IRS notifying 100,000 financial aid applicants they might be tax ID victims

The Internal Revenue Service is sending out 100,000 notification letters to student financial aid applicants who could be at risk of identity fraud.

IRS Commission John Koskinen told members of the Senate Finance Committee about 35,000 letters were already on their way to people advising them that their tax information may be at risk thanks to a “convenience app” that populates their student loan application with tax  data.

“Our position has been, as we’ve been working with [the Department of Education], we can’t confidently distinguish the smaller part of that pool, or the part of the pool that had their data stolen from those that may have had their data stolen,” Koskinen said April 6. “So out of an abundance of caution, we’re going to notify all 100,000. We marked all 100,000 accounts, so whenever a return is filed they’ll be protected, but while … we don’t want to unnecessarily worry people, we will advise everyone that there’s been some indication that they may be at risk.”

Koskinen said IRS filters stopped 52,000 tax returns related to the 100,000 accounts, and about 14,000 of them were identified as illegal returns that didn’t get out the agency’s doors. But around 8,000 returns worth $30 million were submitted and approved, the commissioner said.

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Koskinen said the Education Department is working on a solution for the issue but it wouldn’t be available until October.

In the meantime, the data retrieval tool has been shut down, and applicants must manually enter their tax information.

“At this point, you can still file a student loan application, you just have to put in the tax information yourself. If you don’t have it you can go online with our new authentication system Get Transcript and get it online or we’ll mail to your last address of record the tax information you need,” Koskinen said. “What you won’t be able to do until probably October is go in and have the data automatically populated. We’re at the front end of the problem but we’ve been monitoring it. We have other areas we’re monitoring. We’re trying to anticipate where will the criminals attack next.”

After last year’s attack on the IRS’ Electronic Filing PIN application, the agency added an additional security layer by requiring the taxpayer’s adjusted gross income for the previous year, when filing their return.

The convenience app for the student loan online process includes the loading of that number. Last autumn IRS warned the Education Department to keep an eye out for any suspicious activity, Koskinen said. It wasn’t until early February that a pattern of activity was identified, and the decision  made to shut down the app until a long-term solution could be implemented.

Critical leadership

Koskinen’s update on the agency’s work with Education was just part of his testimony during his appearance on Capitol Hill. He also answered questions on tax reform, resources, and whether or not he would resign from his post.

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Koskinen said IRS is aware Congress is considering tax reform, but the agency won’t be taking any sides on policy questions.

“We do have a great interest in working with Congress to make sure whatever policies are adopted are easy for us to administer and easy for the taxpayers to understand,” Koskinen said. “We also hope that Congress will make any tax changes prospective and build in lead times so we can prepare taxpayers and our systems for the change.”

Koskinen also shared that the agency is waiting to hear back from the Office of Management and Budget on any federal hiring freeze exemptions.

“Our point is where you’ve got critical leadership needs in things like cybersecurity or information technology or enforcement, those — and I think Treasury’s agreed — are critical,” Koskinen said. “If we suddenly can’t collect money, that’s not going to help the government at all.”

Koskinen said hiring for the filing season has been normal, without 1,500 temporary workers hired between Jan. 22 and Feb. 22, and another 3,500 to 4,000 people temporarily hired for the filing season.

“The hiring freeze did not interfere with filing season activity,” Koskinen said, but he added even without a freeze, the agency would still have trouble replacing people who leave the IRS.

Action, not lip service

Koskinen’s testimony capped off a busy week for IRS. On April 5 IRS announced the launch of its third iteration of a private debt collection program. A day later Koskinen spoke at the National Press Club in Washington, D.C., where he told an audience that the agency must be efficient, but seven years of budget cuts were taking a toll on customer service and cybersecurity.

“The idea that we can squeeze a lot more money out of the system after seven years of cuts just isn’t going to work,” Koskinen said.

According to President Donald Trump’s fiscal 2018 budget proposal, the Treasury Department would be cut by about $500 million. About $239 million would come from cuts to IRS.

Sen. Ron Wyden (D-Ore.), finance commtee ranking member, on Thursday called for a “reinstatement” of funding for the IRS, saying the fewer tools and funding provided to the tax agency will only increase the risk that taxpayer information is stolen.

“Slashing IRS funds for enforcement enables bad actors to avoid paying their taxes, which is money that could be put to good use shoring up critical programs like Medicare,” Wyden said. “We need action, not lip service, to ensure the IRS has the resources they need to protect taxpayers’ personal information and prevent tax dodgers from gaming the system.”

A fresh start?

More than 50 House Republicans in early April signed two letters to President Donald Trump calling for Koskinen’s removal.

Koskinen took over the role as IRS commissioner in 2013 after former IRS official Lois Lerner retired. The IRS in 2013 admitted it had targeted some conservative groups filing for tax-exempt status.

On April 5, 15 Republican members of the House Ways and Means Committee sent a letter to President Donald Trump calling for Koskinen’s removal, citing destruction of evidence, misleading Congress and “intentionally [degrading] customer service at the IRS” as reasons for the request.

“As we work to reform the tax code and restructure the IRS, we must ensure that the agency has the tools it needs to accomplish the tasks at hand and to achieve a smooth transition,” the letter stated. “During this transition, the IRS would benefit immeasurably from new leadership and a fresh start.  In order for the IRS to fully reap the benefits of new leadership and regain the trust of the American people, the committee believes that we must have a new commissioner appointed as soon as possible.”

Sen. Pat Roberts (R-Kansas) asked Koskinen whether he planned on submitting a resignation letter, but the commissioner said he planned on seeing out the remainder of his term, which ends in November.

On April 6 members of the House Oversight and Government Reform Committee signed a letter claiming  Koskinen’s actions “permanently deprived Americans of a full understanding of the IRS targeting scandal, where Americans were selected for extra scrutiny based on their political views.”

The letters aren’t the first attempt Republicans have tried to oust Koskinen. In September Koskinen said his impeachment would be “improper.”