Despite significant increases in identity theft screening and investigation efforts by the Internal Revenue Service (IRS) and other agencies, tax-related identity theft continues to be a significant crime. The time required for a taxpayer to correct compromised federal tax records is substantial, with recent estimates of nine to twelve months or longer to get resolution.
Members of Congress have introduced various measures to curb the problem, including the Identity Theft and Tax Fraud Prevention Act of 2013 (S. 676), sponsored by Sen. Bill Nelson (D-FL) and three other Senate Democrats. Among the provisions in the bill supported by the American Institute of CPAs (AICPA) are those that would:
• enhance the Identity Protection Personal Identification Number (IP PIN) program established by the IRS for taxpayers whose identity has already been stolen or potentially compromised;
• limit the number of refunds to the same mailing address or account; and
• restrict access to the Death Master File, which is maintained by the Social Security Administration.
One provision to which the AICPA strongly objects is the increased penalty under sections 7216 and 6713 of the tax code for improper disclosure or use of information by preparers of returns. In comments to the Senate Finance Committee in a June 27, 2013 letter, Jeffrey A. Porter, chair of the AICPA’s Tax Executive Committee, stated that increased penalties under these sections would not deter identity theft for two reasons: (1) Most tax-related identity theft is not perpetrated by tax return preparers and (2) if someone who purports to be a tax return preparer does engage in tax-related identity theft, there are more narrowly tailored and severe penalties in effect now.
However, the AICPA supported a provision in the bill that would add a new criminal penalty for using a false identity in connection with tax fraud. It would impose a maximum sentence of five years in prison and a maximum fine of $250,000.
Porter also expressed AICPA’s concern about the deadlines proposed by the bill, writing that “six months is simply not enough time to develop well-reasoned rules and regulations and there can be unintended negative consequences stemming from hastily drawn regulations.”
The AICPA made two recommendations to the Senate Finance Committee to help combat tax identity theft:
1) Implement new processes to verify a taxpayer’s address before the refund is paid. For example, when an income tax return is received with an address that is different than the address on the prior year return, before issuing the refund, the IRS could consult the U.S. Postal Service (USPS) database to see if the taxpayer has notified the USPS of the same address change.
2) Expand the use of the IP PIN program available to taxpayers who have been the victim of tax-related identity theft so that taxpayers could request an IP PIN before becoming a victim of identity theft. The IP PIN could be used in place of a Social Security number when filing a tax return.
For articles and resources on identity theft, visit the AICPA’s ID theft information page.