From the U.S. Government Accountability Office, www.gao.gov Transcript for: AskGAOLive Chat on Tax Filing and Tax Fraud Description: Online video chat with Jim White, Director, Strategic Issues. Related GAO Work: GAO-15-119: Identity and Tax Fraud: Enhanced Authentication Could Combat Refund Fraud, but IRS Lacks an Estimate of Costs, Benefits and Risks GAO-14-534R: Internal Revenue Service: Absorbing Budget Cuts Has Resulted in Significant Staffing Declines and Uneven Performance GAO-15-163: Tax Filing Season: 2014 Performance Highlights the Need to Better Manage Taxpayer Service and Future Risks GAO-14-605: IRS 2015 Budget: Long-Term Strategy and Return on Investment Data Needed to Better Manage Budget Uncertainty and Set Priorities GAO-14-633: Identity Theft: Additional Actions Could Help IRS Combat the Large, Evolving Threat of Refund Fraud Released: March 2015 [Background Music] [ First Screen ] Ask GAO Live [ Narrator ] Welcome to AskGAOLive. [ Jacques Arsenault: ] Hello, and welcome to AskGAOLive, the Government Accountability Office's Live web-streaming series. Thanks for taking the time to join us today. My name is Jacques Arsenault, and I'm in GAO's Public Affairs Office. I'm here with Jim White, a director in our Strategic Issues team. Thanks for joining me today, Jim. [ Jim White ] Glad to be here. [ Jacques Arsenault: ] Today we're going to be talking with Jim about taxes, how the IRS manages the tax filing season, as well as tax fraud and some recent work that GAO has done on that issue. In particular, GAO just issued a new report this morning on identity theft tax refund fraud, which you can find on our homepage GAO.gov, looking for report number GAO-15-119. Before we get started with questions, I want to talk about how you can submit your own questions. You can send them via e-mail to AskGAOLive, all one word, at GAO.gov. Or, if you're on Twitter, you can submit questions over Twitter using the hash tag AskGAOLive. So before we get to questions, Jim, could you tell us a little bit about the work, the tax work that you've done here at GAO and some of our several recent reports? [ Jim White ] Yes. And let me say a little bit about IRS as well in the process. IRS has an enormous task each year. Individuals file about 150 million tax returns per year. IRS has to check those returns to ensure taxpayers are complying with the tax laws. In the process of checking those returns, IRS issues about a hundred million refunds to taxpayers every year. Those refunds add up to $300 billion. So, that's a substantial impact on our economy. The work that we have done looks at how efficiently IRS provides services to taxpayers and the quality of those services. For example, IRS gets about a hundred million phone calls a year. And so one of the things we track each year is the quality of the answers to those questions. But on the enforcement side, a lot of our work is focused on whether there are ways for IRS to better target its enforcement efforts on noncompliant taxpayers, and in the process of doing that, avoid having to target sending notices or auditing compliant taxpayers. IRS is also responsible for administering a wide array of social and economic programs that are run through the tax code, and some examples of those include the new Affordable Care Act, but also the mortgage interest deduction, the Low-Income Housing Tax Credit, employer-provided, the exclusion from taxes for employer-provided health insurance. So IRS has a vast tax, vast task. It also faces a growing mismatch between its resources on the one hand, and its workload on the other hand. This is something else we've been focusing on recently. And it affects, IRS has made some decisions about how to handle this mismatch. Including making decisions to cut back, both on some of its enforcement programs and, unfortunately, on its service to taxpayers. So taxpayers this year are going to have a harder time, I think, getting through to IRS on the telephone. [ Jacques Arsenault: ] Sure, sure. Well, let's get right to our audience questions. And you had mentioned, IRS sends a hundred million refunds. Kate e-mailed us and wants to know what's the fastest way to get her refund? [ Jim White ] Fastest way to get a refund is to file your return electronically rather than on paper. And then to ask for a refund electronically, with the refund direct deposited to a bank account, for example. And, if you do that, IRS is issuing many of those refunds in something, you know, less than 2 weeks or something on the order of 2 weeks. [ Jacques Arsenault: ] Sure. And still on that refund topic, Samantha asks, will my refund be delayed? And, if so, for how long? [ Jim White ] It depends on whether there are possible errors on your return. So IRS does a variety of computerized compliance checks before sending the refund out. So, if there are things that show up as possible discrepancies, that means it’ll take longer to process the return and get a refund out. So, you want to double check what's on that tax return. If IRS asks for an additional form or something, make sure that's attached, and double check the numbers. [ Jacques Arsenault: ] Sure. You also mentioned the Affordable Care Act. And Aaron e-mailed us to ask, what are the new