Federal report calls for changes to reduce tax fraud


13 investigates uncovered billions of dollars of tax fraud, and changes are underway to fix the costly mistakes.

A federal investigation confirms everything we uncovered about a huge tax fraud that's putting money in the bank accounts of people living and working here illegally. Because of our investigations, changes are underway to fix the costly mistakes.

The Inspector General's report released Wednesday is a scathing indictment of Internal Revenue Service. It finds that in processing centers, the IRS was more concerned with approving applications and issuing refunds than looking for fraud. Workers like Howard Antelis were discouraged from identifying questionable applications for valuable Individual Taxpayer Identification Numbers (ITIN).

See highlights of the report here.

"We were being told by upper management to ignore fraud, to assign ITIN numbers. It is a licence to steal when you allow that," said Howard Antelis, IRS worker.

An Indianapolis tax preparer alerted 13 Investigates to undocumented workers trying to obtain those identification numbers and huge refunds.

There were homes where numerous adults received tax credits for children living in other countries, and IRS policies requiring workers to accept critical documents without knowing if they were real.

"This problem, people who are not necessarily entitled to the credit have been seeking it to the tune of $4 billion a year," said Russell George, Treasury Inspector General for Tax Administration (TIGTA).

George says that's $4 billion to many people who are living and working in the United States illegally.

The apparent fraud described in the report appears widespread, organized and so obvious it is almost hard to believe the IRS hadn't noticed where billions of dollars were going. Some refunds were more than individuals paid in taxes.

Last year, 23,500 tax refunds worth almost $16.5 million were deposited in just ten individual bank accounts. More than $46 million in refunds were sent to a single address in Atlanta.

In Indianapolis, taxpayer identification numbers were issued to 8,700 individuals all listing the same address.

The Inspector General gave the IRS a list of nine specific recommendations.

TIGTA recommended that the IRS develop detailed procedures and deliver adequate training to identify questionable documents; expand the quality review process to include emphasis on whether employees are accurately identifying fraudulent documents, revise the criteria for identifying questionable applications, establish a process to evaluate questionable applications, and develop a business process to include analyzing the current system to identify trends and schemes. In addition, TIGTA recommended that the IRS require only original documents or documents certified by the issuing agency in support of an ITIN application, and discontinue the Certifying Acceptance Agent designation.

According to TIGTA, the IRS agreed with seven of nine recommendations and plans to take action including the implementation of interim guidelines for supporting documents. The IRS says it will consider the other two recommendations during its review of the ITIN program.

"Will it stop fraud completely? I am not that sanguine. I won't say that. But will it make a significant dent in the problem? Most definitely," said George.

See all stories related to the investigation.

See the report