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S. 3157 (114th): Stolen Identity Refund Fraud Prevention Act

The text of the bill below is as of Jul 12, 2016 (Placed on Calendar in the Senate).


II

Calendar No. 555

114th CONGRESS

2d Session

S. 3157

[Report No. 114–299]

IN THE SENATE OF THE UNITED STATES

July 12, 2016

, from the Committee on Finance, reported the following original bill; which was read twice and placed on the calendar

A BILL

To prevent taxpayer identity theft and tax refund fraud, and for other purposes.

1.

Short title; etc

(a)

Short title

This Act may be cited as the Stolen Identity Refund Fraud Prevention Act.

(b)

Amendment of 1986 Code

Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

(c)

Secretary

In this Act, the term Secretary means the Secretary of the Treasury or the Secretary's delegate.

(d)

Table of contents

The table of contents of this Act is as follows:

Sec. 1. Short title; etc.

TITLE I—Identity Theft and Tax Refund Fraud Prevention

Subtitle A—General Provisions

Sec. 101. Guidelines for stolen identity refund fraud cases.

Sec. 102. Criminal penalty for misappropriating taxpayer identity in connection with tax fraud.

Sec. 103. Increased penalty for improper disclosure or use of information by preparers of returns.

Sec. 104. Notification of suspected identity theft.

Subtitle B—Administrative Authority To Prevent Identity Theft and Tax Refund Fraud

Sec. 111. Authority to transfer Internal Revenue Service appropriations to combat tax fraud.

Sec. 112. Streamlined critical pay authority for information technology positions.

Sec. 113. Access to the National Directory of New Hires to identify and prevent fraudulent tax return filings and claims for refund.

Sec. 114. Repeal of provision regarding certain tax compliance procedures and reports.

Sec. 115. Sense of the Senate on strengthened penalties and enforcement for impersonating an IRS official or agent.

Subtitle C—Reports

Sec. 121. IRS Report on stolen identity refund fraud.

Sec. 122. Report on status of the Identity Theft Tax Refund Fraud Information Sharing and Analysis Center.

Sec. 123. GAO Reports on identity theft and tax refund fraud.

TITLE II—Improvements to Electronic Filing of Tax Returns

Sec. 201. Study on feasibility of blocking electronically filed tax returns.

Sec. 202. Enhancements to IRS PIN Program.

Sec. 203. Increasing electronic filing of returns.

Sec. 204. Internet platform for Form 1099 filings.

Sec. 205. Requirement that electronically prepared paper returns include scannable code.

Sec. 206. Authentication of users of electronic services accounts.

I

Identity Theft and Tax Refund Fraud Prevention

A

General Provisions

101.

Guidelines for stolen identity refund fraud cases

(a)

In general

Not later than 6 months after the date of the enactment of this Act, the Secretary, in consultation with the National Taxpayer Advocate, shall develop and implement publicly available guidelines for management of cases involving stolen identity refund fraud in a manner that reduces the administrative burden on taxpayers who are victims of such fraud.

(b)

Standards and procedures To be considered

The guidelines described in subsection (a) may include—

(1)

standards for—

(A)

the average length of time in which a case involving stolen identity refund fraud should be resolved,

(B)

the maximum length of time, on average, a taxpayer who is a victim of stolen identity refund fraud and is entitled to a tax refund which has been stolen should have to wait to receive such refund, and

(C)

the maximum number of offices and employees within the Internal Revenue Service with whom a taxpayer who is a victim of stolen identity refund fraud should be required to interact in order to resolve a case,

(2)

standards for opening, assigning, reassigning, or closing a case involving stolen identity refund fraud, and

(3)

procedures for implementing and accomplishing the standards described in paragraphs (1) and (2), and measures for evaluating such procedures and determining whether such standards have been successfully implemented.

102.

Criminal penalty for misappropriating taxpayer identity in connection with tax fraud

(a)

In general

Section 7206 is amended—

(1)

by striking Any person and inserting the following:

(a)

In general

Any person

, and

(2)

by adding at the end the following new subsection:

(b)

Misappropriation of identity

Any person who willfully misappropriates another person's taxpayer identity (as defined in section 6103(b)(6)) for the purpose of making any list, return, account, statement, or other document submitted to the Secretary under the provisions of this title shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $250,000 ($500,000 in the case of a corporation) or imprisoned not more than 5 years, or both, together with the costs of prosecution.