healthcare tax requirements? And how do I know if I have to pay them? [ Jim White ] You're right, the Affordable Care Act is new this year. There's a new line on the federal tax return that all taxpayers’ll have to respond to. Most taxpayers will just need to check a box that they've got healthcare. But other taxpayers, and it depends on their situation, both in terms of healthcare and income level, may have to fill out some additional forms, and so they'll need to pay attention to that as they work with either their paid tax preparer or, if they're using tax software, they'll have to watch for that software. [ Jacques Arsenault: ] Chris e-mails us with a question about customer service. He says, I've been having a hard time reaching IRS on the phone. Are there any other options for getting my questions answered? [ Jim White ] There are other options. And, as I explained, it is going to be a challenge this year for IRS to answer the phones with this mismatch between resources and workload. So we have a slide, for example, that shows IRS's telephone level of service. It's the next slide, I think. [ Figure 2: IRS Telephone Levels of Service and Average Wait Times, Fiscal Years 2009-14 ] Yeah, and that, the top line there shows what's called the level of service. And that's down in the low 60 percent range. The latest year we have complete data on is 2014. That 60 percent number means that about 60 percent of the taxpayers who want to speak to an assister at IRS actually got through. IRS is projecting that number to be substantially lower this year. The bottom line shows the wait time. It was up close to 20 minutes for the average caller last year waiting to get through to an assister. And IRS also is projecting that wait time to go up more this year. So there are alternatives to calling IRS. Taxpayers can use their preparer. They can rely on tax software to get questions answered. There's also free taxpayer advice. And IRS provides a list of the free sites that taxpayers can use for help on the IRS website. It's on the IRS homepage. [ Jacques Arsenault: ] Okay. Well, Lillian wants to know, what does GAO think IRS can do to improve its customer service given those constraints? [ Jim White ] We've made recommendations to IRS that it makes-- these are tough decisions to make--, but make some decisions about what types of service to actually try to provide with live telephone assistance, and what types of questions taxpayers might be able to answer on their own on the IRS website. So IRS has been improving its website, trying to shift taxpayers to web-based answers. The advantage to taxpayers, if they can find it on, by themselves quickly, they don't have to wait a long time to speak to a human assister. So that's one thing. Now, to do that requires some investment on IRS's part in improved web applications. And that's another area we've done work on and made a variety of recommendations to IRS, importantly, kind of getting a more complete strategy for its website. [ Jacques Arsenault: ] Well, Nash send us an e-mail and says, asks, any advice on whether I should get a refund anticipation check? [ Jim White ] There are a variety of ways that taxpayers can get their refund. One is a refund anticipation check. I, my advice there to taxpayers, there's a cost to that. And so taxpayers need to make sure they are aware of the cost up front before they agree to something like that. Sometimes it can be quite costly. [ Jacques Arsenault: ] Okay, great. Well, Lauren asks of her e-mail, what are some things I can do to make sure that I pick the best possible tax provider or preparer? [ Jim White ] Again, taxpayers need to do a little bit of due diligence there. So, they need to be aware of whether the preparer has a reputation or not. And the other thing they need to do is they do need to check the return, make sure that they understand what the preparer did with the return, and they ought to be able to do some double checking of the numbers that the preparer entered on the return. [ Jacques Arsenault: ] Well, on that point, Eric asks, is there an easy way to figure out whether my tax preparer completed my return accurately? [ Jim White ] Well, I think it's the same point. You want to check the reputation. I understand this is difficult for taxpayers. Because taxpayers go to a preparer because they don't have the time or in some cases, they don't have a complete understanding of the tax laws. But to the extent they can, they need to try to understand what's on that return. If they've got questions, ask the preparer before submitting the return because the taxpayer's the one who's ultimately responsible for the accuracy of the return. [ Jacques Arsenault: ] Steven e-mails and asks, has IRS made any recent changes that could affect its customer service right now? I know you had talked about the telephone thing earlier. [ Jim White ] Well, one important change for this year is not a change that IRS made, but with the Affordable Care Act. That is a significant change in the tax law. And so, as I said, there's a new line on the 1040. There's some additional schedules that some taxpayers, not all, but some might have to fill out. And so taxpayers should be aware of that. If they're using a preparer, they