FOXNews.com: Treasury Inspector General says changes are needed to detect fraud

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Treasury Inspector General says changes are needed to detect fraud Aug 8th 2012, 20:30 A newly released report from U.S. treasury Inspector General for Tax Administration reveals vast amounts of tax fraud related to the Individual Taxpayer Identification Number (ITIN) program. It also accuses the Internal Revenue Service (IRS) of discouraging employees from reviewing applications for the ID numbers, which are generally from non-resident workers. The report says a lack of adequate controls can result in the improper assignment of these numbers to people who have not substantiated their identity or foreign status, which can result in fraudulent tax returns. The inspector general says there were 154 mailing addresses that were used 1,000 or more times on Individual Taxpayer Identification Number applications: including 15,795 ITINs assigned to a Phoenix, Ariz. address; 15,028 assigned to a Dallas, Texas address; and 12,345 ITINs assigned to an address in Atlanta, Ga. The inspector general also found ten individual addresses were used for filing 53,994 tax returns and receiving $86.4 million in fraudulent tax refunds, including: 23,994 tax refunds totaling $46.3 million issued to an address in Atlanta, Ga.; and 2,507 tax refunds totaling $10.4 million issued to an address in Oxnard, Calif. Beyond that, Treasury's Inspector General for Tax Administration reports ten 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; and 1,608 tax refunds issued to a single account, totaling $4.5 million. The report was sent to the IRS on July 16th, and released more than three weeks later. Now lawmakers are demanding answers by August 31, 2012. In a letter to IRS Commissioner Douglas H. Shulman,  Congressman Charles Boustany, MD (R-La.) writes, "IRS employees are discouraged from flagging potentially fraudulent ITIN applications."  Boustany says if an examiner flagging an application as questionable, but another reviewer disagrees, the initial employee's performance evaluation and employment opportunities are affected. "This incentivizes examiners to approve questionable applications and punishes IRS employees who might err on the side of protecting taxpayer dollars," Boustany concludes. Boustany is the Chairman of the House Ways and Means Committee's Oversight Subcommittee. He also suggests the IRS has a training problem – failing to prioritize fraud interdiction. Though he does not stop there. "Beyond training and employee incentives, IRS management has chosen to shut down processes and practices with proven success in identifying fraudulent ITIN applications," writes Boustany. The IRS issued a statement in response to the TIGTA report saying, "The IRS recognized issues with the ITIN process, and our leadership 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.  In addition, the IRS has obtained new tools and equipment to help employees improve their ability to detect fraudulent documents. The IRS has also worked with colleagues at the Department of Homeland Security to obtain specialized training in validating documents and verifying the identity of the applicant. 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."

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