Secret IRS policy hides identity theft from victims

Secret IRS policy hides identity theft from victims

Secret IRS policy hides identity theft from victims

IRS Whistleblowers say they were ordered to ignore evidence of identity theft.
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An e-mail. Weeks of phone calls. A flurry of texts.

All of that was behind us.

Now it was time to meet face-to-face – in a tiny, dark hotel conference room nearly 900 miles from Indianapolis.

One meeting room. Two IRS whistleblowers. Three TV cameras. Hundreds of questions.

The first question seemed obvious.

"Why are you here?" I asked.

The whistleblowers looked at each other and smiled.

"Because I love my country. And I just can't do this no more. It's not right," said one of the IRS workers.

"That's why we're both here," said the other, echoing her colleague with long, deliberate pauses. "It's a crime, and it's…just…not…right."

Together, they have decades of experience at the Internal Revenue Service, working on the front lines with frustrated, angry or confused taxpayers who contact the agency for help.

Risking their jobs to come forward, the whistleblowers do not want to show their identity. But they do want to show how the IRS is a knowing accomplice to millions of cases of identity theft while keeping victims in the dark.

A five-month Eyewitness News investigation shows their concerns are well-documented, and the IRS has been warned about the problem for years. Within a massive federal agency that claims to be taking identity theft seriously, the reality – in many cases – is very different.

"We are not supposed to do anything." said a whistleblower. "We are not allowed to say anything."

Findings of the 13 Investigates report include:

  • The IRS accepts millions of tax returns – and issues tax refunds – even when taxpayer documents show clear warning signs of identity theft
  • Confidential IRS policies instruct IRS employees not to tell taxpayers when someone else uses their social security number to earn income
  • The IRS allows illegal immigrants to "borrow" social security numbers that do not legally belong to them
  • The IRS is discontinuing a program to notify taxpayers when their social security number is used by someone else to gain employment

"Let it go"

To understand what the whistleblowers are talking about, you first need to understand some IRS basics. Don’t worry. It will just take a moment to walk you through it.

Everyone who meets minimum income thresholds in the US is required to file a tax return with the IRS. 

For undocumented workers – who are also required to submit a tax return despite their illegal immigration status – it means using an individual taxpayer identification number, better known as an ITIN. It is a government-issued ID number granted to undocumented immigrants specifically for tax purposes, and it allows them to not only file taxes, but also to get tax refunds and certain tax credits

But an ITIN cannot be used to get a job, and undocumented workers cannot legally get a Social Security number which most companies require for employment. Facing that dilemma, many undocumented immigrants figure out how to get a Social Security number anyway -- a number that does not belong to them – simply to get work.  

“We are not supposed to do anything”

So at tax time, millions of undocumented workers send the IRS their ITIN tax return and, along with it, many send a W-2 that shows the income they earned using somebody else's social security number.

The ID numbers submitted to the IRS – both an ITIN and a Social Security number -- clearly don't match. In fact, the IRS has an official name for that: an ITIN/SSN mismatch. It's a huge warning sign for identity theft.

But amazingly, the IRS accepts millions of ITIN/SSN mismatch tax returns anyway. 

The agency actually encourages undocumented immigrants to file with a mismatched Social Security number that does not legally belong to them. The IRS website instructs tax preparers that undocumented workers can and should include on their tax returns any income they’ve earned using a Social Security number -- even though the IRS admits non-resident aliens are not legally eligible to receive a Social Security number in the first place!

So what does the IRS do with that information?  What action does the agency take when it learns someone else used your Social Security number to get work and earn a paycheck?

"We're not allowed to say anything. Not a word," explained an IRS whistleblower.

"You were told to ignore it?" I asked, making sure I heard correctly.

"Yes. Identity theft is a crime. It affects real people in a lot of ways. But we are not supposed to do anything. Just let it go," she said. "I talk to these people every day who don't understand exactly what happened to them, and it's heartbreaking."

A surprise in the mailbox

“It was upsetting, a real hassle and kind of scary, really”

David Burian knew something was wrong the moment he opened the envelope.

"It was from the IRS, and they said I didn't report all of my income," the Fort Wayne businessman explained to 13 Investigates.  

On the other side of the state, Alfred Allen received a letter that was nearly identical.