will want to take their healthcare information, especially if they signed up for the Affordable Care Act coverage. They should have gotten a form 1095-A in the mail. And that's something they'd want to take to the preparer. [ Jacques Arsenault: ] Sure. And Susanne e-mails to ask, it seems like there are changes to deductions and credits every year. Were there any for this year that I should be aware of? [ Jim White ] Well, yeah. I think the biggest one is the Affordable Care Act. So, that's the important one. Everything else is minor compared to that. But, if people have a question about something in particular, that's something either to follow-up with their preparer about or pay attention to as they're working through their tax software, whatever package they're using. [ Jacques Arsenault: ] Sure. Thanks, Jim. And I want to take a minute to remind our viewers that you can send in your questions. We've gotten a number of questions over e-mail, over live stream. And you can send in your questions right now. We'll answer as many as we can. You can send them to AskGAOLive at GAO.gov or on Twitter using the #AskGAOLive. So, I want to pivot a little bit, Jim. We talked about how IRS is managing the tax season, and we can certainly come back there if we have some more questions on it. But I wanted to talk about tax fraud. And your team has done a lot of work on tax fraud. And, in fact, you had a report that came out today looking at some of the things that IRS could do to help prevent or combat refund fraud. That's GAO-15-119. Can you talk a little bit about what your team found in that report? [ Jim White ] Yes. We've issued several reports and, with the most recent one being issued today. ID-theft-related refund tax fraud is a very large problem. And let me start by explaining the problem. The ID theft occurs outside of IRS. So the crooks are stealing identities somewhere else. It might be at your employer, your doctor's office, or a company that you've done business with, and they've got some ID information about you. So, the source of the theft is outside of IRS. The crooks then put together a phony tax return using an innocent taxpayer's ID. And, if they've been able to steal the name and social security number, for example, they're often able to put together a tax return that will fool IRS. It’ll look like a legitimate taxpayer. IRS does some checks of those returns. They verify that the name and social security match, the social security number match, for example. So if there is a match and it gets through the rest of IRS's filters, there's a whole series of these filters. If the return gets through, IRS issues a refund to the crook. It's a very large problem. IRS estimated that last year it stopped about $24 billion worth of fraudulent refund claims based on ID theft. And that was about 4 million returns, $24 billion that they estimate they stopped. Unfortunately, they also estimate that about $6 billion was paid out to crooks that were, that submitted ID-theft-based fraudulent returns. [ Jacques Arsenault: ] Well, Cheryl has a question about those crooks. She submitted her question on live stream, and she wants to know how she can find the address of somebody who filed a fraudulent tax return with somebody else's social security number? [ Jim White ] Well, if she wants to find the address of the crook, the IRS typically has a very difficult time figuring out who the crook is. The way this works again, the crook submits a return. They've got a phony address on the return. They usually ask for, and this is typical for legitimate taxpayers as well these days. The money's paid out electronically. And, once it gets to the crook's bank account, they drain the account and are gone, and there's no trail at that point. So IRS is very challenged to identify the crook. We've made a series of recommendations to IRS to improve its prevention of the fraud in the first place. Because after the money's paid out, it's called pay and chase, and that's a losing game for IRS. They can chase, but they rarely catch up with the crooks at that point. So the trick is to prevent the fraud in the first place. And we made some recommendations to IRS along those lines. Importantly, there are some options to better prevent the fraud in the first place. Those options include things like doing more matching of tax returns to employer-provided information about taxpayers. This is information on your W2, for example, that employers provide to IRS. Well, if IRS could match that information before issuing the refunds, that's one way that IRS could stop more of this fraud. And another way is more authentication of taxpayers' identity, using either information that IRS has about prior tax returns. Or perhaps information from credit reporting services that would enable it to ask a few questions of taxpayers to better authenticate their identity. Now, to do any of this would require some significant changes to the way tax returns are filed. It might require moving up the filing of W2s by employers. And it would require IRS building some more sophisticated computer systems to be able to do real time matching or this improved authentication. Because this would be to have a very automated process. So, in order for Congress