and Means GOP staff, the IRS in 2015 had so far spent over $1.2 billion implementing the Affordable Care Act. In 2014 it cost the agency $386 million, which included $12.1 million from the taxpayer-services account and $185.7 million from its user-fee account, the report said.
The IRS does not "have enough resources to -- in my opinion -- answer the phones in a timely basis," he said. "This is a side effect of the Affordable Care Act."
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Correction, April 19, 2016: Renacci’s proposal would allow taxpayers to opt out of electronic filing.