Volunteer IRS Sites Prepare 50% of Tax Returns Incorrectly

VITA Sites Still Preparing Tax Returns Incorrectly
VITA Sites Still Preparing Tax Returns Incorrectly

In a follow up to a report by the Treasury Inspector General for Tax Administration (TIGTA), free income tax preparation sites have made no significant gains in increasing the accuracy of the tax returns they prepare. The new report states that Volunteer Income Tax Assistance sites (VITA) who prepare income tax returns for low/moderate-income, elderly, disabled and limited-English-proficient taxpayers are still filing approximately 50% of tax returns incorrectly!

Of the 39 tax returns prepared for auditors during the 2013 filing season, 20 of them (or 51 percent) were prepared correctly, while 19 (or 49 percent) were prepared incorrectly. That represents a two-percentage-point increase over the 49 percent accuracy rate for the same number of returns in the 2012 filing season. The 19 incorrect tax returns resulted from incorrect application of the tax law, insufficient requests for information during the intake and interview process, or lack of adherence to quality review requirements.

While this is a small sample of the 3.3 Million tax returns prepared by over 90,000 volunteers across the country, it is still nonetheless troubling that TIGTA continues to find these types of accuracy related problems 2 years later due to “incorrect application of the tax law, insufficient requests for information during the intake and interview process, or lack of adherence to quality review requirements”.  TIGTA recommends–and the IRS agrees–that all volunteer instructors, return preparers, quality reviewers and site coordinators complete intake/interview and quality review training annually.  I am not sure what is more head scratching: that so many returns are being prepared incorrectly, or that these volunteers have receiving little to no training over the past two years since this problem came to light.

The VITA system is supposed to be helping those that are the neediest as a) they cannot afford professional income tax preparation and b) they need their refunds essentially to live.  In theory this is a vital service that needs to continue.  In practice, how do you motivate volunteers to devote more of their time (and possibly money) for training & licensing to put out a better product, yet receive no compensation? Furthermore, it sort of defeats the purpose of “helping” these taxpayers if their return is prepared incorrectly which potentially opens them up to delayed refunds, audits and penalties/interest. The old adage “you get what you pay for’ apparently applies here.

If you have had your return prepared at a VITA site, please let us know about your experience in the comments section below.  Plus, if you’ve had your return prepared in the past 3 years at a VITA site or any other tax establishment, and would like it checked for accuracy, contact an R&G Brenner professional today for a no obligation consultation, and we will review them for FREE!

Source: Accounting Today

IRS Discouraged Fraud Detection

IRS Stifled Fraud Detection

The Internal Revenue Service has been looking the other way instead of rooting out fraud when people apply for taxpayer identification numbers, Treasury Department investigators said Wednesday, exposing a shortfall with both financial and national security implications.

A member of Congress who sits on the House’s tax-writing committee responded to the report by calling on IRS Commissioner Douglas Shulman to resign, claiming the IRS is helping illegal immigrants defraud the government.

Non-citizens without Social Security numbers have to get ID numbers from the IRS to claim tax refunds. Their applications for ID numbers are processed at an IRS center in Austin, Texas.

J. Russell George, the Treasury Department’s inspector general for tax administration, said investigators looking into the application process found “an environment which discourages employees from detecting fraudulent applications.”

Instead, IRS employees were encouraged to process as many ID applications as possible, George said in his report. In addition, investigators learned that the IRS had quit using successful fraud-detection measures in processing the applications.

“There is a potential that erroneous tax refunds are going to non-qualifying individuals, allowing them to defraud the federal government of billions of dollars,” investigators wrote in the report.

Once ID numbers are obtained fraudulently, they can be used for other deceptions. When first introduced in 1996, the ID numbers were supposed to be used only for taxes. But investigators found they’re now being used in several states to get driver’s licenses.

Almost 3 million tax returns seeking $6.8 billion were filed last year using IRS ID numbers rather than Social Security numbers. Investigators said they couldn’t put a number on how many of those returns may have been fraudulent.

At issue are the documentation requirements for verifying the identity of those who apply for an ID number. Unlike applications for a passport or a Social Security number, applicants for the ID number weren’t required to submit certified copies of their birth certificate or other identification.

IRS managers had been aware of the problem since at least 2002, but failed to take sufficient action, investigators said. Tax examiners at the agency also complained to investigators they had little to no training in how to root out fraudulent applications.

IRS officials responding to the report said they already had taken action to address the problem. In June, the agency started requiring original or certified documents until new rules can be developed for 2013.

“Our leadership moved quickly and aggressively to address issues that were identified,” IRS spokeswoman Michelle Eldridge said.

Treasury investigators said the IRS has agreed to adopt seven of their nine recommendations for correcting the problem and is still considering the other two.

In a letter to Shulman calling for his resignation, Rep. Sam Johnson, R-Texas, cited investigators’ findings that people sought $4.2 billion in refundable child tax credits last year using IRS ID numbers.

