Report text available as:

  • TXT
  • PDF   (PDF provides a complete and accurate display of this text.) Tip ?
                                                      Calendar No. 555
114th Congress     }                                    {       Report
                                 SENATE
 2d Session        }                                    {      114-299

======================================================================



 
              STOLEN IDENTITY REFUND FRAUD PREVENTION ACT

                                _______
                                

                 July 12, 2016.--Ordered to be printed

                                _______
                                

               Mr. Hatch, from the Committee on Finance, 
                        submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                         [To accompany S. 3157]

    The Committee on Finance, having considered an original 
bill, S. 3157, to prevent taxpayer identity theft and tax 
refund fraud, and for other purposes, reports favorably thereon 
without amendment and recommends that the bill do pass.






                                CONTENTS

                                                                   Page
  I. LEGISLATIVE BACKGROUND...........................................2
 II. EXPLANATION OF THE BILL..........................................3
TITLE I--IDENTITY THEFT AND TAX REFUND FRAUD PREVENTION..........     3
          A. General Provisions..................................     3
              1. Guidelines for stolen identity refund fraud 
                  cases (sec. 101 of the bill)...................     3
              2. Criminal penalty for misappropriating taxpayer 
                  identity in connection with tax fraud (sec. 102 
                  of the bill and secs. 6109 and 7206 of the 
                  Code)..........................................     4
              3. Increased penalty for improper disclosure or use 
                  of information by preparers of returns (sec. 
                  103 of the bill and sec. 6713 of the Code).....     5
              4. Notification of suspected identity theft (sec. 
                  205 of the bill and new sec. 7529 of the Code).     6
          B. Administrative Authority to Prevent Identity Theft 
              and Tax Refund Fraud...............................     9
              1. Authority to transfer IRS appropriations to 
                  combat tax fraud (sec. 111 of the bill)........     9
              2. Streamlined critical pay authority for 
                  information technology positions (sec. 112 of 
                  the bill)......................................    10
              3. Access to the National Directory of New Hires to 
                  identify and prevent fraudulent tax return 
                  filings and claims for refund (sec. 113 of the 
                  bill)..........................................    12
              4. Repeal of provision regarding certain tax 
                  compliance procedures and reports (sec. 114 of 
                  the bill)......................................    13
              5. Sense of the Senate on strengthened penalties 
                  and enforcement for impersonating an IRS 
                  official or agent (sec. 115 of the bill).......    13
          C. Reports.............................................    13
              1. IRS Report on stolen identity refund fraud (sec. 
                  121 of the bill)...............................    13
              2. Report on status of the Identity Theft Tax 
                  Refund Fraud Information Sharing and Analysis 
                  Center (``ISAC'') (sec. 122 of the bill).......    14
              3. GAO Reports on identity theft and tax refund 
                  fraud (sec. 123 of the bill)...................    15
TITLE II--IMPROVEMENTS TO ELECTRONIC FILING OF TAX RETURNS.......    16
              1. Study on feasibility of blocking electronically-
                  filed tax returns (sec. 201 of the bill).......    16
              2. Enhancements to IRS PIN program (sec. 202 of the 
                  bill)..........................................    17
              3. Increasing electronic filing of returns (sec. 
                  203 of the bill)...............................    18
              4. Internet platform for Form 1099 filings (sec. 
                  204 of the bill)...............................    19
              5. Requirement that electronically prepared paper 
                  returns include scannable code (sec. 205 of the 
                  bill)..........................................    20
              6. Authentication of users of electronic services 
                  accounts (sec. 206 of the bill)................    22
III. BUDGET EFFECTS OF THE BILL......................................22
 IV. VOTES OF THE COMMITTEE..........................................25
  V. REGULATORY IMPACT AND OTHER MATTERS.............................25
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........26
VII. ADDITIONAL VIEWS................................................27








                       I. LEGISLATIVE BACKGROUND

    The Committee on Finance, having considered S. 3157, the 
``Stolen Identity Refund Fraud Prevention Act,'' to prevent 
taxpayer identity theft and tax refund fraud, and for other 
purposes, reports favorably thereon without amendment and 
recommends that the bill do pass.

