Congress is Plugging the Wrong Hole

Section 203 of the budget bill passed by Congress restricts access to a Social Security Administration database known as the Death Master File. The misguided passage of this restriction will carry negative side effects and fail to achieve its purpose.

Section 203 embargos the release of the DMF for three years. To be sure, early access to the DMF is provided to individuals having "a legitimate fraud prevention interest" or "a legitimate business purpose," but such individuals would need to run the gauntlet to achieve clearance under a not-yet-established Department of Commerce certification program. This would be unduly burdensome for, say, an estate executor who, on a one-time basis, needs to ascertain the heirs of a decedent.

The passage of this provision has been sold to the Congress as a miracle cure for a multi-billion dollar fraud scheme which collectively inflicts untold economic and psychological harm upon the victims: Tax fraud through identity theft.

For many years, fraudsters have filed with the Internal Revenue Service fabricated tax returns which use stolen identities as entries for the taxpayer and/or a claimed dependent, and which show a refund owed to the taxpayer, thereby defrauding the public fisc when the refund is issued (as it almost always has been). This has even been done by prison inmates, among other perpetuators. A Treasury Inspector General for Tax Administration (TIGTA) report confirms that stolen identity tax fraud entails millions of tax returns and billions of dollars. When the stolen identities are those of deceased individuals, particularly deceased young children, the collateral damage inflicted upon the surviving families is especially grievous.

And, due to some heedless inattention on the part of the IRS, one source of pilfered identities has been the DMF. The shutdown of DMF access accordingly has played quite well in the Congress, for it entails both a "feelgood" sense that criminals will be stymied, and a seeming prospect to stanch a significant hemorrhaging of the public purse.

Social Security Numbers were originally intended to be just that, and not used for other purposes. But the uniqueness of the SSN made it convenient for use by the banking and financial industry, and by the taxation authorities. The Tax Reform Act of 1976 amended the Internal Revenue Code to require that the taxpayer's SSN be used as the identifier on a taxpayer's tax return.

During the 1970's, Ronald Perholtz, then the U.S. Postal Service's General Manager of Accounting, realized that the USPS was cutting many pension checks to deceased retirees, and that the Social Security Administration had data which could be used to prevent this and thereby save the Postal Service millions. Perholtz resigned his position, founded his own consulting firm, and proceeded to market his services to the government. Perholtz also developed another service for hire, verification that pensioners were in fact still among the living; his efforts culminated in a consent settlement with the Social Security Administration under which the SSA would publicly avail the DMF under the Freedom of Information Act. Other entrepreneurs have since taken to purchasing the DMF and purveying it as the Social Security Death Index. [Alas, Perholtz would later go to prison for contract fraud in his dealings with the government.].

The DMF/SSDI has since been used in many industries to prevent fraud. But fraud prevention is not the database's only useful purpose. Medical researchers, for example, need it for long-term projects to ascertain the living/deceased status of their subjects.

Genealogical researchers also use the DMF/SSDI extensively; such research is instrumental for purposes such as identifying and finding relatives of military or civilian casualties or crime victims, repatriating artwork stolen during the Nazi era, and building family health and medical history records (which the Surgeon General encourages Americans to do). Various groups having specialized family history research interests include Native Hawaiians who must prove their descent for certain housing guarantees, Ashkenazi Jewish women whose susceptibility to breast cancer requires knowledge of family breast cancer incidence in order to make appropriate healthcare decisions, and African-Americans who seek to reconnect descendants of siblings who were separated from one another during the slavery era. These vital pursuits are now threatened because family research is not an activity for which early access to the DMF is specified.

The fraudster community eventually learned that one entity that did not verify its data with the DMF was the IRS. By 1998, when Alan Scott was convicted of filing 20 false income tax returns with the IRS using stolen identities, the IRS could no longer claim ignorance of the problem. Yet, more than a decade later, the IRS still fails to adequately assist the good faith tax return filers whose identity has been stolen by fraudsters.

