AICPA Asks for Changes in Senate’s Identity Theft and Tax Fraud Bill to Protect Tax Preparers

[kcjenkins]

The AICPA has requested changes in a Senate bill aimed at combating the growing problem of identity theft and tax fraud to avoid increased penalties for tax preparers who improperly disclose or use taxpayer information.

Senator Bill Nelson, D-Fla., introduced the Identity Theft and Tax Fraud Prevention Act of 2013, S. 676, in April. The AICPA sent a comment letter to the Senate Finance Committee last Thursday supporting many of the provisions in the proposed legislation, but also calling for changes in a few provisions that would increase tax preparer penalties.

“The AICPA applauds and supports the majority of the provisions,” wrote AICPA Tax Executive Committee chairman Jeffrey A. Porter. Among the provisions supported by the AICPA are those that would enhance the Identity Protection Personal Identification Number (IP PIN) program, limit the number of refunds to the same mailing address or account and restrict access to the Death Master File, which is maintained by the Social Security Administration.

One provision in S. 676 to which the AICPA said it strongly objected was the increased penalty under Sections 7216 and 6713 of the Internal Revenue Code for improper disclosure or use of information by preparers of returns. Porter said that increased penalties under these sections would not deter identity theft for two reasons: 1) Most tax-related identity theft is not perpetrated by those who prepare tax returns, and 2) if someone who purports to be a tax return preparer does engage in tax-related identity theft, there are more narrowly tailored and severe penalties in other parts of the Tax Code and under criminal laws.

The AICPA supported a provision in the bill that would add a new criminal penalty for using a false identity in connection with tax fraud. It would impose a maximum sentence of five years in prison and a maximum fine of $250,000.

The AICPA made two recommendations to help combat tax identity theft. The first recommendation would implement new processes to verify a taxpayer’s address before the refund is paid. The second recommendation would expand the use of IRS’s IP PIN program, which is available to taxpayers who have been the victim of tax-related identity theft so that taxpayers could request an IP PIN before becoming a victim of identity theft. The IP PIN could be used in place of a Social Security number when filing a tax return.

http://www.accountingtoday.com/news/AICPA-Senate-Identity-Theft-Tax-Fraud-Tax-Preparers-67321-1.html?ET=webcpa:e7335:61496a:&st=email

[Guest Taxed]

I wonder if NATP and other organizations will join AICPA in opposing enhanced penalties for tax preparers. If this legislation passes as is I bet the E&OE premiums will sky rocket!

[jainen]

>>increased penalties under these sections would not deter identity theft<<

One problem they don't talk much about (but WE talk about a lot) is that it isn't clear what exactly constitutes "improper disclosure or use of information by preparers." Our work product is intended and commonly used for non-tax matters like mortgages, student aid, and child support. We have very little authority to claim confidentiality in the face of official demands. We also have inherent conflicts of interests among partners and entities and within families, so inadvertent errors are certain to occur. At the same time, we have very little control over the accuracy of the information, but are generally held responsible for its accuracy.

Specifically targeting tax preparers would not address any of that. We would probably have to refuse any disclosure at all except to the individual who gave us the information.

[Guest Taxed]

You are absolutely correct. We rely on information provided to us by the taxpayer that is generally unaudited and then the taxpayer requests us to release the work product to third parties who we have no control over. If this law is passed without change we should refuse to disclose anything to third parties regardless of the request by taxpayer.

It will cause some unpleasantness with our clients, but I got to protect myself!

[Lee B]

With respect to identify theft, what amazes me is that the IRS doesn't even match taxpayer names and the names on the bank

accounts before initiating direct deposits. It makes it so easy create fraudulent refunds etc etc.

[Jack from Ohio]

With respect to identify theft, what amazes me is that the IRS doesn't even match taxpayer names and the names on the bank

accounts before initiating direct deposits. It makes it so easy create fraudulent refunds etc etc.

Neither do the banks. Dual blame on this one...

[Guest Taxed]

One possible solution to combat this would be to have the bank account of the taxpayer pre-verified with the bank and IRS and a unique PIN generated. That PIN must be used with the 1040 submission.

If a crook gets hold of the PIN and files a false return the only way a refund would be generated is if the PIN and routing # and account# match. There is only one place the money can go.

[kcjenkins]

IRS actually has moved in the opposite direction, with their addition of multiple bank accounts for the refunds. I like your solution, tho.

[jainen]

>>One possible solution to combat this would be to have the bank account of the taxpayer pre-verified with the bank and IRS and a unique PIN generated. That PIN must be used with the 1040 submission.<<

I think that's already available, especially through Santa Barbara S&L. Used to be called Rapid Refund, but now it's Diamond Plus or something. Sounds like a good idea, but in practice it seems to have INCREASED fraud, in spite of high fees.

[Guest Taxed]

It's a shame that with all these technological developments we have not been able to reduce identity fraud crimes. I do not use any mobile banking applications though my bank keeps on pushing them.