The IRS Spent $2.7 Million on a Tool That Shelled Out $39 Million to Crooks

The return on investment for what the Internal Revenue Service reports to be a $2.7 million government system that allows citizens to obtain previous year tax returns, so far, looks to be about negative $42.7 million. The ROI could fall deeper into the red, based on revelations about a breach of the online service -- although exact cost estimates for the IRS system remain hard to pin down.

In May, the IRS announced crooks had used the tool, called Get Transcript, to peek at 114,000 taxpayer files. On Aug. 17, the agency disclosed a more-extensive retroactive investigation into the matter shows crooks compromised about 220,000 additional taxpayer accounts.

Already, criminals have used some of the ill-begotten data to illegally claim tax refunds totaling about $39 million, IRS officials have said.

The exact cost of the Get Transcript service is murky. IRS officials reported to the White House Office of Management and Budget it spent $2 million on a system called "Get Transcript" and $717,000 on a system called "Get Transcripts,” according to the IT Dashboard, a federal spending website. It’s unclear why there are two systems listed. The dashboard, however, often contains outdated and incomplete data, according to numerous Government Accountability Office audits.

Nextgov, since Tuesday, has sought clarity on the distinction between the two line items. As of Friday afternoon, IRS officials could not provide an answer.

Here’s how the IRS investment became a hacking tool: Criminals in possession of previously stolen personal information on individuals used that intelligence to correctly answer several security questions about those taxpayers on Get Transcript.

Having passed the test, the crooks then copied down their targets’ financial data.

IRS officials said in a statement they believe some of the information on roughly 330,000 households "may have been gathered for potentially filing fraudulent tax returns during the upcoming 2016 filing season."

The Get Transcript service, which launched last year, was ultimately shut down in May once officials realized criminals were bypassing security protocols.

Before it was unplugged, Get Transcript generated a record number of returns, according to Performance.gov, a federal database that tracks agency progress in meeting administration goals.

In the second quarter of fiscal 2015, the tool retrieved 14.7 million online transcripts. That number was up from 5.8 million during the same quarter last year and up from 7.6 million in the third quarter of that year.

“The IRS continues to work on strengthening the system," officials said Aug. 17. "The IRS takes the security of taxpayer data extremely seriously, and we are working aggressively to protect affected taxpayers and continue to strengthen our systems."

The agency divulged the larger scope of the breach a week after the White House detailed its request for a 72 percent raise in IRS data security funding. The $242 million budget would support data analysis, IT controls, and victim support, among other things, according to the new, in-depth spending figures.

The IRS disbursed $5.8 billion to fraudsters in 2013, according to GAO.

All victims of the Get Transcript breach will be offered free credit protection as well as PIN numbers to add a layer of protection to next year’s tax returns.

The IRS has said budget reductions hamper efforts to combat fraud, pointing to $1.2 billion in cuts since 2010.