Identity theft tax fraud – using someone else’s tax ID or social security number to file a fake tax return and get a refund – has overtaken credit card fraud as the leading form of identity theft.
The Treasury Inspector General for Tax Administration issued a report on identity theft tax fraud in July, 2012. The report claims that tax fraud from stolen identities could cost the IRS $21 billion over the next five years. The report also identified over 1 million incidents of identity theft tax fraud, effecting over 600,000 taxpayers, in 2011 alone. That means there 600,000 taxpayers who had to deal with the hassle of straightening out these issues with the IRS. For many of these taxpayers their legitimate tax refunds were held up while the IRS resolved whether or not they were really victims of identity theft.
Florida has been one of the states that have been hit hardest by this form of tax fraud. Tampa has been called “ground zero for identity theft.” Senator Bill Nelson (D-Florida) has introduced legislation that would help address this problem, Senate Bill S.1534. Key provisions of Senator Nelson’s bill include:
- Adds a specific criminal penalty for misappropriating another person’s tax identification number in any document submitted to the IRS.
- The crime would be a felony punishable by a fine of at least $25,000 ($200,000 for corporations), and/or five years of jail time, and the costs of prosecution.
- Ups the fine for tax preparers who improperly use or disclose information from $1,000 to $100,000. There are many cases where tax preparers have engaged in identity theft tax fraud – which is not surprising, given that they understand how easy it is to do.
- Calls for a Personal Identification Number (PIN) system for people who have been victims of identity theft to prevent tax fraud problems.
- Gives the IRS a $10 million budget boost to the “Enforcement” account to prevent and resolve cases of tax fraud.
- Creates a Local Law Enforcement Liaison position within the IRS’s Criminal Investigation Division. Privacy concerns have often hampered local law enforcement coordination with the IRS.
- Calls for the IRS to prepare an annual report on tax fraud.
- Calls for a study on the use of commercial tax preparation software and prepaid credit cards as tools that facilitate tax fraud through stolen identities.
- Restricts access to the IRS’s Death Master File which some criminals have used to find social security numbers to use in fraudulent returns.
- Allows the IRS to share information with prison officials. Many criminals have found ways to file phony tax returns from within prison.
- Calls for a report on ways in which restrictions on information sharing between different police and enforcement agencies have hindered efforts to counter identity theft.
It’s not clear whether Senator Nelson’s bill will be brought up to a vote in the current Congressional session. Even if it does pass, it will help, but it certainly will not eliminate the problem of identity theft tax fraud.
About the Author Nussin S. Fogel, Esq., has been practicing for over 25 years as a New York slip and fall lawyer. Mr. Fogel founded Fogel Law, a firm specializing in Motor Vehicle Injuries, Slip and Fall Accidents, and other areas of Personal Injury Law. He has published on various aspects of Personal Injury Law across the web.