Why the IRS needs to stop letting taxpayers use stolen Social Security numbers
Agency's failures to address criminal acts shouldn't be viewed through political glass
By Adam Levin, Special to ThirdCertainty
While you’d never know it if you listen to politicians on the right and left argue, there are some truths out there, things that don’t yield to debate. I’m talking basics, like it’s easier to walk through an open door, and the Internal Revenue Service shouldn’t be in the business of providing open doors to pervasive forms of fraud.
Are you rolling your eyes? Well, it’s happening once again at everyone’s favorite punching bag, the Internal Revenue Service. Granted, past fails haven’t been intentional—whether we’re talking about the “Get Transcript” hack that affected 700,000 taxpayers or this year’s E-File PIN attack that involved more than 464,000 unique Social Security numbers. There was incompetence and a lack of farsightedness in those instances, for sure, but the latest wrinkle at the IRS has the agency turning a blind eye to crime. It has been happening in broad daylight without the slightest twinge of worry that maybe someone should, you know, maybe do something about it—that is, until this month.
Undocumented workers using stolen digits
Forget about President Obama’s “path to citizenship.” Forget about “amnesty.” This goes beyond partisan bickering over a label.
I first became aware of the issue through the lens of right-wing media and almost dismissed it due to my own political assumptions. To be fair, it was so poorly reported and exclusively discussed on conservative websites like Breitbart, All That’s News and the Tea Party Patriots.
Related story: IRS slowing tax refunds to fight fraud as scams surge
The story, featuring undocumented workers stealing Social Security numbers to apply for jobs and filling out W-2s under the watchful eye of the IRS, was first made public during a Senate Finance Committee meeting, when Sen. Dan Coats of Indiana asked IRS Commissioner John Koskinen to explain why the IRS doesn’t inform certain victims of employment-related identity theft—specifically people whose Social Security numbers have been used by undocumented immigrants to get work or fill out W-2 forms.
I rationalized these reports as little more than “echo chamber” attacks on Big Government. But a week later I read about it in The Hill. There it was: Koskinen confirming that when the IRS discovers undocumented immigrants have used a stolen SSN to apply for jobs or fill out W-2s but file their taxes using an Individual Tax Identification Number (ITIN)—a number often provided to undocumented immigrants to pay taxes—they get a pass from the agency.
According to the report, this will no longer be the agency’s standard operating procedure by January 2017, when the IRS will begin informing victims of employment-related identity fraud.
While that’s great news, it boggles the mind that such a situation could have been allowed to persist. Koskinen’s argument for not implementing a solution sooner was basically that people who want to pay taxes should be able to do so because collecting the revenue is in everyone’s best interest and that the agency could not find an effective way to notify compromised individuals while protecting sensitive taxpayer information on both sides.
While the IRS may be collecting revenue from the undocumented workers who are filing returns, Republicans on the Senate Finance Committee raised concerns of these filers actually receiving refunds from the IRS fraudulently. In theory, if an illegal worker gets a Social Security number, he can file three years of back taxes and claim the Earned Income Tax Credit, providing he can remember all the details of his off-the-books earnings during that time period.
Sen. Chuck Grassley, R-Iowa, asked Koskinen about this theory and Commissioner Koskinen confirmed:
To clarify my earlier comments on EITC, not only can an individual amend a prior year return to claim EITC, but an individual who did not file a prior year return may file a return and claim EITC (subject to refund limitations under section 6511 of the Internal Revenue Code). I would note that filing new returns for prior years would likely be difficult, since filers would have to reconstruct earnings and other records for years when they were not able to work on the books. Section 32 of the Internal Revenue Code requires an SSN on the return, but a taxpayer claiming the EITC is not required to have an SSN before the close of the year for which the EITC is claimed.
IRS actions questionable
When it comes to identity-related tax fraud, nothing is too complex if there’s a payoff. While I can’t say if the situation with unreported employment-related identity fraud as described here has ever been used to make unlawful grabs at Earned Income Tax Credits, this is just one question regarding what is doubtless countless possible crimes that can be committed because the IRS decided employment-related identity fraud should get a pass for the sake of revenue.
The bottom line is that if it can be imagined, it can be achieved. The fact that the IRS has essentially looked the other way when it comes to the unlawful use of personally identifiable information in the face of our identity crime Armageddon is inexcusable.
At the end of the day, this has to stop being viewed as a political issue. Republicans will blame the situation on President Obama’s “amnesty” policies geared toward getting undocumented immigrants integrated as taxpayers (maybe), Democratic voters (probably) and welfare recipients (for sure). In other words, the whole enchilada. Democrats eschew the amnesty label, preferring to talk about “a path to citizenship,” with the very serious goal of creating a safer, opportunity-filled world for immigrants who will (most likely) vote Democratic.
The problem: Neither party sees it as an epic fail.
Adam Levin is chairman and co-founder of Credit.com and IDT911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.
Full disclosure: IDT911 sponsors ThirdCertainty. This story originated as an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.