TIGTA: IRS Does Not Effectively Process 100,000 Tax Fraud Reports Each Year

The Treasury Inspector General for Tax Administration today released The Process for Individuals to Report Suspected Tax Law Violations Is Not Efficient or Effective (2012-40-106):

The IRS website for reporting fraud was visited 501,218 times in Fiscal Year 2011, and during that year 116,307 individuals submitted a Form 3949‑A, Information Referral, to the IRS. The IRS is not efficiently or effectively processing these referrals. ...

Reporting guidelines provided to taxpayers and employees are confusing and inconsistent.  Instructions on Form 3949‑A do not explain what types of fraud and tax law violations to report using this form.  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.

As a result, many referrals do not meet any criteria under which the IRS could or would be able to take action(s). A lack of quality review resulted in referrals being destroyed. Additionally, the forms are often used for other purposes (e.g., claims by victims of identity theft). About 3,000 Forms 3949‑A used to report identity theft were destroyed due to a lack of procedures on how to process these claims. Victims were not notified.

Ineffective routing procedures and oversight have allowed Forms 3949-A to be misrouted to the wrong functions.  Others are mistakenly considered unworkable and retained for 90 days and then destroyed.