H.R. 3981 — Introduced in House

I 114th CONGRESS 1st Session H. R. 3981 IN THE HOUSE OF REPRESENTATIVES November 5, 2015 Mr. Pascrell (for himself, Mr. Blumenauer, Mr. Thompson of California, and Mr. Larson of Connecticut) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committees on Energy and Commerce, the Judiciary, Financial Services, and Appropriations, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned A BILL To amend the Internal Revenue Code of 1986 to prevent tax-related identity theft and tax fraud, and for other purposes. 1. Short title; etc (a) In general This Act may be cited as the Identity Theft and Tax Fraud Prevention Act of 2015 . (b) Table of contents The table of contents of this Act is as follows: Sec. 1. Short title; etc. Title I—Protecting victims of tax-related identity theft Sec. 101. Expedited refunds for identity theft victims. Sec. 102. Single point of contact for identity theft victims. Sec. 103. Enhancements to IRS PIN Program. Sec. 104. Electronic filing opt out. Sec. 105. Taxpayer notification of suspected identity theft. Title II—Shutting down abusive identity theft and tax fraud schemes Sec. 201. Restrictions on ability to use prepaid cards for tax fraud. Sec. 202. Limitation on multiple tax refunds to the same account. Title III—Adding critical new protections to safeguard social security numbers Sec. 301. Reducing medical identity theft. Sec. 302. Prohibition of the display, sale, or purchase of Social Security numbers. Sec. 303. Criminal penalties for the misuse of a Social Security number. Sec. 304. Civil actions and civil penalties. Title IV—Strengthening laws and improving enforcement against tax-related identity theft Sec. 401. Criminal penalty for using a false identity in connection with tax fraud. Sec. 402. Increased penalty for improper disclosure or use of information by preparers of returns. Sec. 403. Authority to transfer Internal Revenue Service appropriations to combat tax fraud. Sec. 404. Local law enforcement liaison. Sec. 405. Extend Internal Revenue Service authority to require truncated social security numbers on Form W–2. Sec. 406. Clarification with respect to regulation of Federal tax return preparers. Sec. 407. Authentication of users of electronic services accounts. Sec. 408. Identity verification by tax return preparers required. Title V—Accelerating transition to a real-time tax system that protects taxpayers and reduces fraud Sec. 501. Improvement in access to information in the National Directory of New Hires for tax administration purposes. Sec. 502. Plan of action for transitioning to a real-time tax system. I Protecting victims of tax-related identity theft 101. Expedited refunds for identity theft victims Not later than 180 days after the date of the enactment of this Act, the Secretary of the Treasury, or the Secretary’s delegate, shall establish a plan of action to reduce the administrative time required to process and resolve cases of identity theft in connection with tax returns, including the issuance of refunds to legitimate taxpayers, to no more than 90 days, on average. 102. Single point of contact for identity theft victims Not later than 180 days after the date of the enactment of this Act, the Secretary of the Treasury, or the Secretary’s delegate, shall establish new procedures to ensure that any taxpayer whose return has been delayed or otherwise adversely affected due to identity theft has a single point of contact at the Internal Revenue Service throughout the processing of his or her case. The single point of contact shall track the case of the taxpayer from start to finish and coordinate with other specialized units to resolve case issues as quickly as possible. 103. Enhancements to IRS PIN Program (a) In general The Secretary of the Treasury, or the Secretary’s delegate, shall issue a personal identification number to any individual requesting protection from identity theft-related tax fraud after the individual's true identity has been established and verified. (b) Report Not later than 360 days after the date of the enactment of this Act, the Secretary of the Treasury shall submit to Congress a report analyzing the effectiveness of the program described in subsection (a) in reducing tax fraud. 104. Electronic filing opt out Not later than 180 days after the date of the enactment of this Act, the Secretary of the Treasury, or the Secretary’s delegate, shall implement 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 a person purporting to be such a person. 105. Taxpayer notification of suspected identity theft (a) In general Chapter 77 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section: 7529. Notification of suspected identity theft If the Secretary determines that there was an unauthorized use of the identity of any taxpayer, the Secretary shall— (1) as soon as practicable and without jeopardizing an investigation relating to tax administration, notify the taxpayer, and (2) if any person is criminally charged by indictment or information relating to such unauthorized use, notify such taxpayer as soon as practicable of such charge. . (b) Clerical amendment The table of sections for chapter 77 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item: Sec. 7529. Notification of suspected identity theft. . (c) Effective date The amendments made by this section shall apply to determinations made after the date of the enactment of this Act. II Shutting down abusive identity theft and tax fraud schemes 201. Restrictions on ability to use prepaid cards for tax fraud (a) Accounts with elevated risk of identity theft (1) In general Not later than 360 days after the date of the enactment of this Act, the Federal primary financial regulatory agencies, in