.

(b)

Identity protection personal identification number

Section 6109 is amended by inserting after subsection (d) the following new subsection:

(e)

Identity protection personal identification number

(1)

In general

For purposes of this section, the term identifying number shall include an identity protection personal identification number, as defined in paragraph (2).

(2)

Definition

The term identity protection personal identification number means a number assigned by the Secretary to a taxpayer to help prevent the misuse of the social security account number of the taxpayer on fraudulent Federal income tax returns and to assist the Secretary in verifying a taxpayer's identity.

.

(c)

Sense of the Senate relating to criminal penalty for aggravated identity theft

It is the sense of the Senate that subsection (c) of section 1028A of title 18, United States Code, should be amended to include the offenses described in section 7206(b) of the Internal Revenue Code of 1986, as added by subsection (a).

(d)

Effective date

The amendments made by subsection (a) shall apply to offenses committed on or after the date of the enactment of this Act.

103.

Increased penalty for improper disclosure or use of information by preparers of returns

(a)

In general

Section 6713 is amended—

(1)

by redesignating subsections (b) and (c) as subsections (c) and (d), respectively, and

(2)

by inserting after subsection (a) the following new subsection:

(b)

Enhanced penalty for improper use or disclosure relating to identity theft

(1)

In general

In the case of a disclosure or use described in subsection (a) that is made in connection with a crime relating to the misappropriation of another person's taxpayer identity (as defined in section 6103(b)(6)), whether or not such crime involves any tax filing, subsection (a) shall be applied—

(A)

by substituting $1,000 for $250, and

(B)

by substituting $50,000 for $10,000.

(2)

Separate application of total penalty limitation

The limitation on the total amount of the penalty under subsection (a) shall be applied separately with respect to disclosures or uses to which this subsection applies and to which it does not apply.

.

(b)

Criminal penalty

Section 7216(a) is amended by striking $1,000 and inserting $1,000 ($100,000 in the case of a disclosure or use to which section 6713(b) applies).

(c)

Effective date

The amendments made by this section shall apply to disclosures or uses on or after the date of the enactment of this Act.

104.

Notification of suspected identity theft

(a)

In general

Chapter 77 is amended by adding at the end the following new section:

7529.

Notification of suspected identity theft

(a)

In general

If the Secretary determines that there has been or may have been an unauthorized use of the identity of any individual, the Secretary shall, without jeopardizing an investigation relating to tax administration—

(1)

as soon as practicable, notify the individual of such determination and provide—

(A)

instructions on how to file a report with law enforcement regarding the unauthorized use of the identity of the individual,

(B)

the identification of any forms necessary for the individual to complete and submit to law enforcement to permit access to personal information of the individual during the investigation,

(C)

information regarding actions the individual may take in order to protect the individual from harm relating to such unauthorized use, and

(D)

an offer of identity protection measures to be provided to the individual by the Internal Revenue Service, such as the use of an identity protection personal identification number (as defined in section 6109(e)), and

(2)

at the time the information described in paragraph (1) is provided (or, if not available at such time, as soon as practicable thereafter), issue additional notifications to such individual (or such individual's designee) regarding—

(A)

whether an investigation has been initiated in regards to such unauthorized use,

(B)

whether the investigation substantiated an unauthorized use of the identity of the individual, and

(C)

whether—

(i)

any action has been taken against a person relating to such unauthorized use, or

(ii)

any referral has been made for criminal prosecution of such person and, to the extent such information is available, whether such person has been criminally charged by indictment or information.

(b)

Employment-Related identity theft

(1)

In general

For purposes of this section, the unauthorized use of the identity of an individual includes the unauthorized use of the identity of the individual to obtain employment.

(2)

Determination of employment-related identity theft

For purposes of this section, in making a determination as to whether there has been or may have been an unauthorized use of the identity of an individual to obtain employment, the Secretary shall review any information—

(A)

obtained from a statement described in section 6051 or an information return relating to compensation for services rendered other than as an employee, or

(B)

provided to the Internal Revenue Service by the Social Security Administration regarding any statement described in section 6051,

which indicates that the social security account number provided on such statement or information return does not correspond with the name provided on such statement or information return or the name on the tax return reporting the income which is included on such statement or information return.

