Both Parties Agree: Spend More to Reduce Tax Fraud

Dem Reps. Towns, Connolly use hearing to attack House GOP budget

Rep. Edolphus Towns / AP
• November 30, 2012 2:56 pm


Democrats attacked Republican efforts to trim the budget at a recent hearing despite bipartisan support for spending more money to fight tax fraud.

The House Committee on Oversight and Government Reform’s Subcommittee on Government Organization held a hearing Thursday to discuss ways to fight tax fraud and identity theft.

Known incidents of tax fraud have risen from around 52,000 in 2008 to more than 1 million cases in 2011, subcommittee chairman Todd Platts (R., Pa.) noted in his opening statement.

The four witnesses focused their remarks on organizational efficiency, discussing data analytics and information sharing, among other efforts to curb fraud, although they also discussed diminished taxpayer services.

All of the members of the subcommittee who attended the majority of the hearing—Platts, as well as Ranking Member Edolphus Towns (D., N.Y.) and Rep. Gerry Connolly (D., Va.)—agreed that the government ought to invest more in the Internal Revenue Service (IRS), although the Democrats focused the majority of their questioning on cuts to the agency’s budget.

Connolly said that while investing in the IRS could help reduce the deficit, "we’re not willing to do it for ideological reasons."

"We have an exponential explosion in this problem in four years," Connolly said. "To what extent are we part of the problem?"

Platts said that the rise in incidents is due to a number of causes. Some criminals, especially in Florida, have found tax fraud to be an easy way to make money. The government is also focusing more on tax fraud and improper claims, however, and that is bringing additional cases to its attention.

National Taxpayer Advocate for the IRS Nina Olson told the subcommittee that the government is actually facilitating tax fraud by giving ready access to Social Security’s Death Master File that provides recently deceased person’s identification information.

Connolly expressed surprise at the point, noting he was not looking for that specific answer.

He continued to discuss the decline in federal spending on the IRS, drawing out from Deputy Commissioner for Operations Support for the IRS Beth Tucker that the IRS’s budget has been cut by $350 million.

"We need to invest in the IRS so it can do something," he said. He could not be reached for comment after the hearing.

Treasury Inspector General for Tax Administration Russell George attempted to tamp down Connolly’s enthusiasm for spending.

"There’s no question that additional resources would allow the IRS to do more," George said. "That said, access to additional information would also assist the IRS in doing its job without necessarily requiring additional resources."

Towns’ comments mirrored Connolly’s commitment to greater spending.

"Sometimes I think that we don’t look at things in a total way," Towns said at the end of his questioning session. "If we had more workers, maybe some of the things we’re talking about wouldn’t exist."

Towns asked if the IRS has enough resources to fulfill its mandate.

"As our staffing levels have gone down, to deal with this heinous issue of identity theft we have increased our staffing significantly," Tucker said. "In fact, we doubled it."

Tucker noted that the IRS is using new analytics and filters to catch fraudsters before they are able to collect money.

"This is data analytics like I’ve never seen before," she said.

Olson said after the hearing that while the number of personnel dedicated to tax fraud has gone up, those staffers have to come from elsewhere in the IRS and the reshuffling can hurt customer support.

Platts echoed Olson’s concern after the hearing, although during the hearing itself he focused primarily on different aspects of the IRS’s fraud-fighting efforts. He noted that prevention of fraud is only part of the broad area of taxpayer services. He said that strengthening all of the IRS’s customer service operations could help boost revenue.

"By not ensuring that the IRS has adequate resources related to taxpayer services, including the area of preventing taxpayer identity theft and fraud, it’s costing the American taxpayer more money," Platts said.

Boosting the number of compliance officers, for example, could help track down more unpaid money. For "self employed cash-based businesses," he said, "the estimate is that only 18 percent of what is owed is being paid."

The rough investment return ratio for enforcement is about seven to one, based on data from the Treasury Department and the IRS.

Platts said that he, Towns, and Connolly all cosigned a letter to the House Appropriations Committee letting them know of the strong return on investment IRS expenditures have.

He also noted that the budgeting process does not account for savings that expenditures create.

"It’s very shortsighted," he said.