"I saw it was from the IRS, and I thought maybe it was my refund check. But it wasn't. They were telling me I had falsely done my taxes," the teacher explained from his Hobart home.

Both men were accused of under-reporting their income, cheating the government out of money.

In reality, they are victims of identity theft. Undocumented workers got jobs using their Social Security numbers, making it appear Burian and Allen earned more income than they actually had. But the IRS wouldn't explain that to either victim.

"I called [the IRS] and they asked me if I worked for a company in Plainfield that I never heard of before. Then they told me what information I had to send in, but they didn't tell me anything else about what was going on," Burian said.  

It took him months to prove to the IRS that the suspicious income was not his.

"I had to make a police report with the city of Fort Wayne. I had to make a police report with the state. I had to get an affidavit and sign that and then send it all to the IRS and wait and see what their response was,"  Burian explained, sifting through a large file full of correspondence and documentation related to the case. "It was very time consuming."

Allen had to do the same thing, and while he was trying to clear things up with the IRS, he and his family were denied state health insurance because of the mix up.

"I had to go months hoping my kids wouldn't get hurt because they didn't have the insurance," he said. "It was upsetting, a real hassle and kind of scary, really."

Many more victims

Burian and Allen are not alone. Data discovered by 13 Investigates reveals millions of potential victims.

In 2000, undocumented workers submitted an estimated 309,000 ITIN returns with ITIN/SSN mismatches, according to Congressional testimony from the U.S. Treasury Inspector General for Tax Administration (TIGTA).

In less than a decade, that number quadrupled.  

A 2010 TIGTA investigation showed 1.2 million undocumented workers cited income earned with another person’s Social Security number when they filed their tax returns in 2007. Those numbers came directly from the IRS records. TIGTA also conducted its own analysis, finding a statistical sample of ITIN tax returns showed 80% of ITIN taxpayers used someone else's Social Security number for employment.  

Another TIGTA report found the number of ITIN/SSN mismatches on ITIN returns exceeded 91%. 

There are now an estimated 3 million ITIN tax returns filed with the IRS each year. 

Nearly eight years ago, Inspector General Russell George issued a warning to the IRS, writing "we are concerned that if the IRS takes no additional action to stop further use of another person's identity, then there is no deterrent to keep the problem from spreading."

The concern and the prediction were accurate. While the IRS has taken aggressive steps to address some types of tax-related identity theft, it has done little -- if anything -- to curb the problem involving illegal immigrants who file ITIN tax returns with the help of someone else’s Social Security number. 

“With the employment-related identity theft, they really don't have a process to stop it,” said TIGTA Assistant Inspector General Russ Martin.

His office has been warning the IRS about employment-related identity theft for nearly two decades. One of the warnings included a scathing report, stating “the IRS has no procedures for employees to initiate a process for notifying taxpayers who may be unaware that their Social Security Numbers have been stolen.” That report was issued five years ago, and little has changed.

Facing continued pressure from TIGTA, last year the IRS launched a pilot program to actively notify (for the first time) victims of employment-related identity theft. The trial program has ended and is now being reviewed by both the IRS and TIGTA. Sources close to the program tell 13 Investigates the IRS has decided to stop the notifications due to a lack of funding from Congress. TIGTA remains concerned.

“It is a continued problem for the IRS,” Martin told 13 Investigates. “It affects millions of taxpayers.”

So why is the IRS still looking the other way, allowing millions of people to use Social Security numbers that do not belong them, and essentially facilitating a crime?

“I think you should ask the IRS,” Martin said.

Secret documents

The IRS says it is in the process of making changes in order to give people more information about fraudulent returns filed with their SSN.

13 Investigates tried that – repeatedly. For weeks, Eyewitness News asked the IRS for an interview. My cameraman and I even went to the agency's headquarters in Washington, D.C., but the IRS declined to meet with us.

So we looked for answers elsewhere. We found them in what's called the IRM, the official Internal Revenue Manual that serves as the policy bible for IRS employees.

The IRM lives online at the IRS website and it is huge. Printed out, it's more than seven feet high -- more than 21,000 pages -- covering the rules, policies and procedures that govern nearly all activity within the IRS.

Some of the manual is "official use only" meaning it's kept secret from the public. But through internal sources at the IRS, 13 Investigates obtained confidential sections involving employment-related identity theft.