.

(b)

Additional measures

(1)

Examination of both paper and electronic statements and returns

The Secretary shall examine the statements, information returns, and tax returns described in section 7529(b)(2) for any evidence of employment-related identity theft, regardless of whether such statements or returns are submitted electronically or on paper.

(2)

Improvement of effective return processing program with Social Security Administration

Section 232 of the Social Security Act (42 U.S.C. 432) is amended by inserting after the third sentence the following: For purposes of carrying out the return processing program described in the preceding sentence, the Commissioner of Social Security shall request, not less than annually, such information described in section 7529(b)(2) of the Internal Revenue Code of 1986 as may be necessary to ensure the accuracy of the records maintained by the Commissioner of Social Security related to the amounts of wages paid to, and the amounts of self-employment income derived by, individuals..

(3)

Underreporting of income

The Secretary shall establish procedures to ensure that income reported in connection with the unauthorized use of a taxpayer's identity is not taken into account in determining any penalty for underreporting of income by the victim of identity theft.

(c)

Clerical amendment

The table of sections for chapter 77 is amended by adding at the end the following new item:

Sec. 7529. Notification of suspected identity theft.

.

(d)

Effective date

The amendments made by this section shall apply to determinations made after the date of the enactment of this Act.

B

Administrative Authority To Prevent Identity Theft and Tax Refund Fraud

111.

Authority to transfer Internal Revenue Service appropriations to combat tax fraud

(a)

In general

For any fiscal year, in addition to any other authority to transfer amounts appropriated to an Internal Revenue Service account, the Commissioner of Internal Revenue (referred to in this section as the Commissioner) may transfer not more than $10,000,000 to any account of the Internal Revenue Service from amounts appropriated to other Internal Revenue Service accounts. Any amounts so transferred shall be used solely for the purposes of preventing, detecting, and resolving potential cases of tax fraud, which may include educating taxpayers about common tax fraud scams and how to protect themselves from such scams.

(b)

Limitation

The Commissioner shall not transfer any amounts described in subsection (a) unless the Commissioner has determined that taxpayer services provided by the Internal Revenue Service to the public (including telephone operations, forms and publications, and similar types of taxpayer assistance) will not be impaired by such transfer.

112.

Streamlined critical pay authority for information technology positions

(a)

Authority

Section 9503(a) of title 5, United States Code, is amended—

(1)

in the matter preceding paragraph (1), by striking the Secretary of the Treasury and all that follows through establish and inserting the Secretary of the Treasury may, during the period beginning on the date of the enactment of the Stolen Identity Refund Fraud Prevention Act and ending on September 30, 2021, establish, and

(2)

in paragraph (1)(B), by striking the Internal Revenue Service's successful accomplishment of an important mission and inserting the functionality of the information technology operations of the Internal Revenue Service.

(b)

Recruitment, retention, relocation incentives, and relocation expenses

Section 9504 of title 5, United States Code, is amended—

(1)

in subsection (a)—

(A)

by striking Before September 30, 2013 and inserting During the period beginning on the date of the enactment of the Stolen Identity Refund Fraud Prevention Act and ending on September 30, 2021, and

(B)

by inserting for employees holding positions described in section 9503(a)(1) after incentives, and

(2)

in subsection (b)—

(A)

by striking Before September 30, 2013 and inserting During the period beginning on the date of the enactment of the Stolen Identity Refund Fraud Prevention Act and ending on September 30, 2021,

(B)

by striking employees transferred or reemployed and inserting employees holding positions described in section 9503(a)(1) who are transferred or reemployed during such period, and

(C)

by striking section 9502 or 9503 after June 1, 1998 and inserting section 9503 during such period.

(c)

Performance awards for senior executives

Section 9505(a) of title 5, United States Code, is amended—

(1)

by striking Before September 30, 2013 and inserting During the period beginning on the date of the enactment of the Stolen Identity Refund Fraud Prevention Act and ending on September 30, 2021, and

(2)

by striking significant functions and inserting the information technology operations.