to weigh in on these kinds of significant changes and also to provide or to consider providing the funding that would be needed, what we recommended is that IRS provide some fairly detailed benefit cost estimates. Because we think this would help with Congressional decision-making. If you've got these different options, Congress needs some solid information in order to make decisions about which way to go on this. [ Jacques Arsenault: ] Sure. But, yeah, a couple of questions that came in on that question of identity theft. And Jackson wants to know, how do I find out whether my identity has been stolen? And William wants to know, how do I find out, on a related note, if I've been a victim of identity-theft refund fraud? [ Jim White ] One way you would find out, if you're not aware that your identity's been stolen, but it, in fact, has been stolen. One way that you would become aware of this is, when you file your tax return with IRS, IRS sends a notice back telling you that a tax return's already been filed in your name. If that's the case, that other tax return could very well be a fraudulent return based on identity theft. You should contact IRS right away. IRS's website homepage has detailed information about how to contact them in this sort of situation. But you want to get in touch with them immediately because the thieves could be using your identity in other ways as well, to commit credit card fraud, for example. [ Jacques Arsenault: ] Sure. Elena wants to know, is this a really big problem? How many people does this impact? I know you mentioned dollar amounts. [ Jim White ] It is a big problem. As I said, $6 billion was paid out according to IRS's estimates. It was paid out to crooks, and most of that money will never be recovered. There's also some uncertainty around that estimate. There's certain types of fraud that IRS has not yet been able to develop an estimate for the amounts. So, the 6 billion is what, is an estimate. And then there is some types of fraud, in particular ID-theft-related fraud, associated with certain kinds of business tax returns that right now IRS doesn't have an estimate for. [ Jacques Arsenault: ] Well, Pete sent us an e-mail and he wants to know, what can IRS really do on their own to combat this kind of fraud? [ Jim White ] IRS has taken a number of steps. They do have, they put in place a number of filters. And, after honest taxpayers have become victims, IRS has taken steps to protect those taxpayers from repeated fraud attempts. So they put a special identifier on those taxpayers' tax accounts. And returns filed with that taxpayer's name and social security number gets some extra scrutiny, so that the crook is not able to repeat the fraud in subsequent years. But, however, trying to deal with the problem after the fact, as I said, is a losing game. What we need to do, and by "we" I mean both IRS and Congress working together on this problem, need to come up with some ways to stop the fraud in the first place. Prevent it from, prevent the fraudulent returns from being filed in the first place. And those are the options I was talking about earlier. [ Jacques Arsenault: ] Sure. So Pete had a second part of his question in his e-mail. And he asks, are there any other organizations that IRS can partner with? You know, law enforcement, FBI, banks that can help make a bigger dent in this problem? [ Jim White ] IRS does work with banks. And so there is some of the payments that IRS makes to crooks get, the IRS is making those payments because the tax returns successfully got through IRS's filters. There are cases where banks get suspicious about the refund money and will hold up that sometimes and refer the case back to IRS. And let IRS know that there's something suspicious about that refund. And we've made some recommendations to IRS to improve that process as well. We view those bank leads as a valuable source of information for IRS because, if the banks are detecting it and IRS is not, that, it may mean that there's some ways that IRS could improve its filters. So we want IRS to learn as much as it can from the banks about the cases it's detecting. And to do that we want some better communication between IRS and the banks. It needs to be two-way communication. In particular, the banks wanted more feedback from IRS about the quality of the information they were supplying with IRS about these suspicious cases. Were they indeed suspicious or not? Now, by law IRS has to protect taxpayers' identity. And so we don't want IRS reporting back to the banks about a specific taxpayer. However, in aggregate, IRS ought to be able to report to the banks about the quality of the lead information that the banks were supplying. [ Jacques Arsenault: ] Well, Cecelia e-mails about the people that are doing this. She wants to know, how do people get away with this? And why don't they get caught more often? [ Jim White ] They get away with it, again, they're stealing the identity somewhere else. So IRS has no up-front information, no up-front knowledge that ID theft occurred. And then they're filing a tax return. And, if they put together a tax return where the name and social security number match and the other information on the return passes a reasonableness