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Bill designed at supporting taxpayers against identity theft tax fraud advances in Congress

June 17, 2016

Stephen Fuller, Tax Manager

Responding to growing concerns over the scope of tax-related identity theft, the House has approved legislation to give victims more information about the crime. The bill includes provisions to:

  • Introduce a centralized point of contact at the IRS for ID theft victims;
  • Improve taxpayer communication of suspected ID theft;
  • Require the IRS to coordinate a study on the practicability of launching a program for victims of tax fraud to opt out of electronic filing;
  • Establish an organization to accumulate and examine data to detect and prevent ID theft.

The Ways and Means Committee also approved a bill impacting disclosures by exempt organizations.

Trends in stolen identity refund fraud

Tax-related identity theft occurs when a criminal uses the personal identification of a taxpayer to obtain a fraudulent refund. According to the IRS and the Treasury Inspector General for Tax Administration (TIGTA), tax-related identity theft continues to grow despite efforts to uncover and apprehend criminals. In 2014, the IRS estimated that it prevented the issuance of nearly $25 billion in fraudulent refunds. However, criminals still obtained more than $5 billion in fraudulent refunds. Many officials believe that additional money may also be at stake.

"Because of the difficulties in knowing the amount of undetected fraud, the actual amount could differ from these point estimates," according to the GAO study from February 2015.

More often than not, individuals are unware they have been victims until they file their return and discover that a return has already been filed by an identity thief. In some cases, the IRS may send a letter to the taxpayer reporting that the agency identified a suspicious return using the individual’s personal information.

On May 19, the House approved the Stolen Identity Refund Fraud Prevention Act of 2016 (HR 3832). HR 3832 would require the IRS to notify victims of tax-related identity theft as soon as practicable that his or her personal information was used without authorization. The IRS also would be required to notify victims of tax-related identity theft of any criminal charges brought against the alleged identity thief.

Additionally, the bill would create a centralized point of contact for victims of identity theft. The centralized point of contact may be a team or subset of specially trained employees. The makeup of the team may change as required to meet IRS needs, but the procedures must ensure continuity of records and case history and may require notice to the taxpayer in appropriate instances.

The bill would make willful misappropriation of a taxpayer’s identity for the purpose of making any return a felony. Under the bill, this offense would be punishable by a fine of up to $250,000 ($500,000 for a corporation), imprisonment for up to five years, or both, plus prosecution costs.

Exempt organizations

The Preventing IRS Abuse and Protecting Free Speech Bill (HR 5053) limits the contributor information that must be reported by a Code Sec. 501(c) on its annual return. Generally, the IRS may not require an exempt organization to report the name, address, or other identifying information of any contributor to the organization with respect to any contribution, grant, bequest, devise, or gift of money or property, regardless of amount. Information concerning prohibited tax shelter transactions and contributions by officers, directors, or covered employees are exceptions to the proposed provisions. The bill is awaiting action by the full House after having been approved by the Ways and Means Committee.

If you have any questions about these or other pending bills, please contact our office.

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein.  Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities.  This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.


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