Background and need for legislative action

    Background.--Based on a proposal recommended by Chairman 
Hatch, the Committee on Finance marked up original legislation 
(the ``Stolen Identity Refund Fraud Prevention Act'') on April 
20, 2016, and, with a majority present, ordered the bill 
favorably reported.
    Need for legislative action.--The Chairman, Ranking Member, 
and members of the Committee are well aware of the 
proliferation of tax-related identity theft and tax refund 
fraud perpetrated not just by nefarious individuals acting 
alone or in groups, but also by sophisticated networks of 
criminals operating globally. The Committee believes 
legislation is necessary to provide additional tools to the 
Internal Revenue Service and taxpayers to address these 
problems. Previously, the Chairman and Ranking Member 
introduced legislation (S. 2736, the Tax Refund Theft 
Prevention Act of 2014, 113th Congress, 2nd Session) that would 
enhance the ability of the Internal Revenue Service to identify 
and prevent fraudulent tax refund claims that are made with the 
use of stolen taxpayer identities and provide additional 
assistance for those taxpayers who have been victims of this 
crime. In addition, Senator Nelson introduced legislation (S. 
676, the Identity Theft and Tax Fraud Prevention Act of 2015, 
114th Congress, 1st Session) and Senator Isakson played a large 
role in working to address stolen identity refund fraud. 
Further, during this Congress the Committee has held hearings 
on ``Cybersecurity and Protecting Taxpayer Information'' (April 
12, 2016) and ``Protecting Taxpayers from Schemes and Scams 
During the 2015 Tax Filing Season'' (March 12, 2015). These 
legislative proposals and hearings informed the content of this 
bill.

                      II. EXPLANATION OF THE BILL

    The bill comprises two titles. Title I is ``Identity Theft 
and Tax Refund Fraud Prevention,'' which includes three 
subtitles: General Provisions (sections 101 through 104); 
Administrative Authority to Prevent Identity Theft and Tax 
Refund Fraud (sections 111 through 115); and Reports (sections 
121 through 123). Title II is ``Improvements to Electronic 
Filing of Tax Returns'' and includes sections 201 through 206. 
The specific provisions of the bill are explained below.

        TITLE I--IDENTITY THEFT AND TAX REFUND FRAUD PREVENTION


                         A. General Provisions


 1. Guidelines for stolen identity refund fraud cases (sec. 101 of the 
                                 bill)


                              PRESENT LAW

    Disparate elements in the tax laws and administration are 
implicated in identity theft. The tax aspects of identity theft 
can generally occur in one of two ways. In refund fraud, a 
perpetrator obtains someone else's identifying information and 
submits an individual income tax return using the name and 
Social Security number of the victim, with a falsified Form W-
2, Wage and Tax Statement, and fraudulently claims a refund. In 
other cases, the stolen identifying information is used in 
order to obtain employment; the returns then filed by the 
persons employed using the stolen identity may be based on the 
actual wages and withholding. Victims of the fraud include the 
individuals whose identifying information was stolen as well as 
the businesses whose systems may have been breached to obtain 
that personal information.
    The Internal Revenue Service (``IRS'') describes its 
procedures for addressing both types of fraud in its manual. 
Its work is coordinated by the IRS's Identity Protection 
Program through the auspices of an oversight office.\1\
---------------------------------------------------------------------------
    \1\Internal Revenue Service, Identity Protection Program, Internal 
Revenue Manual paragraph 10.5.3, et seq. (December 2014).
---------------------------------------------------------------------------
    In her 2014 Annual Report to Congress, the National 
Taxpayer Advocate included a review of fraudulent refund claims 
that included the theft of a taxpayer's identity.\2\ The review 
found that such cases involved multiple issues requiring 
coordination among several business units of the IRS, and took 
approximately six months to resolve. Identity theft victims 
were required to deal with multiple persons within the IRS to 
resolve the issues, either because a case involved multiple 
business units or was transferred among multiple employees 
within a business unit.
---------------------------------------------------------------------------
    \2\National Taxpayer Advocate, ``Identity Theft Case Review Report: 
A Statistical Analysis of Identity Theft Cases Closed in June 2014,'' 
2014 Annual Report to Congress, available at http://
www.taxpayeradvocate.irs.gov/reports-to-congress/2014-annual-report-to-
congress/research-studies.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is concerned that the IRS response to the 
growth of taxpayer identity theft and related fraudulent refund 
claims has sometimes failed to appreciate the great burden that 
is placed on victims of identity theft. To ensure that the 
victims are not subject to undue administrative burdens as they 
attempt to resolve issues and take measures to protect their 
identity, the Committee believes it is desirable that the IRS 
publish casework guidelines that address its handling of 
identity theft cases and how it can assist victims. To ensure 
that such guidelines adequately reflect the needs of the 
victims of identity theft, the Committee believes that the IRS 
should consult with the National Taxpayer Advocate in the 
development of the guidelines.

