The IRS destroyed 3,000 documents on identity theft, investigators said, due to a "confusing and inconsistent" system that left victims without any assistance.
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The IRS, which expects Americans to neatly keep all their receipts and tax documentation, destroyed numerous documents about potential identity theft without ever investigating the allegations, part of a broader failure in its effort to enlist the public to help fight financial crimes.
The agency encourages Americans to report suspected cases of tax fraud, identity theft and other financial crimes and has created specific forms to get complaints and allegations quickly to investigators.
But the Treasury Department's tax watchdog reports the IRS destroyed 3,000 casefiles about potential identity theft without investigating simply because victims filled out the wrong form. And the inspector general says the agency also deserves the blame for the confusion that caused Americans to incorrectly use form 3949-A, usually reserved for tax fraud complaints, to report identity theft instead.
Instructions on the 3949-A form are "confusing and inconsistent," the Inspector General for Tax Administration declared.
"The IRS’s mission is to provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all," the inspector general added. "Clear and consistent guidelines are essential to ensure that taxpayers who submit Forms 3949-A receive top-quality service."
The nation's tax service received 116,307 of the tax fraud forms during fiscal year 2011. But investigators estimated only about 30 percent were properly filled out. The rest were reports of identity and Social Security Number theft, fraud by tax preparers, or turned in with so little information the IRS could not take action. In some cases, taxpayers were being told by Taxpayer Assistance Centers to use the incorrect form to report identity theft, the IG found.
Cases of identity theft are supposed to be forwarded to the IRS Identity Protection Specialized Unit. But that office has refused to accept cases that are reported on the 3949-A forms, which are usually reserved for fraud. About 3,000 of the forms were destroyed in December 2010 because employees weren't certain what to do with them and there was no contact information for getting in touch with the victims, investigators said.
Sometimes the incorrect forms were forwarded, but even then they were sometimes routed to the wrong office. Investigators estimated that 35 percent of the forms were incorrectly routed because there were inconsistent guidelines for handling them. Each form was then reprocessed at a cost of $6.53, leading to just more than $200,000 being spent on incorrectly routed forms, investigators said.
Even forms that were properly forwarded were marked as "regular correspondence," leading to delays when quick action was needed to catch identity thieves.
"These forms should receive priority and be classified as identity theft cases," the inspector general said, noting an earlier watchdog report found "it can take up to a year to resolve an identity theft case."
The investigator general noted there is currently no training for employees on how to handle the wayward 3949-A forms, and clerks who handle the forms are spread out across 27 different clerical units.
The IG recommended the agency explicitly print on Form 3949-A that it is not to be used to report identity theft, and instead present taxpayers with instructions and links to the proper forms. The watchdog also said IRS needs to do an agency-wide coordination on identity theft to ensure that all forms are getting forwarded, reported and investigated properly.
After being alerted by the IG that some of its Taxpayer Assistance Centers were telling people to use the wrong forms, IRS officials set out clear guidelines for handling identity theft problems. The agency is also trying to address the problems surrounding Form 3949-A, but investigators said there's still room for improvement.
"We agree Form 3949-A instructions and the internal and external documents explaining its function and use should be updated and clarified," said Peggy Bogadi, the IRS commissioner for the Wage and Investment Division. "We will also review current procedures and evaluate steps to ensure a more effective quality review process and tracking system."
The Internal Revenue Service, or IRS, is the nation's tax collection agency, responsible for collecting taxes and investigating tax fraud.
The Treasury Department is the government's fiscal agency, whose mission is to "maintain a strong economy and create economic and job opportunities by promoting the conditions that enable economic growth" according to the agency's website.
The Inspector General, or IG, is an independant investigative office within each government agency. They are charged with finding cases of waste, wrongdoing, or areas for improvement.