One of the confidential chapters warns IRS employees "Do not disclose to the taxpayer that … their SSN was reported on an ITIN return" and used by someone else to get a job. It instructs IRS workers not to mark the victim's file with a special identity theft code, explaining "Employment related identity theft is not a tax administration issue because the SSN owner's Master File tax account is not affected."

In multiple sections, the IRS manual also suggests employment-related identity theft is of little concern, referring to an undocumented worker who use someone else's Social Security number as a "borrower" who is simply "working under a ‘borrowed' SSN."

David Burian and Alfred Allen take issue with those policies.

"I didn't let anyone borrow my Social Security number to get a job. That doesn't make any sense. Who would do something like that?" Allen said when 13 Investigates showed him the IRM.

"Absolutely not. That's not borrowing. Bottom line, it's wrong. It's theft," agreed Burian.

Shut up and don’t say anything

The IRS employees who spoke to WTHR say the IRS position on employment-related identity theft is hard to justify.

"If you are borrowing something and that person doesn't know and probably wouldn't want you to borrow it, that's not borrowing, that's stealing," said one of the whistleblowers. "You can't do that. You're taking something without that person's consent. That is stealing."

"And we see it every day – eight hours a day -- you see this over and over and over and over again," said the other IRS employee. "And I know where the person lives, where they work… I see all of that and I'm not allowed to say anything. I'm not allowed to tell them. I talk to mothers who get [IRS] letters [about under-reported income] for their newborn babies. I talk to widows calling about [IRS letters claiming under-reported income for] their dead spouse, and there's nothing I can do. I know who stole their identity, but I can't say ‘Look, I'm sorry, but your baby's Social Security number is being used in the Bronx, New York, by this person that lives at this address." 

The IRS employees told 13 Investigates they routinely see the same Social Security number used to report income on as many ten, twenty, even thirty different ITIN tax returns.  They say raising concerns to IRS supervisors – which they have attempted to do multiple times – is risky. 

"We can't say anything because we'll be reprimanded and written up. The last time I said something I was told ‘watch your step.' Every year we go to mandatory briefings where they tell us ‘sit down, shut up and don't say anything.' They need to be more honest with the taxpayer," said a whistleblower, shaking her head in discouragement. 

Victimized again

Alfred Allen says his family was denied health insurance while he dealt with the income discrepancy.

Not saying anything has consequences for taxpayers.

"It's really upsetting to hear something like that, especially since I've been doing this 4 years," said Allen.

2011 is when Alfred got his first notice from the IRS alleging he didn't report all of his income. Now it's happened again. It appears the same person is still using Allen's Social Security number to get jobs -- and why not? The IRS policy manual clearly shows the agency is not going to do anything.

"I thought it was taken care, but they don’t actually resolve the matter at all," Allen said. "That's only going to cause more people to do it."

Allen, Burian and other victims of employment-related identity theft now get a special PIN number from the IRS so they can file their taxes more securely.

But that's addressing a symptom while ignoring the real problem: the IRS has documentation showing millions of Social Security numbers being used illegally -- and the IRS has no plan or strategy to stop it.

IRS response

“They are taking steps and they are making real progress.”

For this investigation, WTHR sent the IRS a detailed list of questions. In response, the agency sent a written statement:

"Identity theft protection is a top priority for the IRS. We've dramatically increased our efforts in this area to protect taxpayers and the tax system through prevention and detection of fraud and prosecution of thousands of criminals. The IRS administers the tax code, as written by Congress, which requires anyone who has earned taxable income to pay taxes if their income exceeds a certain threshold. The job of the IRS is to ensure that everyone who has taxable income, and has a filing requirement, has the ability to file a tax return and pay their fair share of taxes. We continue to look for other ways to help taxpayers..."

Martin says the IRS contention that it has increased efforts to prevent fraud and to prosecute tax cheats is true -- somewhat. 

“They are taking steps and they are making real progress,” said the assistant Inspector General. “More needs to be done, but we do see progress.”

But he said that progress has been focused on what the IRS considers to be traditional “tax related” identity theft, involving a criminal who files a tax return with someone else’s Social Security number for the purpose of stealing their tax refund. In cases of employment-related identity theft, where a Social Security number is being used improperly only to earn income, the IRS still seems uninterested.

“That has not been the focus. Besides for a pilot study, I don’t think much has happened there,” Martin said. “That is definitely on TIGTA’s radar screen.”

