The American Institute of CPAs 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 (see Senate Seeks Ways to Fight Tax Fraud and Identity Theft). 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.