(d)

Effective date

The amendments made by this section shall apply to payments made on or after the date of the enactment of this Act.

113.

Access to the National Directory of New Hires to identify and prevent fraudulent tax return filings and claims for refund

(a)

In general

Paragraph (3) of section 453(i) of the Social Security Act (42 U.S.C. 653(i)) is amended to read as follows:

(3)

Administration of Federal tax laws

The Secretary of the Treasury shall have access to the information in the National Directory of New Hires for the purposes of—

(A)

administering section 32 of the Internal Revenue Code of 1986,

(B)

verifying a claim with respect to employment in a tax return, and

(C)

identifying and preventing fraudulent tax return filings and claims for refund under the Internal Revenue Code of 1986.

.

(b)

Effective date

The amendment made by this section shall take effect on the date of the enactment of this Act.

114.

Repeal of provision regarding certain tax compliance procedures and reports

Section 2004 of the Internal Revenue Service Restructuring and Reform Act of 1998 (26 U.S.C. 6012 note) is repealed.

115.

Sense of the Senate on strengthened penalties and enforcement for impersonating an IRS official or agent

It is the sense of the Senate that the penalties under section 912 of title 18, United States Code, for impersonating an officer or employee acting under the authority of the United States should be amended to increase the penalties for impersonating an official or agent of the Internal Revenue Service and enforced to the fullest extent of the law.

C

Reports

121.

IRS Report on stolen identity refund fraud

(a)

In general

Not later than September 30, 2018, and every even-numbered calendar year thereafter through September 30, 2026, the Secretary shall report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate on the extent and nature of stolen identity refund fraud under the Internal Revenue Code of 1986, as based on the most recent data that is available.

(b)

Contents

The report described in subsection (a) shall include—

(1)

a discussion of the detection, prevention, and enforcement activities undertaken by the Internal Revenue Service with respect to such fraud, including—

(A)

efforts to combat stolen identity refund fraud, including an update on the victims’ assistance unit,

(B)

an update on Internal Revenue Service efforts and results associated with limiting multiple refunds to the same financial account and physical address, with appropriate exceptions, and

(C)

Internal Revenue Service efforts associated with other avenues for addressing stolen identity refund fraud,

(2)

information regarding the average and maximum amounts of time that elapsed before resolution of a victim's case,

(3)

an analysis of ways to accelerate information matching in order to prevent stolen identity refund fraud,

(4)

an update on the implementation of the relevant provisions of this Act and the amendments made by this Act, and

(5)

identification of any further legislation to protect taxpayer resources and information, including preventing tax refund fraud related to the Internal Revenue Service’s e-Services tools and electronic filing identification numbers.

(c)

Additional information for the first report

The first report required under this section shall include—

(1)

an assessment of the progress made by the Internal Revenue Service on identity theft outreach and education to individuals, businesses, State agencies, and other external organizations, and

(2)

the results of a study on the costs and benefits relating to enhancement of the taxpayer authentication approach employed by the Internal Revenue Service in the electronic tax return filing process.

122.

Report on status of the Identity Theft Tax Refund Fraud Information Sharing and Analysis Center

Not later than 90 days after the date of the enactment of this Act, the Secretary shall report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate on—

(1)

whether the Identity Theft Tax Refund Fraud Information Sharing and Analysis Center (referred to in this section as the Center) is fully operational,

(2)

if the Center is not fully operational, what steps are necessary for the Center to be fully operational and an estimate of when the Center will be fully operational, and

(3)

any challenges that remain for effective sharing of information between the public and private sectors and efforts that are being undertaken to address such challenges.

123.

GAO Reports on identity theft and tax refund fraud

(a)

Report on notification relating to stolen identity refund fraud

Not later than September 30, 2018, the Comptroller General of the United States shall submit a report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate which evaluates—

(1)

the clarity of the language used by the Internal Revenue Service for notifying taxpayers who are potential or known victims of stolen identity refund fraud, and

(2)

the systems employed by the Internal Revenue Service for generating stolen identity refund fraud notifications.

(b)

Report on taxpayer authentication and identity theft outreach and education

Not later than September 30, 2020, the Comptroller General of the United States shall submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report evaluating the following:

(1)

Progress made by the Internal Revenue Service on identity theft outreach and education to individuals, businesses, State agencies, and other external organizations.