consultation with the Secretary of the Treasury, shall jointly prescribe regulations requiring newly issued deposit or transaction account numbers, as the case may be, to be distinguishable between verified accounts and at-risk accounts. (2) Definitions As used in this section— (A) the term at-risk account means any deposit account or transaction account, including accounts associated with a prepaid access arrangement, that is not a verified account; (B) the term primary financial regulatory agency has the same meaning as in section 2(12) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5301(12)); and (C) the term verified account means any deposit account or transaction account in which the identity of the account holder and any prepaid access customer associated with the account is verified by— (i) customer identification procedures that comply with section 5318(l) of title 31, United States Code; and (ii) direct review of an original, unexpired government-issued form of identification bearing a photograph or similar safeguard, such as a driver’s license or passport. (b) GAO audit of debit card issuers To ensure compliance with customer identification requirements (1) Review and evaluation The Comptroller General of the United States shall review and evaluate the effectiveness of the current Customer Identification Program rules implementing the customer identification program requirements under section 5318(l) of title 31, United States Code, as such rules apply to the prepaid card industry. (2) Required considerations The review and evaluation required under paragraph (1) shall— (A) consider whether weaknesses in current customer identification programs are contributing to identity theft and financial loss, particularly with respect to tax fraud; and (B) review whether— (i) current risk-based standards for customer identification are the best means to prevent criminal use of prepaid cards and provide sufficient guidance and certainty to the sellers and providers of prepaid access; (ii) current exclusions from customer identification requirements, such as exclusions for government benefit programs, are appropriate; and (iii) Federal regulatory agencies exercise adequate oversight and supervision of customer identification practices of the prepaid card industry. (3) Report to Congress Not later than 360 days after the date of the enactment of this Act, the Comptroller General of the United States shall submit to Congress a report— (A) on the findings of the review and evaluation required under paragraph (1); and (B) containing any recommendations or proposals for legislative or administrative action to improve the customer identification practices of the prepaid card industry. 202. Limitation on multiple tax refunds to the same account (a) In general Not later than 180 days after the date of the enactment of this Act, the Secretary of the Treasury, or the Secretary's delegate, shall issue regulations that restrict the delivery or deposit of multiple tax refunds from the same tax year to the same individual account or mailing address. (b) Exception The regulation promulgated under subsection (a) shall provide that the restrictions shall not apply in cases and situations where the Secretary determines there is not a likelihood of tax fraud. III Adding critical new protections to safeguard social security numbers 301. Reducing medical identity theft (a) Reduction in reliance on social security account numbers in electronic health records Section 3002 of the Public Health Service Act (42 U.S.C. 300jj–12) is amended by adding at the end the following: (f) Authorization To Develop Certification Standards (1) Plan (A) Development The HIT Policy Committee shall develop a plan to provide for a reliable nationwide health information technology infrastructure that precludes the use of an individual’s social security account number for data matching, coordination of benefits, billing, and research purposes. (B) Report to Congress Not later than 1 year after the date of the enactment of this subsection, the HIT Policy Committee shall submit to Congress a report detailing the plan developed under paragraph (1), together with recommendations for such legislation and administrative action as the HIT Policy Committee determines appropriate. (2) Incorporation Not later than 5 years after the date of the enactment of this subsection, the Secretary, in consultation with the HIT Standards Committee and following notice and comment rulemaking, shall incorporate the plan developed under paragraph (1)(A) in certification criteria and use all means available to impose the plan on non-certified health information systems. . (b) Improved security standards (1) In general Section 1173(d)(1) of the Social Security Act (42 U.S.C. 1320d–2(d)(1)) is amended— (A) in subparagraph (A)(v), by striking and at the end; (B) in subparagraph (B), by striking the period at the end and inserting ; and; and (C) by adding at the end the following new subparagraph: (C) require a health care provider to discontinue, over an established period of time, the storage of an individual’s social security account number after the individual’s eligibility and financial responsibility for specific services has been determined, except when— (i) the individual’s ability to pay for such services is in doubt; (ii) the individual’s social security account number is needed for the coordination of benefits for services rendered prior to the effective date of this subparagraph; or (iii) the health insurance claim number of the individual contains the individual's full social security account number. . (2) Effective date The amendments made by paragraph (1) shall take effect 90 days after the date that is 4 years after the date of the enactment of this Act. (c) Report Not later than 1 year after the date of the enactment of this Act, the Secretary of Health and Human Services shall submit to Congress a report on the state of information security at medical offices and facilities. Such report shall include recommendations for such legislative actions as the Secretary determines appropriate to help prevent identity theft at such offices and facilities. 