The IRS's dismissive passivity in failing to verify the legitimacy of the filed returns has been quite ignominious. The tactic of falsely claiming someone else's child (often deceased) as a dependent can be readily detected up front because the information from the Form SS-5 Application for a Social Security Card requires that the parents' Social Security Numbers be provided for a child under the age of 18. This information is obviously in the government's database, and a red light should flash whenever the SSN of the taxpayer or the taxpayer's spouse does not jibe with that of the parent of the child when the child's SSN was first assigned.

Moreover, the IRS has assumed that the first tax return to be filed is the legitimate one, and the subsequently-filed return is that of the impostor. Such an assumption is questionable at best, inasmuch as the legitimate good faith tax return filer needs to assemble and compile complete and accurate information for the tax return, while, as amply demonstrated, the fraudster's return will suffice with randomly-concocted numbers which are not dependent upon any statements from banks, brokers, mortgage companies, or other third-party payers or payees.

A recent TIGTA report has found that the overwhelming majority of stolen identities used on tax returns are now those of living individuals. So cutting off access to the DMF may well protect deceased children, but will not stop identity theft tax fraud.

The vast databases of personal information required under ObamaCare can only provide greater opportunity to steal the identities of living persons; the ObamaCare incentives for employers to convert full-time employees to part-time (and strictly limit the hours for existing part-timers) in order to avoid having to provide healthcare insurance can only attenuate the employees' group identity and loyalty (and may even conjure up thoughts of vengeance against the employer); and the increased general costs of healthcare under ObamaCare can only provide increased pressure to steal an identity not to defraud the IRS, but to obtain healthcare itself.

Section 203 abridges access to a valuable resource which should be in the public domain; the provision was enacted to cover for the IRS's abject failure to protect the American people with proper data stewardship practices.

The Talmud recounts a colloquy where Rabbi Joseph says to Rabbi Abaye, "It is not the mouse that is the thief but the hole." Congress would have us (and perhaps themselves) believe that it has plugged a large hole in the Federal coffers. But the mice still forage and there are even larger holes for them to access the granary. Future GAO and TIGTA studies are likely to find substantial gaps between the savings projected by the proponents of Section 203 and the savings, if any, actually achieved by it.

Kenneth H. Ryesky is a lawyer who teaches Business Law and Taxation at Queens College CUNY. He formerly served as an attorney for the IRS.

Section 203 of the budget bill passed by Congress restricts access to a Social Security Administration database known as the Death Master File. The misguided passage of this restriction will carry negative side effects and fail to achieve its purpose.

Section 203 embargos the release of the DMF for three years. To be sure, early access to the DMF is provided to individuals having "a legitimate fraud prevention interest" or "a legitimate business purpose," but such individuals would need to run the gauntlet to achieve clearance under a not-yet-established Department of Commerce certification program. This would be unduly burdensome for, say, an estate executor who, on a one-time basis, needs to ascertain the heirs of a decedent.

The passage of this provision has been sold to the Congress as a miracle cure for a multi-billion dollar fraud scheme which collectively inflicts untold economic and psychological harm upon the victims: Tax fraud through identity theft.

For many years, fraudsters have filed with the Internal Revenue Service fabricated tax returns which use stolen identities as entries for the taxpayer and/or a claimed dependent, and which show a refund owed to the taxpayer, thereby defrauding the public fisc when the refund is issued (as it almost always has been). This has even been done by prison inmates, among other perpetuators. A Treasury Inspector General for Tax Administration (TIGTA) report confirms that stolen identity tax fraud entails millions of tax returns and billions of dollars. When the stolen identities are those of deceased individuals, particularly deceased young children, the collateral damage inflicted upon the surviving families is especially grievous.

And, due to some heedless inattention on the part of the IRS, one source of pilfered identities has been the DMF. The shutdown of DMF access accordingly has played quite well in the Congress, for it entails both a "feelgood" sense that criminals will be stymied, and a seeming prospect to stanch a significant hemorrhaging of the public purse.

Social Security Numbers were originally intended to be just that, and not used for other purposes. But the uniqueness of the SSN made it convenient for use by the banking and financial industry, and by the taxation authorities. The Tax Reform Act of 1976 amended the Internal Revenue Code to require that the taxpayer's SSN be used as the identifier on a taxpayer's tax return.