(2)

The study described in section 121(c)(2) of this Act.

II

Improvements to Electronic Filing of Tax Returns

201.

Study on feasibility of blocking electronically filed tax returns

Not later than 180 days after the date of the enactment of this Act, the Secretary shall report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate on the feasibility of implementing a program under which a person who has filed an identity theft affidavit with the Secretary may elect to prevent the processing of any Federal tax return submitted in an electronic format by anyone purporting to be such person, including a recommendation on whether to implement such a program.

202.

Enhancements to IRS PIN Program

Not later than July 1, 2019, the Secretary shall establish a program to issue, upon request, an identity protection personal identification number (as described in section 6109(e)(2) of the Internal Revenue Code of 1986 (as added by section 102(b) of this Act)) to any individual after the individual's identity has been verified to the satisfaction of the Secretary.

203.

Increasing electronic filing of returns

(a)

In general

Subparagraph (A) of section 6011(e)(2) is amended by striking 250 and inserting the applicable number of.

(b)

Applicable number

Subsection (e) of section 6011 is amended by adding at the end the following new paragraph:

(5)

Applicable number

For purposes of paragraph (2)(A), the applicable number is—

(A)

in the case of returns and statements relating to calendar years before 2019, 250,

(B)

in the case of returns and statements relating to calendar year 2019, 200,

(C)

in the case of returns and statements relating to calendar year 2020, 150,

(D)

in the case of returns and statements relating to calendar year 2021, 100,

(E)

in the case of returns and statements relating to calendar year 2022, 50, and

(F)

in the case of returns and statements relating to calendar years after 2022, 20.

.

(c)

Returns filed by a tax return preparer

(1)

In general

Subparagraph (A) of section 6011(e)(3) is amended to read as follows:

(A)

In general

The Secretary shall require that any individual income tax return which is prepared and filed by a tax return preparer be filed on magnetic media. The Secretary may waive the requirement of the preceding sentence if the Secretary determines, on the basis of an application by the tax return preparer, that the preparer cannot meet such requirement based on technological constraints (including lack of access to the Internet).

.

(2)

Conforming amendment

Paragraph (3) of section 6011(e) is amended by striking subparagraph (B) and by redesignating subparagraph (C) as subparagraph (B).

(d)

Effective date

The amendments made by this section shall apply to returns the due date for which (determined without regard to extensions) is after December 31, 2017.

204.

Internet platform for Form 1099 filings

(a)

In general

Not later than January 1, 2021, the Secretary shall make available an Internet website or other electronic media, similar to the Business Services Online Suite of Services provided by the Social Security Administration, that will provide taxpayers access to resources and guidance provided by the Internal Revenue Service and will allow taxpayers to—

(1)

prepare and file Forms 1099,

(2)

prepare Forms 1099 for distribution to recipients other than the Internal Revenue Service, and

(3)

create and maintain necessary taxpayer records.

(b)

Early implementation for Forms 1099–MISC

Not later than January 1, 2019, the Internet website under subsection (a) shall be available in a partial form that will allow taxpayers to take the actions described in such subsection with respect to Forms 1099–MISC required to be filed or distributed by such taxpayers.

205.

Requirement that electronically prepared paper returns include scannable code

(a)

In general

Subsection (e) of section 6011, as amended by section 203(b) of this Act, is amended by adding at the end the following new paragraph:

(6)

Special rule for returns prepared electronically and submitted on paper

The Secretary shall require that any return of tax which is prepared electronically, but is printed and filed on paper, bear a code which can, when scanned, convert such return to electronic format.

.

(b)

Conforming amendment

Paragraph (1) of section 6011(e) is amended by striking paragraph (3) and inserting paragraphs (3) and (6).

(c)

Effective date

The amendments made by this section shall apply to returns of tax the due date for which (determined without regard to extensions) is after December 31, 2017.

206.

Authentication of users of electronic services accounts

Beginning 180 days after the date of the enactment of this Act, the Secretary shall verify the identity of any individual opening an e-Services account with the Internal Revenue Service before such individual is able to use the e-Services tools.

July 12, 2016

Read twice and placed on the calendar