test, that return can get through IRS's fraud detection filters. And, once the check goes out the door to the crook, as I've said earlier, at that point it's very hard for IRS to even identify the crook. And so IRS is not in a position, for example, it's not typically the case that IRS knows the name of the crook and can just hand that information off to law enforcement and let them pursue this crook. IRS typically does not know the name of the crook. Or have any other information about the crook. [ Jacques Arsenault: ] Well, Sybil asks over e-mail, she says, I get that having your identity stolen is a bad thing for the person that it happens to, but are there bigger implications of this kind of fraud? [ Jim White ] Well, yes. To the extent that $6 billion is going out the door. That's money that the Treasury is losing. And so the rest of us honest taxpayers have to make up that loss. So it does have a significant, significant implication. [ Jacques Arsenault: ] Sure. One more question. I was asking, I was speaking with a friend earlier today. And she said she had gotten a scary phone call from the IRS about her taxes. And she wasn't sure, she's been trying to get through to the IRS to get the situation figured out. Do you have any advice for her? [ Jim White ] I've gotten several of those calls myself. There are a variety of phishing scams. And they take the form of, there are e-mail scams as well. But these phone phishing scams that are so common right now, they are telephone calls. They are from somebody claiming to be from the IRS. They get pretty threatening and demand immediate payment. IRS never makes phone calls like that. In fact, IRS will not call you out of the blue. They would send a notice first. So, if you get a call that is at all suspicious, don't give them any ID-type information. Don't give them bank account information or credit card numbers, and definitely don't give them any money directly. IRS has quite a bit of information about this on their homepage. You can go to that homepage, and if you look under phishing schemes and scams, IRS tells you how you can report that to them. But this, these kinds of calls now are very widespread. [ Jacques Arsenault: ] Okay, thanks. Finally, in closing, do you have any thoughts for our audience? General things that they should keep in mind when thinking about how IRS manages the tax filing season? Or this kind of identity-theft tax refund fraud? [ Jim White ] Well, I think this year, again, IRS is projecting that it's going to be a challenge for taxpayers to get through to IRS's own assisters. So taxpayers are going to need to think about some other options if they want to avoid waiting on the phone. One option is doing some research themselves on IRS's website. That site now provides a lot of answers to tax questions. The other thing taxpayers can do is work with their preparer. Ask the preparer the question rather than call IRS. Or look for answers in their tax software, whatever tax software package they're using. And then there are free advice services available, especially to lower income taxpayers. And, again, the locations of those services, they're all over the country. And you can get information about that on IRS's website [ Figure: For additional questions, you can contact the IRS at 1-800-829-1040 or visit http://www.irs.gov/uac/Help-With-Tax-Questions-2 ]. [ Jacques Arsenault: ] All right, great. Well, thanks, Jim. And thanks to everyone for joining us today. Actually, we have one more question, looking at the tax filing season work, are there any recommendations that GAO has made to IRS that you would want to focus on and make sure that people know about, in terms of how IRS can do a better job of managing this work? [ Jim White ] Yeah. Well, I talked about the ID-theft-related recommendations that we've made, including in this latest report. On the filing season, more generally, we, given this mismatch between resources and workload. We think IRS needs to be taking a very strategic, a high level look at what services it should be providing taxpayers. And what it can cut back on. And this means making some hard decisions about cutting back on some services. But given that mismatch, again, this would be a way to address it. [ Jacques Arsenault: ] Okay. Well, great. Well, thanks so much. I think we've reached the end of our questions. And so I'd like to thank everyone for the questions that you’ve sent in. I encourage you to look at our reports that are on our website on identity-theft tax refund fraud. As well as a lot of our work that's on our live stream page, highlighted about the tax filing season and how IRS is managing that. I would also invite you to stay connected with us on social media. We're on Facebook at facebook.com/usgao. We're on Twitter. Our handle is @usgao. We're also, we have a blog, the GAO Watch Blog. Which you can get to at blog.gao.gov. And you can also connect with us on Linkedin and Flicker and YouTube. Thanks again for joining us. Thank you, Jim. I really appreciate you taking the time. And we look forward to seeing you when you tune in next time. [ Background Music ] [ Narrator ] Thanks for watching Ask GAO Live. Stay connected with GAO for information about future Ask GAO Live chats.