Proposed Legislation to Combat Identity Theft and Override Loving

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We have written extensively on the separate but at times related issues of identity theft and refund fraud. Last week, for example, guest poster Rachael Rubenstein wrote an update on identity theft issues; the post generated spirited comments including one by Bob Kamman essentially suggesting that lots of the blame lies with Congress and the administrations for failing to step up and provide the means necessary for the IRS to step into the 21st century, unlike Bob’s example of  tax administration powerhouse Estonia. Senate Finance staffers gobbling up our posts and comments have sprung to action, with the Senate Finance Committee scheduling an open executive session tomorrow at 10 AM to mark up a bill designed to “prevent identity theft and refund fraud.”  (link to the session is here)

My ear is not to the DC ground but the bill has the bipartisan support of the Chair, Senator Hatch, and ranking Democrat Senator Wyden. A press release announcing the mark up is here; a description of the Chair’s mark up can be found here, and a summary can be found here.

Some of the key proposals in the legislation include requiring the IRS to reduce burdens on identity theft victims. The IRS would also be required to consider and report on measures it is taking to detect and combat identity theft and also study the possibility of allowing someone to file an affidavit blocking the e-filing of returns.

I have previously discussed how thieves take advantage of the IRS look-back compliance model and how earlier matching of information returns before issuing refunds is a crucial measure that can give the Service the means to stop the outflow of funds through identifying discrepancies. Importantly, the legislation includes a number of measures to give the IRS the power to move away from that model. For example, it would push up the filing of W-2, W-3 and 1099 MISC to 15 days after the due date for payee statements, as well as require the IRS to study the possibility of moving up deadline for other information returns. The bill also facilitates the means to get the IRS off its look-back model through requiring many small businesses to transition from paper W-2 and 1099 filing to e-filing and mandates that e-prepared returns that are paper filed have a scannable code allowing the IRS to process the return information more efficiently. Moreover, as the summary describes, the bill allows the IRS to access data in the National Directory of New Hires “for the sole purpose of identifying and preventing false or fraudulent tax return filings and claims for refund.”

There is more in here too, including an increase in penalties on preparers who improperly use taxpayer information and an override of Loving by giving Treasury authority regulate all aspects of tax practice, including paid tax return preparers. It also gives IRS the authority to revoke PTINs of preparers.

This legislation has the potential to be a game changer for tax administration. While the passage of the legislation is unlikely to be a walk in Lahemma perhaps the confluence of high profile cyber thefts and apparent bipartisan support will begin to tip the scales away from those who view the tax system as an open cookie jar.






Avatar photo About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.


  1. And again they are trying to slip in the electronic-filing mandate, which I could support if it did not bring with it the IRS rules (made up as they go along) that must be met to qualify as an e-filer. Until someone convinces me otherwise, I consider it unethical to allow IRS access to my client files, which contain privileged information about non-tax matters. What’s the name of that lawyer in Virginia who won the Loving case? I need to start saving up for a retainer if this gumshoe/jackboot proposal is enacted.

  2. Enacting the Senate identity theft tax bill into law may not be “a walk in Lahemma,” but it would be an exercise in futility.

    The Senate bill merely attempts to lull the American citizen, who is increasingly angered about the various crimes that illegal aliens have perpetrated against him and his fellow citizens, into a false sense of security.

    The IRS already knows that illegal aliens commit the vast majority of tax refund identify theft. Yet how many successful prosecutions or plea agreements in identity theft related cases has IRS Criminal Investigation trumpeted in its monthly wave of press releases?

    The IRS seems to have ample authority, time, and resources to chase down non-filers and other tax defiers, which is all well and good. But at least the tax defiers believe they are not liable for federal income taxes. In contrast, the illegal aliens, and the tax preparers in their “communities” who often aid and abet them, know they are willfully stealing monies from the U.S. Treasury and stealing identities from U.S. citizens.

    Congress must fight identity theft at its near-exclusive source: illegal aliens. If it does not, then rest assured that the American citizens will soon bypass its representatives and personally extirpate the illegal aliens’ crimes.

      SSA has an interesting analysis of the effect of “other workers” (in its words, “U.S. residents born outside the U.S. who have not attained LPR status or citizen- ship (this group includes those with temporary legal visas”), breaking down the group further between “other immigrants” that is those, “residing in the U.S. without current papers docu-menting their legal status (i.e., either they entered the U.S. without legal documentation or they over- stayed temporary visas)” as well as “unauthorized workers”, who are “other immigrants working in the U.S. without current visas granting them authorization to work.”