During the 1970's, Ronald Perholtz, then the U.S. Postal Service's General Manager of Accounting, realized that the USPS was cutting many pension checks to deceased retirees, and that the Social Security Administration had data which could be used to prevent this and thereby save the Postal Service millions. Perholtz resigned his position, founded his own consulting firm, and proceeded to market his services to the government. Perholtz also developed another service for hire, verification that pensioners were in fact still among the living; his efforts culminated in a consent settlement with the Social Security Administration under which the SSA would publicly avail the DMF under the Freedom of Information Act. Other entrepreneurs have since taken to purchasing the DMF and purveying it as the Social Security Death Index. [Alas, Perholtz would later go to prison for contract fraud in his dealings with the government.].

The DMF/SSDI has since been used in many industries to prevent fraud. But fraud prevention is not the database's only useful purpose. Medical researchers, for example, need it for long-term projects to ascertain the living/deceased status of their subjects.

Genealogical researchers also use the DMF/SSDI extensively; such research is instrumental for purposes such as identifying and finding relatives of military or civilian casualties or crime victims, repatriating artwork stolen during the Nazi era, and building family health and medical history records (which the Surgeon General encourages Americans to do). Various groups having specialized family history research interests include Native Hawaiians who must prove their descent for certain housing guarantees, Ashkenazi Jewish women whose susceptibility to breast cancer requires knowledge of family breast cancer incidence in order to make appropriate healthcare decisions, and African-Americans who seek to reconnect descendants of siblings who were separated from one another during the slavery era. These vital pursuits are now threatened because family research is not an activity for which early access to the DMF is specified.

The fraudster community eventually learned that one entity that did not verify its data with the DMF was the IRS. By 1998, when Alan Scott was convicted of filing 20 false income tax returns with the IRS using stolen identities, the IRS could no longer claim ignorance of the problem. Yet, more than a decade later, the IRS still fails to adequately assist the good faith tax return filers whose identity has been stolen by fraudsters.

The IRS's dismissive passivity in failing to verify the legitimacy of the filed returns has been quite ignominious. The tactic of falsely claiming someone else's child (often deceased) as a dependent can be readily detected up front because the information from the Form SS-5 Application for a Social Security Card requires that the parents' Social Security Numbers be provided for a child under the age of 18. This information is obviously in the government's database, and a red light should flash whenever the SSN of the taxpayer or the taxpayer's spouse does not jibe with that of the parent of the child when the child's SSN was first assigned.

Moreover, the IRS has assumed that the first tax return to be filed is the legitimate one, and the subsequently-filed return is that of the impostor. Such an assumption is questionable at best, inasmuch as the legitimate good faith tax return filer needs to assemble and compile complete and accurate information for the tax return, while, as amply demonstrated, the fraudster's return will suffice with randomly-concocted numbers which are not dependent upon any statements from banks, brokers, mortgage companies, or other third-party payers or payees.

A recent TIGTA report has found that the overwhelming majority of stolen identities used on tax returns are now those of living individuals. So cutting off access to the DMF may well protect deceased children, but will not stop identity theft tax fraud.

The vast databases of personal information required under ObamaCare can only provide greater opportunity to steal the identities of living persons; the ObamaCare incentives for employers to convert full-time employees to part-time (and strictly limit the hours for existing part-timers) in order to avoid having to provide healthcare insurance can only attenuate the employees' group identity and loyalty (and may even conjure up thoughts of vengeance against the employer); and the increased general costs of healthcare under ObamaCare can only provide increased pressure to steal an identity not to defraud the IRS, but to obtain healthcare itself.

Section 203 abridges access to a valuable resource which should be in the public domain; the provision was enacted to cover for the IRS's abject failure to protect the American people with proper data stewardship practices.

The Talmud recounts a colloquy where Rabbi Joseph says to Rabbi Abaye, "It is not the mouse that is the thief but the hole." Congress would have us (and perhaps themselves) believe that it has plugged a large hole in the Federal coffers. But the mice still forage and there are even larger holes for them to access the granary. Future GAO and TIGTA studies are likely to find substantial gaps between the savings projected by the proponents of Section 203 and the savings, if any, actually achieved by it.

Kenneth H. Ryesky is a lawyer who teaches Business Law and Taxation at Queens College CUNY. He formerly served as an attorney for the IRS.