                        EXPLANATION OF PROVISION

    The provision requires that the IRS, in consultation with 
the National Taxpayer Advocate, develop and implement publicly 
available casework guidelines for the handling of refund fraud 
cases that would have the effect of reducing the burdens on 
victims of identity theft. The guidelines may address both 
procedures and metrics for determining whether the procedures 
are successfully implemented. Among the issues to be considered 
are the standards for opening, assigning, reassigning or 
closing a case; the average length of time in which a case with 
an identity theft issue should be resolved; the average length 
of time a victim entitled to a tax refund may have to wait to 
receive such refund; and the number of IRS offices and 
employees with whom a victim should interact to resolve a case.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment, with 
guidelines to be implemented within six months of the date of 
enactment.

     2. Criminal penalty for misappropriating taxpayer identity in 
connection with tax fraud (sec. 102 of the bill and secs. 6109 and 7206 
                              of the Code)


                              PRESENT LAW

    The Code\3\ does not contain civil or criminal penalties 
specifically targeted at identity theft. Instead, many claims 
for tax refund-related identity theft are prosecuted as false 
claims under section 287 of Title 18, and are classified as 
felonies, generally punishable by a penalty of up to $250,000 
and imprisonment for up to five years. In addition, section 
1028A of Title 18 provides for the statutory crime of 
``aggravated identity theft'' in cases where the identity of 
another individual is used to commit enumerated crimes and 
generally adds an additional two- year prison term (herein the 
``Aggravated Identity Theft Statute''). However, that section 
does not include any tax offenses under the Code and 
specifically carves out tax-related offenses under Title 18, 
including conspiracy to defraud the government with respect to 
claims, false, fictitious or fraudulent claims, or conspiracy.
---------------------------------------------------------------------------
    \3\Except where otherwise stated, all references are to the 
Internal Revenue Code of 1986, as amended.
---------------------------------------------------------------------------
    The Code includes two provisions, sections 7206 and 7207, 
which cover fraud and false statements and fraudulent returns. 
Sections 7206(1) and (2) cover situations that could 
potentially involve identity theft. Those provisions make it a 
felony, punishable by a penalty of up to $100,000 ($500,000 for 
a corporation), imprisonment for up to three years, or both, 
plus prosecution costs, for a person who: (i) makes a false 
declaration under penalties of perjury; and (ii) aids or 
assists in the preparation or presentation of any return or 
other document that is false as to a material matter. Section 
7207 treats as a misdemeanor the willful delivery or disclosure 
to any officer or employee of the IRS of fraudulent or false 
lists, returns, accounts, statements, or other documents, 
punishable by a penalty of up to $10,000 ($50,000 for 
corporations), imprisonment for up to a year, or both.

                           REASONS FOR CHANGE

    The Committee believes that the current penalties for 
criminal tax violations do not appropriately take into account 
as an aggravating factor the use of a misappropriated identity.

                        EXPLANATION OF PROVISION

    The provision makes it a felony under the Code, punishable 
by a penalty of up to $250,000 ($500,000 for a corporation), 
imprisonment for up to five years, or both, plus prosecution 
costs, for a person to misappropriate the taxpayer identity of 
another person in order to file any return or other document. A 
taxpayer identity includes any identifying number assigned by 
the Secretary, specifically including an identity protection 
personal identification number (``IP PIN''). As a result, the 
theft of an IP PIN in order to file a return or other document 
is a felony under the Code.
    It is the sense of the Senate that the felony added by this 
provision should also be added to the list of predicate 
offenses contained in the Aggravated Identity Theft Statute.

