Last week we joined the National Consumer Law Center, the Consumer Federation of America and others in detailed comments (primarily prepared by Chi Chi Wu of NCLC) to the IRS concerning how the sharing of taxpayer information by tax preparers leads to increased marketing of predatory refund anticipation loans, privacy invasions, identity theft and tax fraud (some fraud is perpetrated by household name preparers, other fraud by "fringe" preparers). Fun fact from our comments: the IRS allows liquor stores, used car dealers, lube joints and beauty parlors to link to its website as approved e-file tax preparers.

This week, the U.S. Senate Finance Committee heard testimony on tax-related identity theft from IRS officials and the IRS taxpayer advocate, Nina Olson, who headlined part of her testimony with this salient comment:

Taxpayers Are Essentially Victimized Twice -- Once by the Identity Thief and a Second Time by IRS Procedures that Prevent Them from Claiming Tax Benefits to Which They Are Entitled

Overall, the IRS not only lacks the comprehensive data needed to determine the impact of identity theft on tax administration, it faces enormous challenges in securing the vast amount of personally identifiable taxpayer information that it stores.