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October 3, 2012
TIGTA - TIGTA - 2012-52
David Barnes
David.barnes@tigta.treas.gov
TIGTACommunications@tigta.treas.gov
(202) 622-3062

The IRS is Not Efficiently or Effectively Processing Identity-Theft Referrals

WASHINGTON -- The Internal Revenue Service (IRS) is not efficiently or effectively processing information referrals, including identity-theft claims, according to a new audit report released today by the Treasury Inspector General for Tax Administration (TIGTA).

When an individual wishes to report possible instances of Federal tax fraud by another individual, the IRS instructs him or her to complete Form 3949-A, Information Referral, or to provide this information via a letter. This audit was conducted based on a referral which reported that thousands of identity-theft cases reported on Forms 3949-A were not being processed.

TIGTA found that IRS reporting guidelines are confusing and inconsistent. Instructions on Form 3949-A do not explain what types of fraud and tax-law violations to report. As a result, individuals often use Form 3949-A for purposes other than reporting suspected tax fraud or tax law violations. Additionally, because Form 3949-A lacks specificity, taxpayers do not always provide the IRS with sufficient information for the IRS to take action. Finally, the IRS routes identity theft referrals received on a Form 3949-A as regular correspondence, which delays actions from being taken on identity theft cases.

"With the increasing number of identity thefts, it is imperative the IRS develop a process to ensure that these referrals are appropriately processed and efficiently examined," said J. Russell George, the Treasury Inspector General for Tax Administration.

TIGTA recommended that the IRS:

  • revise IRS.gov to ensure that taxpayers know the intended purpose of Form 3949-A;
  • improve internal and external guidance for reporting identity theft, including a revision of Form 3949-A and instructions;
  • ensure that an IRS-wide coordinated process is implemented, including expediting identity theft claims;
  • implement controls that include developing formal Internal Revenue Manual procedures and ensuring that all employees have updated procedures for routing documents;
  • conduct a feasibility study for developing an online Form 3949-A that ensures sufficient information is collected; and evaluate the clerical-unit routing process to determine efficiencies gained through assumption of those responsibilities by technical employees.

The IRS agreed with all of these recommendations and plans to revise IRS.gov, clarify the intent of Form 3949-A, review current procedures for necessary changes, and evaluate steps to ensure a more effective quality review process and tracking system. Finally, it plans to ascertain the feasibility of an online Form 3949-A and assess the level of technical expertise required for the needs of the process after considering the effects of the other corrective actions.