                             EFFECTIVE DATE

    The provision applies to offenses committed on or after the 
date of enactment.

 3. Increased penalty for improper disclosure or use of information by 
 preparers of returns (sec. 103 of the bill and sec. 6713 of the Code)


                              PRESENT LAW

    The Code provides both civil and criminal penalties for a 
tax return preparer who discloses any information furnished to 
the preparer for, or in connection with, the preparation of 
such return or uses such information for any purpose other than 
to prepare or assist in preparing, any such return. The civil 
penalty is $250 for each unauthorized disclosure or use up to 
$10,000 per calendar year.\4\ The corresponding criminal 
penalty under section 7216 provides that knowing or reckless 
conduct is a misdemeanor, subject to a fine up to $1,000, one 
year of imprisonment, or both, together with the costs of 
prosecution.
---------------------------------------------------------------------------
    \4\Sec. 6713.
---------------------------------------------------------------------------
    Section 6103(b)(6) defines ``taxpayer identity'' as the 
name of the person with respect to whom a return is filed, his 
mailing address, his taxpayer identifying number or a 
combination thereof.

                           REASONS FOR CHANGE

    The Committee believes that taxpayer confidence in the 
trustworthiness of tax return preparers is an important element 
in tax administration. Those who are entrusted with the 
sensitive personal data of taxpayers should be held to a high 
standard, and violation of that trust when a return preparer 
uses or discloses a client's return information should be 
punished accordingly. The Committee does not believe that the 
current civil or criminal penalties adequately punishes the 
breach of trust involved in such disclosure.

                        EXPLANATION OF PROVISION

    The provision increases the civil penalty on the 
unauthorized disclosure or use of information by tax return 
preparers from $250 to $1,000 for cases in which the disclosure 
or use is made in connection with a crime relating to the 
misappropriation of another person's taxpayer identity 
(``taxpayer identity theft''). The provision also increases the 
calendar year limitation from $10,000 to $50,000. The calendar 
year limitation is applied separately with respect to 
disclosures or uses made in connection with taxpayer identity 
theft.
    The provision also increases the criminal penalty for 
knowing or reckless conduct to $100,000 in the case of 
disclosures or uses in connection with taxpayer identity theft.

                             EFFECTIVE DATE

    The provision applies to disclosures or uses on or after 
the date of enactment.