302. Prohibition of the display, sale, or purchase of Social Security numbers (a) Prohibition (1) In general Chapter 47 of title 18, United States Code, is amended by inserting after section 1028A the following: 1028B. Prohibition of the display, sale, or purchase of Social Security numbers (a) Definitions In this section: (1) Display The term display means to intentionally communicate or otherwise make available (on the Internet or in any other manner) to the general public an individual’s Social Security number. (2) Person The term person means any individual, partnership, corporation, trust, estate, cooperative, association, or any other entity. (3) Purchase The term purchase means providing directly or indirectly, anything of value in exchange for a Social Security number. (4) Sale The term sale means obtaining, directly or indirectly, anything of value in exchange for a Social Security number. (5) State The term State means any State of the United States, the District of Columbia, Puerto Rico, the Northern Mariana Islands, the United States Virgin Islands, Guam, American Samoa, and any territory or possession of the United States. (b) Limitation on display No person may display any individual’s Social Security number to the general public without the affirmatively expressed consent of the individual. (c) Limitation on sale or purchase Except as otherwise provided in this section, no person may sell or purchase any individual’s Social Security number without the affirmatively expressed consent of the individual. (d) Prerequisites for consent In order for consent to exist under subsection (b) or (c), the person displaying or seeking to display, selling or attempting to sell, or purchasing or attempting to purchase, an individual’s Social Security number shall— (1) inform the individual of the general purpose for which the number will be used, the types of persons to whom the number may be available, and the scope of transactions permitted by the consent; and (2) obtain the affirmatively expressed consent (electronically or in writing) of the individual. (e) Exceptions (1) In general Nothing in this section shall be construed to prohibit or limit the display, sale, or purchase of a Social Security number— (A) required, authorized, or excepted under any Federal law; (B) for a public health purpose, including the protection of the health or safety of an individual in an emergency situation; (C) for a national security purpose; (D) for a law enforcement purpose, including the investigation of fraud and the enforcement of a child support obligation; (E) if the display, sale, or purchase of the number is for a use occurring as a result of an interaction between businesses, governments, or business and government (regardless of which entity initiates the interaction), including— (i) the prevention of fraud (including fraud in protecting an employee’s right to employment benefits); (ii) the facilitation of credit checks or the facilitation of background checks of employees, prospective employees, or volunteers; (iii) the retrieval of other information from other businesses, commercial enterprises, government entities, or private nonprofit organizations; or (iv) when the transmission of the number is incidental to, and in the course of, the sale, lease, franchising, or merger of all, or a portion of, a business; (F) if the transfer of such a number is part of a data matching program involving a Federal, State, or local agency; or (G) if such number is required to be submitted as part of the process for applying for any type of Federal, State, or local government benefit or program. (2) Rule of construction Nothing in this subsection shall be construed as permitting a professional or commercial user to display or sell a Social Security number to the general public. (f) Limitation Nothing in this section shall prohibit or limit the display, sale, or purchase of Social Security numbers as permitted under title V of the Gramm-Leach-Bliley Act (15 U.S.C. 6801 et seq.), or for the purpose of affiliate sharing as permitted under the Fair Credit Reporting Act (15 U.S.C. 1681 et seq.), except that no entity regulated under such Acts may make Social Security numbers available to the general public, as may be determined by the appropriate regulators under such Acts. For purposes of this subsection, the general public shall not include affiliates or unaffiliated third-party business entities as may be defined by the appropriate regulators. . (2) Conforming amendment The chapter analysis for chapter 47 of title 18, United States Code, is amended by inserting after the item relating to section 1028 the following: 1028B. Prohibition of the display, sale, or purchase of Social Security numbers. . (b) Study; report (1) In general The Attorney General shall conduct a study and prepare a report on all of the uses of Social Security numbers permitted, required, authorized, or excepted under any Federal law. The report shall include a detailed description of the uses allowed as of the date of enactment of this Act, the impact of such uses on privacy and data security, and shall evaluate whether such uses should be continued or discontinued by appropriate legislative action. (2) Report Not later than 1 year after the date of the enactment of this Act, the Attorney General shall report to Congress findings under this subsection. The report shall include such recommendations for legislation based on criteria the Attorney General determines to be appropriate. (c) Effective date The amendments made by this section shall take effect on the date that is 30 days after the date on which the final regulations promulgated under section 1028B of title 18, United States Code, are published in the Federal Register. 