Politico - Tax fraudsters hit the wrong target in Renacci

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Rep. Jim Renacci knew something wasn't right when he got a notice from the IRS.

The agency needed more information on his 2014 tax return, it said. But he hadn't filed his return yet.

"That was my first red flag that there was an issue," the Ohio Republican told POLITICO in an interview. When he called the IRS to see if there had been a technical error, he said, "They told me, 'No, there is a tax return filed.' That's when the real red flag went up that I said, 'OK, there's a problem here.'"

What are the odds that not just a member of Congress, but a tax writer who used to be an accountant, gets his identity stolen by tax fraudsters? Given the recent surge in identity-theft refund fraud, it probably shouldn't be a surprise.

Yet hackers made a strategic error hitting one of the few people in the country who could do something about it, namely, write a law making it harder for them to get their payday.

The theft of his personal information to file a fake House of Representatives W-2 form, Renacci said, "just adds to the reason for the bill" he introduced with Rep. John Lewis (D-Ga.) last month. It would make it easier for the IRS to identify potential fraud and boost criminal penalties for identity thieves.

"One of my concerns is we do have an identity-theft problem, and as I was looking into this earlier this year I did not realize at that time that my own identity had been stolen and a tax return had been filed," Renacci said.

The bill would move up the due date for employers to pass certain employee tax forms along to the IRS from March 31 to Feb. 15. That would "shorten the window" for fraud activity, Renacci said, by reducing the time between when the information is due to employees, on Jan. 31, and when it's due to the IRS. It cuts from two months to 15 days the period for fraudsters to act on information the IRS doesn't have yet and enables the IRS to match up forms earlier.

The bill would also create a "centralized point of contact" at the IRS for victims and toughen fines and prison sentences for convicted identity thieves.

The IRS blocked or recovered $24.2 billion from refund fraudsters in 2013, according to a Government Accountability Office report, but identity thieves still made off with $5.2 billion from the IRS that year - a $1.6 billion increase over the previous year.

"When it hits a member of Congress, it show shows you how sensitive it can be - that someone can actually steal the identity of a member of Congress," Renacci said.

Renacci didn't know if any other members of Congress have been hit, but the IRS told him hackers had also compromised the tax information of officials in the Obama administration.

Revelations this summer that some 330,000 taxpayer accounts had been compromised after an IRS online application was hacked raised congressional scrutiny of the agency's security.

The Senate Finance Committee abruptly postponed a markup of its own anti-refund-fraud legislation in September after the American Institute of CPAs objected to giving the IRS more authority to regulate tax preparers. The proposed measure would have overridden a court decision in a case known as Loving v. IRS that quashed an agency bid to regulate a vast swath of unlicensed tax preparers.

The AICPA's critique was perfectly timed: Republicans are generally wary of giving the IRS any additional power in the wake of the 2013 controversy over the agency's handling of conservative nonprofit groups. A group of House Oversight Republicans is currently pursuing impeachment proceedings against IRS Commissioner John Koskinen.

A Finance aide said the committee is still working through the bill to respond to concerns about giving the IRS broader powers. Lobbyists expect a rescheduled markup as early as this month.

The House bill doesn't address regulatory authority, although Renacci did offer up a rare bit of praise for the IRS from a House Republican.

"I will say that the IRS has been very good about" handling his case and keeping him informed, Renacci said.

Of course, Renacci is a congressman, with considerable authority over the IRS. Other taxpayers who have been victimized have complained that the IRS was slow to act on their cases.

The IRS and a group of tax industry leaders last month announced new safeguards to prevent refund identity theft for the 2016 filing season after a seven-month collaboration. The officials identified and tested over 20 new data elements on tax returns that the IRS and state authorities will use to detect potentially fraudulent filings, the IRS said, as a result of a public-private "Security Summit" convened in March.

Koskinen has linked surging identity theft to IRS budget cuts.

"Limited resources for both taxpayer services and IT investments have also hurt our ability to do more to combat stolen identity refund fraud and assist victims, and the same is true for cybersecurity. While we continue to invest in these areas, our investments have not been up to the level needed to ensure we're doing everything possible to thwart cybercrime and protect taxpayer data," Koskinen said at an AICPA conference last week.

But Renacci dismissed the argument that Congress was undercutting the IRS's ability to stop fraud. His legislation, he said, wouldn't require additional resources to enact.

"This bill does not ask for any more, it just changes dates ... that doesn't cost any more money," Renacci said.

"At the same time it's not a silver bullet. ... This problem will continue to grow," he added. "I can tell you from a CPA's perspective, because of the ease of filing tax returns, that's why we have the identity theft. ... In the old days when you had to sign [a physical piece of paper and file it] ... it would have been very hard."

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