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March 4, 2013
Legislation to Combat Tax Identity Theft Not a Priority
by Eric Kroh

Full Text Published by Tax Analysts®

By Eric Kroh --

Despite the increase in tax-related identity theft, legislation to address the problem has not materialized and has not been listed among the top priorities of the congressional taxwriting committees.

The problem has been overshadowed by matters that are considered more urgent. When asked February 26 whether the House Ways and Means Committee has plans to move legislation that would combat tax-related identity theft, committee Chair Dave Camp, R-Mich., said, "Not right now. I think we're going to try and take care of a lot of the reforms we want to see in a comprehensive bill, so that's still the focus."

Senate Finance Committee Chair Max Baucus, D-Mont., said at a hearing the same day that tax reform and job creation are among that committee's priorities, but he did not mention tax-related identity theft. A committee spokesman said the issue is a priority for Baucus and that he is investigating options.

Tax-related identity theft remains a problem that shows no sign of abatement. In November 29, 2012, testimony (GAO-13-132T) before a subcommittee of the House Oversight and Government Reform Committee, James R. White of the Government Accountability Office said that in the first nine months of 2012, the IRS identified nearly 642,000 incidents of tax-related identity theft, more than double the amount for all of 2011, when the IRS identified 242,000 incidents. However, the IRS does not know the full extent of the theft because many cases may go undetected, White said.

The Treasury Inspector General for Tax Administration estimated in a report (2012-42-080) last year that the IRS could issue $21 billion in fraudulent refunds related to identity theft in the next five years. The IRS disputed that estimate, saying it was too high. In February the IRS announced that it has intensified its efforts to combat identity theft. (Prior coverage: Tax Notes, Feb. 11, 2013, p. 667.)

Without legislative changes, however, criminals will retain access to a government-maintained, publicly available database that aids in the commission of tax fraud: the so-called Death Master File (DMF), which contains the Social Security number, full name, date of birth, and date of death of individuals who have died. The Social Security Administration, which maintains the DMF, says it cannot restrict access to information in the database without legislative changes.

Jonathan E. Agin, a Washington attorney, in testimony before a joint hearing of two Ways and Means subcommittees last year, said his daughter died of cancer in 2011 and that her identity was stolen later that year to commit tax fraud. In his testimony, Agin urged lawmakers to pass H.R. 3475, which would have limited access to information in the DMF, but that bill did not make it out of the committee and expired at the end of 2012.

Agin told Tax Analysts that he is still in touch with the office of Ways and Means member Sam Johnson, R-Texas, who introduced H.R. 3475. Agin said he believes Johnson will reintroduce a bill to restrict access to the DMF but that he is frustrated by the lack of urgency in Congress: "You would think that an issue that would save the government at least $1.2 to $1.5 billion per year would be a priority at this point, when fiscal concerns would be high on everybody's radar screen."

Agin said that since testifying in February of last year, he has heard from more than 100 other families with stories similar to his.

Last year, the House passed by voice vote the Stopping Tax Offenders and Prosecuting (STOP) Identity Theft Act of 2012 (H.R. 4362), which would have increased penalties for criminals who commit tax-related identity fraud, but the Senate did not vote on the bill. Rep. Debbie Wasserman Schultz, D-Fla., reintroduced the bill on February 15 as H.R. 744. The text of that bill was not available at press time.

So far, a few bills have been introduced in the 113th Congress that would restrict access to the DMF, including H.R. 295, H.R. 466, and H.R. 531. H.R. 466, the Social Security Death Master File Privacy Act of 2013, introduced by Rep. Michael E. Capuano, D-Mass., would bar the publication of SSNs in the DMF, while the other two would establish a program to certify individuals to access information in the DMF, an approach taken in most bills in order to address the theft of information from the database.

A spokeswoman for Capuano said H.R. 466 was written to restrict SSNs in such a way that genealogists, researchers, and others with legitimate uses could still access other relevant information in the file. Should the legislation advance, Capuano would be open to changes that address groups that use the file for legitimate reasons, such as life insurers, the spokeswoman said.

Floyd L. Williams of Public Strategies Washington Inc., who served 16 years as IRS director of legislative affairs until he left the agency in 2012, told Tax Analysts that he thinks bills to address identity theft don't get a lot of attention in Congress because they are too obscure.

"The problem with anything related to the IRS or the IRS's administration of the tax system is that tax law to a lot of people is esoteric," Williams said. "Unlike whether or not you increase the rates or lower the rates or make capital gains more attractive, IRS-related legislation is not what's going to excite a lot of people."

Williams said that while he thinks legislation could help in combating tax-related identity theft, especially by raising awareness, what's really needed are dedicated resources to address the problem. "I don't think identity theft is an area that really can be legislated through the tax code," he said.

IRS efforts to address identity theft have been somewhat successful, but they have been hampered by budget cuts, Williams said. "In an era of flattening . . . budgets, it's going to get worse because to the extent that the IRS puts more people on identity theft, it's got to take them off other areas," he said.

Partly because of the limited funds available to address the problem, Senate Finance Committee member Robert P. Casey Jr., D-Pa., on February 27 sent a letter to the heads of the IRS, the Justice Department, and the Social Security Administration calling for the creation of a multi-agency task force to fight tax-related identity theft.

Casey acknowledged some ad hoc cooperative efforts among the agencies to fight tax fraud, but he said that "a dedicated, ongoing task force is needed. Such a task force would allow your agencies to better share information and make the best use of limited resources."

An IRS spokesman said the agency would respond directly to Casey rather than through the media.

Casey wrote that Congress has a role to play in addressing tax-related identity fraud and that the task force would be well suited to make legislative changes. A Casey spokesman said the senator will wait to see if the agencies respond positively to the proposal and that he plans to work with Baucus to tighten laws that would prevent fraud.

Agin said he would consider the task force proposal but would prefer a legislative solution. Members of Congress have tried to implement informal solutions to combat identity theft, such as asking genealogical services to remove some publicly available data, and some complied and some didn't, Agin said.

"Obviously, legislative solutions sometimes cause larger issues, unforeseen issues," but are the best response considering how the information is being provided and how it's handled, Agin said.

Agin said he thinks lawmakers are not moving more quickly because some are under pressure from financial services providers not to restrict access to the DMF. Information in the DMF is used by some pension funds and insurance companies to prevent sending payments to individuals who have died.

John T. Adams, district attorney for Berks County, Pa., told Tax Analysts that cases in his jurisdiction amount to "millions and millions" of dollars in tax fraud. Tax fraud is "not a problem that we can arrest ourselves out of," he said. "We need to attack it in many different ways," administratively and legislatively, he said.

What would be most helpful is to institute verifications of information on Forms W-2 and tax refund claims so that the information can be checked before refunds are sent out, Adams said. The IRS has asked Congress to expand its access to the National Directory of New Hires (NDNH), which it could use to verify refund requests, but lawmakers have not acted on the request. (Prior coverage: Tax Notes, Feb. 25, 2013, p. 928.)

Williams said he thinks some members of Congress are simply reluctant to give the IRS access to more personal information. Legislation like the proposal to expand the IRS's access to the NDNH involves more disclosure, he said, adding, "Another piece of info would be in the hands of the IRS, and people who wouldn't be excited about it would say the IRS already has all the info it needs."

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