303. Criminal penalties for the misuse of a Social Security number (a) Prohibition of wrongful use as personal identification number No person may obtain any individual’s Social Security number for purposes of locating or identifying an individual with the intent to physically injure, harm, or use the identity of the individual for any illegal purpose. (b) Criminal sanctions Section 208(a) of the Social Security Act (42 U.S.C. 408(a)) is amended— (1) in paragraph (8), by inserting or after the semicolon; and (2) by inserting after paragraph (8) the following: (9) except as provided in subsections (e) and (f) of section 1028B of title 18, United States Code, knowingly and willfully displays, sells, or purchases (as those terms are defined in section 1028B(a) of title 18, United States Code) any individual’s Social Security account number without having met the prerequisites for consent under section 1028B(d) of title 18, United States Code; or (10) obtains any individual’s Social Security number for the purpose of locating or identifying the individual with the intent to injure or to harm that individual, or to use the identity of that individual for an illegal purpose; . 304. Civil actions and civil penalties (a) Civil action in State courts (1) In general Any individual aggrieved by an act of any person in violation of this Act or any amendments made by this Act may, if otherwise permitted by the laws or rules of the court of a State, bring in an appropriate court of that State— (A) an action to enjoin such violation; (B) an action to recover for actual monetary loss from such a violation, or to receive up to $500 in damages for each such violation, whichever is greater; or (C) both such actions. It shall be an affirmative defense in any action brought under this paragraph that the defendant has established and implemented, with due care, reasonable practices and procedures to effectively prevent violations of the regulations prescribed under this Act. If the court finds that the defendant willfully or knowingly violated the regulations prescribed under this subsection, the court may, in its discretion, increase the amount of the award to an amount equal to not more than 3 times the amount available under subparagraph (B). (2) Statute of limitations An action may be commenced under this subsection not later than the earlier of— (A) 5 years after the date on which the alleged violation occurred; or (B) 3 years after the date on which the alleged violation was or should have been reasonably discovered by the aggrieved individual. (3) Nonexclusive remedy The remedy provided under this subsection shall be in addition to any other remedies available to the individual. (b) Civil penalties (1) In general Any person who the Attorney General determines has violated any section of this Act or any of the amendments made by this Act shall be subject, in addition to any other penalties that may be prescribed by law— (A) to a civil penalty of not more than $5,000 for each such violation; and (B) to a civil penalty of not more than $50,000, if the violations have occurred with such frequency as to constitute a general business practice. (2) Determination of violations Any willful violation committed contemporaneously with respect to the Social Security numbers of 2 or more individuals by means of mail, telecommunication, or otherwise, shall be treated as a separate violation with respect to each such individual. (3) Enforcement procedures The provisions of section 1128A of the Social Security Act (42 U.S.C. 1320a–7a), other than subsections (a), (b), (f), (h), (i), (j), (m), and (n) and the first sentence of subsection (c) of such section, and the provisions of subsections (d) and (e) of section 205 of such Act (42 U.S.C. 405) shall apply to a civil penalty action under this subsection in the same manner as such provisions apply to a penalty or proceeding under section 1128A(a) of such Act (42 U.S.C. 1320a–7a(a)), except that, for purposes of this paragraph, any reference in section 1128A of such Act (42 U.S.C. 1320a–7a) to the Secretary shall be deemed to be a reference to the Attorney General. IV Strengthening laws and improving enforcement against tax-related identity theft 401. Criminal penalty for using a false identity in connection with tax fraud (a) In general Section 7206 of the Internal Revenue Code of 1986 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) Use of false 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) Aggravated identity theft Section 1028A(c) of title 18, United States Code, is amended by striking or at the end of paragraph (10), by striking the period at the end of paragraph (11) and inserting ; or, and by adding at the end the following new paragraph: (12) section 7206(b) of the Internal Revenue Code of 1986 (relating to use of false identity in connection with tax fraud). . (c) Effective date The amendments made by this section shall apply to offenses committed after the date of the enactment of this Act. 402. Increased penalty for improper disclosure or use of information by preparers of returns (a) In general Section 6713(a) of the Internal Revenue Code of 1986 is amended— (1) by striking $250 and inserting $1,000, and (2) by striking $10,000 and inserting $50,000. (b) Criminal penalty Section 7216(a) of the Internal Revenue Code of 1986 is amended by striking $1,000 and inserting $100,000. (c) Effective date The amendments made by this section shall apply to disclosures or uses after the date of the enactment of this Act. 403. Authority to transfer Internal Revenue Service appropriations to combat tax fraud For any fiscal year, the Commissioner of Internal Revenue 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. 