An IRS spokesperson notified WTHR “In instances where someone is using a stolen SSN, the IRS is in the process of making an important recent change, allowing us to provide taxpayers with a redacted copy of the fraudulent return in situations where the improper use of their SSN affects their refund or involves refund fraud.” The IRS made that change in response to an inquiry from a frustrated U.S. Senator.  It is unlikely to help victims of employment-related identity theft because most of their cases do not fall into the IRS’s definition of refund fraud.

We used “quotation marks”

While the IRS statement does not address most of WTHR’s questions, the agency also sent some additional information that provides more insight into its policy decisions regarding employment-related identity theft.

First and foremost, the agency reiterated its position that as long as an undocumented worker is using a Social Security number to show proof of income – and not as the primary number used to file the tax return – the IRS does not consider it to be a tax administration matter.

“It’s important to remember that many of these tax returns involve people using someone else’s Social Security number for employment purposes – not for the purpose of filing a tax return. When they file their tax return, they are using an ITIN number to file their tax return – not another person’s SSN. This allows people to pay their taxes as the law requires. In many of these situations, an ITIN filer’s use of someone else’s SSN to facilitate employment has no direct impact to the tax filing or tax refund status of the rightful owner of the SSN,” an IRS spokesperson wrote.

(One of the whistleblowers had this response to that IRS statement: “Oh great, so they’re saying they just care about collecting tax money and couldn’t care less about the taxpayer who has their identity stolen? Just because it doesn’t affect their refund status doesn’t mean the IRS should ignore the fact that someone has stolen their Social Security number.”) 

And when it comes to "borrowers," the IRS defended its use of the term, stating:

"The term "borrower" is used sparingly and is in quotation marks in the IRS internal manual. This reflects an effort to distinguish between those who may "borrow" a Social Security number from another family member for work purposes and instances of actual identity theft, which requires a great deal more work on the IRS to identify and protect the rightful owner of the Social Security number. The IRS cannot immediately classify the use of the Social Security number as identity theft without more background information on the source of the SSN. This is a labor-intensive process that's unrealistic given IRS budget limitations and the universe of millions of ITIN users. Borrower is a neutral term that is used until we have a fuller set of facts."

The agency did not explain why it believes taxpayers should not be told when their Social Security number is being used by someone else for employment purposes – and why that section of the IRM must be kept secret from the public. In fact, following WTHR’s inquiry, some sections of the IRS manual that mention “borrowers” and that deal with employment-related identity theft no longer appear in the online IRM. 

“You cannot just hide something from the taxpayer, something like this big. It's not right,” a whistleblower said. 

She ended our interview by coming back to where we began. “You asked why I’m here. Because it’s not right. It’s not ethical. As an agency, it’s our duty to do something about it. That’s why I’m here.”

Illegal immigrant: “We have to do it”

Maria and Jose purchased their Social Security numbers in Chicago. They know the numbers are “fake,” but say they were not stolen from someone else.

IRS employees were not the only ones willing to take risk by speaking with WTHR for this investigation.

Some undocumented workers agreed to meet with 13 Investigates, as well.

Maria has lived in Indiana for 26 years.  Jose has worked dozens of jobs. Together they have three beautiful children.

But the numbers tell only part of the story, because when you are living as an illegal immigrant, there are some numbers that just don’t add up.

“How did you get a Social Security number?” I asked the couple at a meeting in Fort Wayne.

“We go to Chicago and buy the Social Security number,” Jose said. “I know that’s fake… not mine. That’s a number somebody else made for me and they put my name on there.

Jose moved to the United States from Guanajuato, Mexico, in 1989. One of 11 children who grew up surrounded by crime, violence and poverty, he came to Indiana to find a better life for his family.

“We struggle in Mexico to get enough money to pay for our food,” he said. “Here it is way better.”

Jose used his purchased Social Security number to get jobs as a mechanic, a salesman, a construction worker and a home contractor. He knows using a fabricated Social Security card is not legal -- but he says it's necessary.

“Every time we go and try to get a job, they're going to ask for a Social Security number,” Jose said.  “We have to do it. If we don’t do it, nobody's going to come and tell us ‘Hey, here's money to buy or to pay for your rent and to pay your bills.’”

“Just give us an opportunity to work here,” Maria added.

It's a story shared by millions of other undocumented immigrants who’ve come to America to live and to work. 