“The commissioner and certain IRS officials are essentially aiding and abetting illegal immigrants and others in fraudulently receiving tax refunds courtesy of the American taxpayer,” Johnson said in a statement.

IRS officials declined to comment on Johnson’s letter.

Source: Josh Lederman, AP News

Taxpayer Identity Theft Explodes

ID Theft On The Rise

By Amy Feldman

NEW YORK, July 19 – Call it one more unintended consequence of our complicated income tax system: U.S. taxpayer identity theft is rising, and if your identity is snatched, you can expect a long and tortuous process before you are made whole.

In 2011, some 641,052 taxpayers were affected by identity theft, more than double the 270,518 the previous year, according to Internal Revenue Service statistics cited in a recent report by the Treasury Inspector General for Tax Administration (TIGTA). Nearly 16,000 taxpayers complained of problems related to identity theft to the Taxpayer Advocate in the first half of fiscal 2012, a 57 percent increase over the previous year.

The problem — which can make taxpayers’ lives miserable and costs the U.S. Treasury significantly — has become so big that Taxpayer Advocate Nina Olson has identified it as one of the biggest problems, while the House Judiciary Committee held a hearing on the topic on July 10.

“Identity theft wreaks havoc on our tax system in many ways,” Olson testified. “Victims not only must deal with the aftermath of an emotionally draining crime, but may also have to deal with the IRS for years to untangle the resulting tax account problems. Identity theft also impacts the public …(Treasury)… as Treasury funds are diverted to pay out improper refunds claimed by opportunistic perpetrators.”

What exactly does identity theft mean when it comes to taxes? Well, in one of the more extreme examples, in early July, a former IRS employee was indicted for allegedly using her position to steal taxpayer identities to apply for credit cards. More commonly, thieves steal Social Security numbers and use them to file fraudulent tax returns and snag illegitimate refunds.

Taxpayers sometimes discover that their identities were stolen when they file a tax return and are notified that they already had filed and a refund had been dispersed. Sometimes, the identities come from dead taxpayers, or from senior citizens or others who weren’t required to file tax returns.

In one of the more disturbing twists, sometimes the thief turns out to be none other than your own tax preparer, to whom you willingly turned over your financial information.

Return preparers may get people to sign their returns and then alter them, inflating income or deductions without their clients’ knowledge and consent and then pocketing the difference between the revised refund amount and what the taxpayer expected to get. This type of fraud is particularly problematic, because the IRS doesn’t have a clear procedure for going after preparers — and going after the taxpayer, who is the victim of the fraud, isn’t fair.

Fighting taxpayer identity theft is a bit like going after Nigerian email scammers, a constant battle that seems unlikely to be won anytime soon. But the IRS is trying. In fiscal 2011, the IRS opened 276 criminal investigations for identity theft, and sent 80 swindlers to prison for their frauds.

And a big enforcement sweep in January by the IRS and Justice Department — which IRS Commissioner Doug Shulman called an “unprecedented effort against identity theft” — targeted 105 people in 23 states. Meanwhile, in an effort at prevention, the IRS has also set up a program to give taxpayer who have been victims of identity theft special taxpayer-identity protection numbers so they can file future returns without complications.

“Certainly, refund-driven tax fraud is not a problem the IRS can fully solve, but I believe that the IRS can do much more to detect questionable returns and assist victims of identity theft or return preparer fraud,” Olson testified at the July 10 hearing.

What can you do to avoid becoming a target? First, beware of “phishing” emails that appear to be from the IRS. The IRS does not contact taxpayers by email asking for personal information, so if you get this kind of email you can assume it is fake. If you do receive one (I often have), ignore it -— or better yet, forward it to the IRS, at phishing@irs.gov.

Second, be careful about giving out your Social Security number. Don’t send it over an unsecured site, even for legitimate purposes. And don’t carry your Social Security card with you. That way even if your wallet is stolen, your identity is less likely to be.

Third, shred documents containing personal and financial information once you no longer need them. Don’t ever simply dump old tax returns in the trash.

Fourth, make sure you trust your tax preparer. In one recent high-profile case, in March, the Illinois Attorney General’s office sued Mo’ Money Taxes, a tax-prep service and lender based in Memphis, and accused it of filing unauthorized federal income tax returns and charging undisclosed and exorbitant fees. The company did not respond to a request for comment.

If you are the victim of identity theft be prepared for a long slog, as it can take more than a year to resolve an identity theft case. The IRS’s guidelines for identity theft are “inconsistent and confusing,” according to the TIGTA report, and procedures are dispersed among 38 different Internal Revenue Manual sections.

“The IRS uses little of the data from the identity theft cases to identify any trends, etc., that could be used to detect or prevent future refund fraud,” TIGTA reported.

If you suspect that you’ve been a target, file an identity theft affidavit, Form 14039, available online here . You can also call the IRS’s Identity Protection Specialized Unit at (800)908-4490.

Source: Reuters

TIGTA: IRS Failed To Properly Screen 77% Of New Hires

Insecure Networks + No New Hire Vetting = ?