404. Local law enforcement liaison (a) Establishment The Commissioner of Internal Revenue shall establish within the Criminal Investigation Division of the Internal Revenue Service the position of Local Law Enforcement Liaison. (b) Duties The Local Law Enforcement Liaison shall serve as the primary source of contact for State and local law enforcement authorities with respect to tax-related identity theft and other tax fraud matters, having duties that shall include— (1) receiving information from State and local law enforcement authorities; (2) responding to inquiries from State and local law enforcement authorities; (3) administering authorized information-sharing initiatives with State or local law enforcement authorities and reviewing the performance of such initiatives; (4) ensuring any information provided through authorized information-sharing initiatives with State or local law enforcement authorities is used only for the prosecution of identity theft-related crimes and not re-disclosed to third parties; and (5) any other duties as delegated by the Commissioner of Internal Revenue. 405. Extend Internal Revenue Service authority to require truncated social security numbers on Form W–2 (a) In general Paragraph (2) of section 6051(a) of the Internal Revenue Code of 1986 is amended by striking his social security number and inserting an identifying number for the employee. (b) Effective date The amendment made by this section shall take effect on the date of the enactment of this Act. 406. Clarification with respect to regulation of Federal tax return preparers (a) In general Subsection (a) of section 330 of title 31, United States Code, is amended— (1) by striking paragraph (1) and inserting the following: (1) regulate— (A) the practice of representatives of persons before the Department of the Treasury; and (B) the practice of tax return preparers; and , and (2) in paragraph (2)— (A) by inserting or tax return preparer after representative each place it appears, and (B) by inserting or in preparing their tax returns, claims for refund, or documents in connection with tax returns or claims for refund after cases in subparagraph (D). (b) Authority To sanction regulated tax return preparers Subsection (b) of section 330 of title 31, United States Code, is amended— (1) by striking before the Department, (2) by inserting or tax return preparer after representative each place it appears, and (3) in paragraph (4), by striking misleads or threatens and all that follows and inserting misleads or threatens— (A) any person being represented or any prospective person being represented; or (B) any person or prospective person whose tax return, claim for refund, or document in connection with a tax return or claim for refund, is being or may be prepared. . (c) Tax return preparer defined Section 330 of title 31, United States Code, is amended by adding at the end the following new subsection: (e) Tax return preparer For purposes of this section— (1) In general The term tax return preparer has the meaning given such term under section 7701(a)(36) of the Internal Revenue Code of 1986. (2) Tax return The term tax return has the meaning given to the term return under section 6696(e)(1) of the Internal Revenue Code of 1986. (3) Claim for refund The term claim for refund has the meaning given such term under section 6696(e)(2) of such Code. . 407. Authentication of users of electronic services accounts (a) In general The Commissioner of Internal Revenue shall establish a program to 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. (b) Report The Commissioner of Internal Revenue shall report to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives, not later than 1 year after the date of the enactment of this Act, on any further legislative recommendations to prevent fraud relating to the Internal Revenue Service e-Services tools, including an authorized e-file provider program. 408. Identity verification by tax return preparers required (a) In general Section 6695 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (i) Failure To verify taxpayer identity Any person who is a tax return preparer with respect to any return or claim for refund who fails to verify (in such manner and with such documentation as the Secretary shall provide) the identity of the taxpayer with respect to such return or claim for refund shall pay a penalty of $500 for each such failure. . (b) Effective date The amendment made by this section shall apply to returns or claims for refund filed after December 31, 2014. V Accelerating transition to a real-time tax system that protects taxpayers and reduces fraud 501. Improvement in access to information in the National Directory of New Hires for tax administration purposes (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 purposes of administering 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. 502. Plan of action for transitioning to a real-time tax system Not later than 270 days after the date of the enactment of this Act, the Secretary of the Treasury, or the Secretary's delegate, shall submit to Congress a report analyzing and outlining options and potential timelines for moving toward a tax system that reduces burdens on taxpayers and decreases tax fraud through real-time information matching.