Tax Return Preparers Exemplify a Gaping Hole in the Treasury's Vault

Kenneth H. Ryesky
I recently discoursed in American Thinker regarding the restrictions imposed by Section 203 of the Bipartisan Budget Act upon the Social Security Administration's Death Master File (DMF). Section 203 marks an effort to prevent fraud by restricting access to the database to individuals having only a legitimate interest. The Department of Commerce's National Technical Information Service (NTIS) has been scrambling to implement the legislation, a flawed statute abruptly foisted upon it by a Congress that failed to consider all of the law's ramifications.

From the information thus far gathered (the comment period remains open until 25 April 2014 for the Interim Final Rule published in the Federal Register), it is clear that the Congressionally-mandated embargo cannot help but cripple diverse legitimate and vital uses of the DMF in America's commercial, financial, healthcare, and judicial processes, including but not limited to fraud prevention.  Those who are granted early access are required to run a gauntlet of exacting qualification requirements, complex data safeguards, maintaining voluminous records, paying rather steep fees, and ensuring that those with whom they share the DMF data have been similarly initiated.

Section 203 is the product of outrage over anguish inflicted by tax fraudsters upon the families of the deceased infants whose identities they stole; the outrage, while quite appropriate and valid, has been misdirected.  As noted in a recent Treasury Inspector General report, for Tax Year 2011 (the returns for which were processed in 2012), the percentage of deceased identity theft victims in tax fraud schemes has fallen to approximately 2% following the IRS's long, long overdue implementation of filters to detect potentially fraudulent tax returns. The remaining 98% involve living individuals whose identity expropriations were obviously unconnected to the DMF. The fact that the incidence of tax fraud identity theft involving the Social Security Numbers of deceased individuals has so precipitously fallen is proof positive of the Internal Revenue Service's failure, until recently, to adequately screen the tax returns filed with it.

On 8 April 2014, the Senate Finance Committee held a hearing which, while seemingly unconnected to the DMF, has underscored the absurdity of Section 203.  The hearing, entitled "Protecting Taxpayers from Incompetent and Unethical Return Preparers," is obviously a prelude for a legislative fix to the District of Columbia Circuit Court of Appeals decision in Loving v. IRS, which invalidated the IRS's claimed authority to regulate tax return preparers.  The hearing testimony covers much ground, and this tax attorney has precious little to add to what has already been stated there by the various witnesses.

Tax return preparers have access not only to Social Security Numbers, but to even more sensitive items of personal information than can be found in the DMF -- including actual bank, brokerage account, credit card, and debit card account numbers. The potential for tax return preparers to commit stolen identity refund fraud is obvious, and has in fact been actualized on multiple occasions.

If insurance, pension, genealogy, healthcare, and other professionals who need DMF access are compelled to complete an obstacle course in the name of fraud prevention, then the same logic dictates that the tax return preparers should be so compelled.  Ditto for the staffers at schools, healthcare establishments, and, well, at any business that regularly does a payroll. As unworkable as the NTIS's program is now shaping up to be, imposing similar requirements upon tax return preparers and others would be unworkable a thousandfold.

All of this absurdity came about because the IRS has, until recently, not even begun to adequately filter the tax returns it has been receiving.

As a colleague with whom I discussed the implications of this matter so incredulously asked, "What part of broken don't they understand?"

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.

I recently discoursed in American Thinker regarding the restrictions imposed by Section 203 of the Bipartisan Budget Act upon the Social Security Administration's Death Master File (DMF). Section 203 marks an effort to prevent fraud by restricting access to the database to individuals having only a legitimate interest. The Department of Commerce's National Technical Information Service (NTIS) has been scrambling to implement the legislation, a flawed statute abruptly foisted upon it by a Congress that failed to consider all of the law's ramifications.

From the information thus far gathered (the comment period remains open until 25 April 2014 for the Interim Final Rule published in the Federal Register), it is clear that the Congressionally-mandated embargo cannot help but cripple diverse legitimate and vital uses of the DMF in America's commercial, financial, healthcare, and judicial processes, including but not limited to fraud prevention.  Those who are granted early access are required to run a gauntlet of exacting qualification requirements, complex data safeguards, maintaining voluminous records, paying rather steep fees, and ensuring that those with whom they share the DMF data have been similarly initiated.

Section 203 is the product of outrage over anguish inflicted by tax fraudsters upon the families of the deceased infants whose identities they stole; the outrage, while quite appropriate and valid, has been misdirected.  As noted in a recent Treasury Inspector General report, for Tax Year 2011 (the returns for which were processed in 2012), the percentage of deceased identity theft victims in tax fraud schemes has fallen to approximately 2% following the IRS's long, long overdue implementation of filters to detect potentially fraudulent tax returns. The remaining 98% involve living individuals whose identity expropriations were obviously unconnected to the DMF. The fact that the incidence of tax fraud identity theft involving the Social Security Numbers of deceased individuals has so precipitously fallen is proof positive of the Internal Revenue Service's failure, until recently, to adequately screen the tax returns filed with it.

On 8 April 2014, the Senate Finance Committee held a hearing which, while seemingly unconnected to the DMF, has underscored the absurdity of Section 203.  The hearing, entitled "Protecting Taxpayers from Incompetent and Unethical Return Preparers," is obviously a prelude for a legislative fix to the District of Columbia Circuit Court of Appeals decision in Loving v. IRS, which invalidated the IRS's claimed authority to regulate tax return preparers.  The hearing testimony covers much ground, and this tax attorney has precious little to add to what has already been stated there by the various witnesses.

Tax return preparers have access not only to Social Security Numbers, but to even more sensitive items of personal information than can be found in the DMF -- including actual bank, brokerage account, credit card, and debit card account numbers. The potential for tax return preparers to commit stolen identity refund fraud is obvious, and has in fact been actualized on multiple occasions.

If insurance, pension, genealogy, healthcare, and other professionals who need DMF access are compelled to complete an obstacle course in the name of fraud prevention, then the same logic dictates that the tax return preparers should be so compelled.  Ditto for the staffers at schools, healthcare establishments, and, well, at any business that regularly does a payroll. As unworkable as the NTIS's program is now shaping up to be, imposing similar requirements upon tax return preparers and others would be unworkable a thousandfold.

All of this absurdity came about because the IRS has, until recently, not even begun to adequately filter the tax returns it has been receiving.

As a colleague with whom I discussed the implications of this matter so incredulously asked, "What part of broken don't they understand?"

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.