      Its conclusion is the following:

      “While unauthorized immigrants worked and contributed as much as $13 billion in payroll taxes to the OASDI program in 2010, only about $1 billion in benefit payments during 2010 are attributable to unauthorized work. Thus, we estimate that earnings by unauthorized immigrants result in a net positive effect on Social Security financial status generally, and that this effect contributed roughly $12 billion to the cash flow of the program for 2010. We estimate that future years will experience a continuation of this positive impact on the trust funds.”

  3. What a great Social Security statistic you found, Les. If true, the American citizens must thank the illegal aliens for allowing them an opportunity (as a last economic resort) to claim SSA disability payments after the illegal aliens have stolen their jobs (if not their identities).

    Alas, the $13 billion SSA statistic is false. From that statistic, rough and simple math shows that, on average, each of the then 10 million (supposedly) illegal aliens would have earned at least $15,000 in 2010. Every…single…one..of them. Now to reality:

    When you remove the non-working spouses, and the non-working many children, from the 10 million illegal aliens, how much on average did the working illegal alien supposedly earn in 2010? If it’s the amount that the $13 billion SSA statistic implies, then each illegal earned far more in that year than did the American citizen. Would Les and Professor Rubenstein admit to such a fact? Their ideologies say they could not do so.

    Even if the SSA statistic is true, it is still fraudulent. If the illegal aliens had not hijacked American citizens’ identities and stolen their jobs, then those citizens would have been the ones working and paying in the supposed $13 billion in OASDI taxes.

    In fact, the citizens would have paid in more OASDI taxes because their employers would not have been able to get away with paying them mere subsistence wages (the very reason why unscrupulous employers hire illegal aliens). As an added benefit to the country, the higher wages the employers would have had to pay to the American citizens would have resulted in a lower earned income tax credit, etc., drain from the Treasury. So much for the benefits that illegal aliens purportedly bring us citizens.

    Nice try, Les. But you’re not dealing with your students here.

  4. There are few issues as heavily debated as the economic impact of illegal immigrants. We are not going to resolve that debate here.

    I am no expert on the economic impact of immigrants. Having said that there is quite a bit of research suggesting the overall benefits to the economy and the harmful effects on average Americans (such as food price increases) if we deported all those who were here illegally. See references to sources such discussing some of the research in a Hill piece from last year

    The brief Hill article also refers to a letter to President George W. Bush in 2006 that was signed by around five hundred economists (including five Nobel laureates) where the economists stated that “[w]hile a small percentage of native-born Americans may be harmed by immigration, vastly more Americans benefit from the contributions that immigrants make to our economy, including lower consumer prices.”

    The article also notes that in 2007 CBO studied the impact on social services and concluded that “Over the past two decades, most efforts to estimate the fiscal impact of immigration in the United States have concluded that, in aggregate and over the long term, tax revenues of all types generated by immigrants—both legal and unauthorized—exceed the cost of the services they use.”

    No matter how one feels about the macro issues relating to immigration, IRS has its hands full dealing with the independent requirement to be tax compliant irrespective of immigration status.

  5. I don’t think anyone is claiming there are only 10 million undocumented immigrants in the U.S.; rather, there were that many who were unauthorized workers at some time during the year. According to the Pew Research Center, probably the best source of data on such matters, there were only 8.1 million working or looking for work in 2012, out of a total of 11.2 million. Let’s assume their average income was $10 an hour, but they found work only half the time, so their annual income was $10,000 – enough to support themselves and the 3 million non-citizen family members who were not employed. Times 15.3% tax rate, that comes out to $12.4 billion. Not the $13 billion claimed.
    On my tour to the Great Wall in May, I met an immigration attorney from Sweden who marveled at how Americans would accept only highly-educated refugees while her country sought people willing to do unskilled labor. I explained to her that our school system has deteriorated so much that we give everyone twelve years of free education, then expect them to make a career of flipping burgers and making beds. Unfortunately, the lowest 5% of our work force seems to cause 95% of the high blood pressure in some people. Then again, if they stopped worrying they might live longer, leaving less Social Security for the rest of us.

    • Hmmm, even those who have been to the Great Wall can take a great fall–at least in logic.

      First, I don’t believe the Social Security Administration statistic included the employer’s contribution to the OASDI taxes; if it did, then the statistic is even more fraudulent than I had thought.

