Chairman Nelson, Ranking Member Collins, and Members of the Special Committee, thank you for the opportunity to appear before you this afternoon to discuss the Department of Justice’s efforts to combat tax refund fraud arising from identity theft.
The Department greatly appreciates the commitment that the Chairman, the Special Committee, and the staff have brought to this important issue. Combatting the illegal use of social security numbers and other personal identification information to file fraudulent tax refund claims is a top priority for both the Division and U.S. Attorneys’ Offices across the country. Your efforts to bring attention to this fast-growing and insidious crime will help educate taxpayers about the importance of detecting and reporting identity theft and tax fraud, and will send a strong message that these schemes will be detected and prosecuted to the fullest extent of the law.
The Department of Justice’s Tax Division, which I have the privilege of leading, has one purpose: to enforce the nation’s tax laws fully, fairly, and consistently, through both criminal and civil litigation. The nation-wide reach of the Tax Division’s centralized criminal tax enforcement facilitates the government’s ability to respond efficiently and forcefully to often-changing patterns of wrongdoing. The recent explosion in the use of stolen social security numbers and personal identification information to file fraudulent tax refund claims is an example of this type of challenge.
Stolen identity refund fraud, which we often refer to as SIRF, can be described all-too-simply as a series of crimes by which criminals steal social security numbers, file tax returns showing a false refund claim, and then have the refunds electronically deposited to a bank account or to prepaid debit cards, or mailed to an address where the wrongdoer can access a check. Although it may be easy to describe, SIRF crimes are often implemented through complex, multi-step and multi-level schemes. The low physical risk and high potential for financial gain has made stolen identity refund fraud a crime of choice for drug dealers and gangs.
Too often, the most vulnerable members of our communities – the elderly and the infirm – have become victims when their identities have been stolen at nursing homes and hospitals. In other cases, the pain to grieving families has been increased by the use of information taken from public death lists. Postal workers have been compromised, robbed, and in one instance, murdered to gain access to refund checks.
While the IRS will make good on any refund that is due to the taxpayer, there are unfortunately inevitable burdens while this is sorted out, and the victims often experience a profound sense of violation. And most fundamentally, all honest taxpayers are victimized by the loss to the Federal Treasury.
The Department and the IRS have devoted significant resources to addressing stolen identity refund fraud, and we have successfully prosecuted a large number of cases, resulting in lengthy prison sentences and substantial fines and forfeitures. In the first six months of this fiscal year, the Tax Division has authorized more than 275 SIRF investigations involving more than 500 subjects across 37 states, the District of Columbia, and Puerto Rico.
In many cases, the SIRF crime is first uncovered by local law enforcement officers who discover Treasury checks or debit cards. Recognizing that there are fast-moving law enforcement needs in such cases, the Tax Division recently issued Directive 144, which was the result of collaborative efforts among the Tax Division, the Internal Revenue Service, and the U.S. Attorneys’ Offices. Directive 144 streamlined the initiation of SIRF tax prosecutions by authorizing the U.S. Attorneys’ Offices to open tax-related grand jury investigations in SIRF matters, to bring complaints against those involved in SIRF crimes, and to obtain seizure warrants for forfeiture of criminally-derived proceeds arising from SIRF crimes, steps that require prior authorization from the Tax Division for other tax crimes.
S imultaneous with the issuance of Directive 144 , the Tax Division also implemented expedited procedures, by which the Tax Division committed to review a request to indict within three calendar days in fast-moving, reactive SIRF cases.
While providing for expedited procedures, Directive 144 serves a second law enforcement purpose, specifically, the centralization of knowledge about SIRF crimes through the reporting of information by the U.S. Attorneys’ Offices to the Division and to the IRS. This enables prosecutors and law enforcement agencies to work together to identify schemes and to pursue the most culpable schemers. It also aids us in our efforts to give the IRS real-time information so that the IRS can work to stop the crime at the door through improved filters, as well as to address the needs of victims as quickly and effectively as possible.
The prosecution of SIRF crimes is a national priority, and, together with our law enforcement partners, we will continue to look for the most effective ways to bring this conduct to an end and to punish these wrongdoers.
Thank you again for the opportunity to provide the Department’s perspective on this issue, and I look forward to answering any questions that you may have.