The Treasury Inspector General for Tax Administration today released Inspection of the Employee Pre-Screening Process (2012-IE-R003) and found the following:

In Fiscal Year 2010, taxpayers filed over 230 million tax returns that contained sensitive financial information. Because many IRS employees must have access to sensitive taxpayer information to administer the Nation’s tax system, the IRS must be particularly cognizant of hiring only those applicants who hold themselves to the highest standards of integrity. The IRS uses several controls to deter and detect the abuse of sensitive information. Pre-screening applicants and conducting background investigations on them are the initial steps in the process of ensuring that the IRS meets the highest standards of honesty, integrity, and security.

The IRS has implemented controls designed to ensure that applicants pursuing permanent or temporary employment with the IRS are suitable, and background investigation requests are properly initiated. However, our review at four of nine Employment Operations branch offices revealed that nearly 77% of the cases reviewed (507 of 662 cases) did not have sufficient documentation that would allow us to verify that the Employment Operations offices completed all of the required pre-screening steps before the employee reported for duty.

It is troubling that the IRS has expended millions of dollars enacting tax legislation —including the licensing of tax preparers--all in the name of “protecting” the taxpayer, while storing hundreds of millions of tax retuns on inadequately secure networks and not properly vetting 77% of their new hires–who have access to highly sensitive personal information.  This is enough to make one ponder if the IRS itself bears at least some responsibility in the recent sharp uptick in identity theft that many taxpayers have become victims of.

Sources: Taxprof , TIGTA & CNN

Free Tax Prep Sites: Inaccurate Returns & Privacy Breach Concerns

The old adage that “you get what you pay for” is compounded when applied to free income tax preparation…In fact, a free tax return may cost taxpayers more than they bargained for.  The title of a report filed by the Treasury Inspector General for Tax Administration (TIGTA) sums it up frankly: Accuracy of Tax Returns, the Quality Assurance Processes, and Security of Taxpayer Information Remain Problems for the Volunteer Program.

The TIGTA audits of the Volunteer Income Tax Assistance (VITA) sites–a program sponsored by the IRS which caters to low-income tax payers, the elderly & the disabled–found that their accuracy rate was far below 50%.  Of the 36 tax returns that undercover TIGTA auditors had prepared at VITA sites, only 14 were considered to be filed correctly. That is a whopping 61% inaccuracy rate.  What is particularly alarming is the deliberate “modified facts” that some volunteers engaged in to inflate potential refunds, as well as the absence of a thorough vetting process to weed-out potentially unscrupulous volunteers:

The accuracy rates for tax returns prepared at Volunteer Program sites decreased sharply from the 2010 Filing Season. Of the 36 tax returns prepared for TIGTA auditors, only 14 (39 percent) were prepared correctly. Tax returns were prepared incorrectly because volunteers did not follow all guidelines. For example, volunteers did not always use the intake sheets correctly. For three (14 percent) of the 22 incorrectly prepared tax returns, volunteers knowingly modified the facts the auditors presented…[Furthermore] Current steps and processes do not ensure the integrity of volunteers, even though the volunteers have access to taxpayers’ Personally Identifiable Information, such as Social Security Numbers, driver licenses, and home addresses.

TIGTA Inspector General J. Russell George had the following to say:

The findings of this review are very troubling…The Volunteer Program plays an important role in helping many taxpayers, notably those who have low incomes, and the elderly, disabled, and limited-English proficient, participate in the tax system. Like all taxpayers, they deserve to have their tax returns prepared accurately. I am pleased that the IRS has agreed to our recommendations to address these problems.

Some of the important TGITA recommendations agreed to by the VITA program are as follows:

  • Include anonymous shopping visits as part of the quality review process
  • Improve controls over Volunteer Standards of Conduct (Form 13615)
  • Develop a process to ensure all volunteers are following the guidance focusing on the integrity of the Volunteer Program and the security of taxpayer information
  • Review the IRS fraud hotline procedures to determine best practices

R&G Brenner recognizes the valuable service that the thousands of VITA volunteers provide to millions of taxpayers across the country. However, it is apparent that the quality of these returns leaves much to be desired considering the continually changing & vastly complex tax code.  When you pair this with the fact that most VITA volunteers receive little or no compensation, it is not hard to see why so many returns are being prepared incorrectly, and that an environment for potential identity theft is being sewn.

For many, a tax return is the most important financial document they will file each year. Therefore, it is of the utmost importance that your tax preparer have a vested interest in the accuracy of your filings.  Here at R&G Brenner, we offer many promotions including a $50 introductory fee for new clients that qualify for tax assistance.  We can’t compete with “free”, but we can guarantee that our tax professionals, enrolled agents & CPA’s will have an attentive vested interest in preparing your return accurately, and getting you back every penny you deserve.  Remember, it’s not “free” if you are forced to spend considerable time retriving old tax documents, and money on penalties and interest correcting mistakes.  Contact R&G Brenner for more information, and to have your tax return reviewed for accuracy free of charge.

Sources: TIGTAWebCPA