Jose and Maria file a tax return every year using the ITINs they received from the IRS along with W-2s that include the social security numbers they bought in Chicago. The numbers, of course, don't match, but the IRS doesn't care.

“Does the IRS know that's not your Social Security number?” I asked them.

“Of course. I think that the IRS, they know,” Jose said, while Maria nodded in agreement.

My next question made us all feel a little uncomfortable. 

“What do you think?” I said. “Do you think this is stealing?”

“Ah, well….” Jose said, raising his eyebrows and pausing to think. “That all depends how you look at it.”

Stealing from a baby

“This is a crime. It's illegal. It's stealing.”

Jose understands his purchased ID number allows him to get jobs for which he might otherwise not be hired. But he insists the purchased Social Security number consists of nine completely random digits, and he's pretty sure it's not a valid Social Security number stolen from someone else. 

“I’m not going to be 100% sure today or tomorrow they did not give that number to nobody else, but right now, the number does not belong to nobody,” he said.

But that's what Marcos Lopez thought. The undocumented worker from Mexico also bought a Social Security number in Chicago. He used it to get jobs all around Indianapolis, to file taxes and to get tax refunds. 

But the number Lopez purchased actually belonged to a baby named Adam Brackin. As Adam grew up on the west side of Indianapolis, he had no idea a stranger was using his identity. The IRS didn't say a word. By the time Adam and his mom figured it out, Lopez had run up thousands of dollars in unpaid bills, ruining Adam's credit.

“This is a crime. It's illegal. It's stealing. He has stolen from us,” Adam’s mother told WTHR. 

Marcos Lopez was arrested for using a Social Security number that belonged to a young boy in Indianapolis.

Lopez was arrested after 13 Investigates and local police finally located him at a restaurant in Broad Ripple – a restaurant where he was hired as a cook using Adam’s Social Security number. Detectives discovered Lopez was actually using six different names and five Social Security numbers.

“Unfortunately, there are many people like that,” Jose said. “And when you buy a number, you don’t know that they sell it only to you or they sell it to 30 people. There are people who make it bad for everybody.”

An Eyewitness News investigation also exposed how many undocumented immigrants receive thousands of dollars in improper tax credits by listing nieces, nephews and other relatives who live in foreign countries as dependents on their tax returns. The tax fraud, often instigated by unscrupulous tax preparers, costs American taxpayers billions of dollars in lost revenue each year.

Citing abuses like those, some lawmakers have proposed that the IRS abolish all tax credits for undocumented workers and refuse to accept all tax returns that include an ITIN/SSN mismatch.

System “badly broken”

“The system is badly broken and it needs to change”

But a local immigration attorney says most illegal immigrants aren't looking to steal anything -- even if they do get a hold of a Social Security number.

“There's no intent to rob someone of their identity,” said Sarah Moshe, who has practiced immigration law for more than a decade. “It's purely to be able to get a job and earn an income to support their families, so there is no malicious intent in the vast majority of cases I see.”

Moshe also points out undocumented workers getting jobs and filing tax returns brings in billions of dollars for the government. The question is: can the government figure out a way to collect those tax dollars without putting millions of Americans at risk for identity theft? Current IRS policies allow and encourage undocumented workers to obtain fraudulent Social Security numbers so the U.S. Treasury can collect on their earnings.

“Yes, it’s a broken system. It’s a catch 22,” Moshe said. “There are millions of undocumented immigrants in this country, and there’s a deep need for these people to be able to function in our society. Is it better to keep this portion of our population on the fringe and in the dark, or is it better to bring them into the light? Even from a national security perspective, I think it’s better to know someone’s name and address and ITIN number than to not have them file [taxes] at all, or to have them file and have it kicked back and rejected… The system is badly broken and it needs to change.”

Jose and Maria agree.

“Sooner or later, we hope the laws are going to change and the government is going to know we pay our taxes. We come to do a job -- not steal anything -- and do things the right way,” said Jose. “The United States is a great place to get our dreams to come true.”
WTHR contacted the Indianapolis Immigrant Welcome Center, the Indiana Latino Institute and the Mexican Consulate in Indianapolis. None of them chose to comment for this report. 
 

The IRS offers tips and information in its Taxpayer Guide To Identity Theft, as well as advice for victims of employment-related identity theft.