Keeping Identity Thieves From Stealing Tax Refunds (H.R. 3832)

What is H.R. 3832?

(Updated July 21, 2017)

This bill would seek to reduce identity theft from federal tax forms by requiring the Internal Revenue Service (IRS) to take steps to guard against fraudulent tax returns and refund claims.

There are three actions specific steps that the IRS would be directed to take to improve the security of taxpayer information:

• Require that Form 1099, which reports non-employee compensation, be filed by February 15 the year after the calendar year in which the money was earned;

• Require taxpayers be notified by the Dept. of the Treasury if there’s an unauthorized use of their taxpayer identity and any criminal charges filed;

• Require a taxpayer identifying number on W-2 forms instead of a Social Security number;

• Impose a criminal penalty on a person who willfully misuses another person’s taxpayer identity.

The IRS would be required to:

• Ensure that taxpayers who are the victims of identity theft have a centralized point of contact at the IRS;

• Implement a program to allow a taxpayer who has filed an identity theft claim to choose to prevent the processing of any tax return filed electronically by someone claiming to be the taxpayer;

• Report every two years to congressional committees about taxpayer identity theft and tax refund fraud, in addition to actions taken to combat it.

Additionally, this legislation would give the IRS access to information in the National Directory of New Hires for the sole purpose of identifying and preventing fraudulent tax return filings and refund claims.

Argument in favor

The IRS needs to take steps to ensure that criminals aren’t stealing taxpayers’ identities and fraudulently claiming tax refunds. This bill gives them a framework to protect taxpayers.

Argument opposed

It's unlikely that this bill will actually be able to prosecute larger numbers of identity thieves and criminals who fraudulently misappropriate taxpayer information.

Impact

People who may have their identity stolen or tax refund fraudulently taken by someone else; and the IRS.

Cost of H.R. 3832

The CBO estimates that implementing this bill would cost about $2 million per year, or a total of $10 million over the 2017-2021 period. It would also lead to additional revenue from prosecutions and ensuing penalties, though that amount is expected to be relatively small.

Additional Info

In-Depth: Sponsoring Rep. Jim Renacci (R-OH) — whose identity was stolen and a fraudulent tax return was filed in his name — introduced this bill to prevent other taxpayers from going through similar scenarios:

“This past tax season, someone used my stolen personal information and filed a fraudulent tax return in my name, claiming a refund.  I didn’t learn about this fraud until I received an IRS notice questioning a return I had filed—even though I had not yet even filed. I have heard of many similar stories from Northeast Ohio taxpayers who also were victims of identity theft-related tax fraud.  Congress and the IRS must work together with industry to better shield taxpayer dollars from thieves and reduce the hardships caused by this increasing criminal activity.”

This legislation was passed by the House Ways and Means Committee on a voice vote, and has the support of 26 bipartisan cosponsors — including 19 Republicans and seven Democrats.

Of Note: According to a study by the Government Accountability Office (GAO), identity thieves received $5.2 billion in fraudulent tax refunds from the IRS in 2013, although the IRS did prevent or recover over $24 billion in attempted refund fraud.

Media:

• Sponsoring Rep. Jim Renacci (R-OH) Press Release
• CBO Cost Estimate
• Brunswick Post
• Cleveland.com
• Ripon Advance
• Tax Analysts