      Second, this country accepts only “highly-educated refugees?” Even if that were true, the nation’s economic problems stems mainly from those lowly-educated masses who have broken into this country and made themselves at home.

      Third, this nation has had 12 years of free schooling well before the illegal alien flood commenced. I recall that most citizens didn’t mind making careers (or businesses) of flipping burgers or making beds; or toiling in sewers, or washing skyscraper windows, or pumping gas, or standing on their feet for 10-12 hours a day in a factory assembly line, among many other low-education jobs our citizens once gratefully held and executed.

      I hope Bob enjoyed his trip to the Great Wall. For should present immigration trends continue, one day he will be unable to visit even his local Great Wall of China restaurant: hardly anyone will remain who could afford his services. Such a day would cause anxiety and high blood pressure in even the coolest member of the legal profession.

      Then again, there shall always be Estonia.

  6. So that Les, Professor Rubenstein, et. al, can understand the illegal alien problem on a macro level, I shall lower my commentary to a micro level.

    Envision the illegal aliens descending en masse on, say, Villanova University. Imagine the University awarding them a significant percentage of certain university professors’ jobs. See the illegal aliens receiving far lower salaries than the current faculty receives. Picture one or more of those illegal aliens using, for instance, Professor Les Book’s and Professor Rachel Rubenstein’s Social Security Numbers to complete their Forms I-9 and W-4. View the illegal aliens committing identity theft by stealing tax refunds and other benefits from state and federal coffers under the good professors’ purloined Social Security Numbers.

    Under that brief scenario, would the Villanova professors see a “net benefit” from the illegal aliens’ presence in their midst? I would think (and hope) not. What would be disastrous to American citizens on a micro-economic level is disastrous to American citizens on a macro-economic level.

    It’s absurd to claim that the United States benefits economically from all immigration. How has the U.S. fared economically in the decades since this nation has been deluged with (supposedly) 11 million illegal aliens? Or, to return to a micro-level, and to paraphrase a 1980 presidential candidate:

    “Are you better off today than you were when this country housed only 1 million illegal aliens? Is it easier for you to find employment now that we have 11 million illegal aliens in our country? Is your inflation-adjusted wage measurably higher than it was on the day we estimate the arrival of the one-millionth illegal alien here? Do you feel as secure in your job, or in your identity, today now that millions of more illegal aliens are in the workforce?”

    In sum, one need not become an “expert on the economic impact of immigrants” to know for whom the illegal alien bell tolls.

  7. On Nov. 6, 1986, that 1980 candidate signed the Immigration Reform and Control Act, which allowed undocumented immigrants to become citizens if they paid a fine and back taxes and admitted guilt.

    From his signing statement that day: “We have consistently supported a legalization program which is both generous to the alien and fair to the countless thousands of people throughout the world who seek legally to come to America. The legalization provisions in this act will go far to improve the lives of a class of individuals who now must hide in the shadows, without access to many of the benefits of a free and open society. Very soon many of these men and women will be able to step into the sunlight and, ultimately, if they choose, they may become Americans.”

    • And just look at the economic and immigration disasters that have continually befallen the United States since that 1986 day.

      Is the average American better off today than he was in 1986? Even the Social Security Administration would say no.

  8. Bracket Creep says

    There are alot of assumptions in the Senate bill.

    The Sec. 2 requirement for the IRS to prepare a biannual report on identity theft refund fraud assumes there is limited information on the agency’s efforts to combat tax refund fraud. Even if this is true, history shows that annual reports are seldom complied with and rarely requested. For example, the RRA 98 required the IRS to report annually on the sources of tax complexity. The IRS has issued two such reports (the last in 2002).

    Sec. 3 requires the IRS to study the feasibility of blocking electronically filed returns for individuals who elect to submit paper returns. While this idea has some merit, it contradicts the last 15-20 years of legislative changes to tax administration and return processing. It also contradicts Sec. 7 of the same bill, which requires more returns be filed electronically, under the premise that income and tax return information filed electronically can be processed more efficiently as well as screened more thoroughly for fraud.

    Sec. 8 modifies the due dates for filing certain information returns to within 15 days of the due date for employee and payee statements. This again assumes that a third party issues an information return at a later date to the IRS than they do to the taxpayer. Although the due dates allow this to happen, does it in practice? For example, if an employer issues a W-2 electronically to a taxpayer on January 31st, why would the bank then wait until March 31st to issue the same information return to the IRS?

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