 4. Notification of suspected identity theft (sec. 205 of the bill and 
                       new sec. 7529 of the Code)


                              PRESENT LAW

    Section 6103 provides that returns and return information 
are confidential and may not be disclosed by the IRS, other 
Federal employees, State employees, and certain others having 
access to the information except as provided in the Code.\5\ 
The definition of ``return information'' is very broad and 
includes any information gathered by the IRS with respect to a 
person's liability or possible liability under the Code for any 
tax, penalty, interest, fine, forfeiture, or other imposition 
or offense.\6\ Thus, information gathered by the IRS in 
connection with an investigation of a person for a Title 26 
offense, such as fraud, is the return information of the person 
being investigated and is subject to the confidentiality 
restrictions of section 6103.
---------------------------------------------------------------------------
    \5\Sec. 6103(a).
    \6\Sec. 6103(b)(2). Return information is:
       a taxpayer's identity, the nature, source, or amount of 
his income, payments, receipts, deductions, exemptions, credits, 
assets, liabilities, net worth, tax liability, tax withheld, 
deficiencies, overassessments, or tax payments, whether the taxpayer's 
return was, is being, or will be examined or subject to other 
investigation or processing, or any other data, received by, recorded 
by, prepared by, furnished to, or collected by the Secretary with 
respect to a return or with respect to the determination of the 
existence, or possible existence, of liability (or the amount thereof) 
of any person under this Title for any tax, penalty, interest, fine, 
forfeiture, or other imposition, or offense,
       any part of any written determination or any background 
file document relating to such written determination (as such terms are 
defined in section 6110(b)) which is not open to public inspection 
under section 6110,
       any advance pricing agreement entered into by a taxpayer 
and the Secretary and any background information related to such 
agreement or any application for an advance pricing agreement, and
       any closing agreement under section 7121, and any 
similar agreement, and any background information related to such an 
agreement or request for such an agreement.
    Return information does not include data in a form which cannot be 
associated with, or otherwise identify, directly or indirectly, a 
particular taxpayer.
---------------------------------------------------------------------------
    As an exception to section 6103's general rule of 
confidentiality, the Code permits a taxpayer to receive his or 
her own tax return, and also can receive his or her return 
information if the Secretary determines that such disclosure 
would not seriously impair Federal tax administration.\7\ With 
respect to fraudulent tax returns, if the victim's name and 
Social Security number (``SSN'') are listed as either the 
primary or secondary taxpayer on a fraudulent return, a victim 
of identity theft, or a person authorized to obtain the 
identity theft victim's tax information, may request a redacted 
copy (one with some information blacked-out) of a fraudulent 
return that was filed and accepted by the IRS using the 
identity theft victim's name and SSN.\8\
---------------------------------------------------------------------------
    \7\Sec. 6103(e)(1) and (7). The Code also permits the disclosure of 
returns and return information to such persons or persons the taxpayer 
may designate, if the request meets the requirements of the Treasury 
regulations and if it is determined that such disclosure would not 
seriously impair Federal tax administration. Sec. 6103(c).
    \8\See, Internal Revenue Service, Instructions for Requesting Copy 
of Fraudulent Returns (March 28, 2016), available at https://
www.irs.gov/Individuals/Instructions-for-Requesting-Copy-of-Fraudulent-
Returns.
---------------------------------------------------------------------------
    Under a Privacy Act notice, with respect to investigations 
other than those involving violations of Title 26, TIGTA may 
disclose the following information to complainants:
    In cases not involving violations of Title 26, under a 
Privacy Act Notice, TIGTA is allowed to disclose information to 
complainants, victims, or their representatives (defined to be 
a complainant's or victim's legal counsel or a Senator or 
Representative whose assistance the complainant or victim has 
solicited) concerning the status and/or results of an 
investigation or case arising from the matters of which they 
complained and/or of which they were a victim, including, once 
the investigative subject has exhausted all reasonable appeals, 
any action taken. Information concerning the status of the 
investigation or case is limited strictly to whether the 
investigation or case is open or closed. Information concerning 
the results of the investigation or case is limited strictly to 
whether the allegations made in the complaint were 
substantiated or were not substantiated and, if the subject has 
exhausted all reasonable appeals, any action taken.\9\
---------------------------------------------------------------------------
    \9\See 75 Fed. Reg. 20715 (April 20, 2010) (relating to TIGTA 
Office of Investigation files).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is aware that victims of identity theft are 
often unaware that their identity has been stolen or 
compromised. As a result, they are unable to take timely 
measures to limit damage from the theft and to secure their 
identity against further compromise. The Committee is also 
aware that successful prosecution of identity thieves requires 
that the investigators exercise discretion in disclosing 
information to victims about an ongoing investigation. However, 
the Committee believes that victims must be provided an 
opportunity to safeguard their financial information and assets 
as soon as practicable.
    The Committee also is aware that the unauthorized use of 
the identity of an individual to obtain employment causes 
severe hardship for the victims of this theft, including 
accusations of underreporting income and the loss of income-
related benefits. Accordingly, to help protect these victims, 
in making a determination as to whether there has been or may 
have been an unauthorized use of an identity for purposes of 
notifying the victim, the IRS should be required to review 
information obtained from both its own internal processes on 
data mismatches as well as the information provided to the IRS 
by the Social Security Administration.

                        EXPLANATION OF PROVISION

    If the Secretary determines that there has been or may have 
been an unauthorized use of a taxpayer's identity or that of 
the taxpayer's dependents, the provision requires the Secretary 
to, without jeopardizing an investigation relating to tax 
administration, as soon as practicable, notify the taxpayer of 
such determination, and provide: (1) instructions to the 
taxpayer about filing a report with law enforcement; (2) the 
forms the taxpayer must submit to allow investigating law 
enforcement officials to access the taxpayer's personal 
information; (3) steps that victims can take to protect 
themselves from harm caused by the unauthorized use; and (4) an 
offer of IRS victim protection measures such as an IP PIN that 
allows returns to be filed securely.
    At the time this information is provided (or, if not 
available at such time, as soon as practicable thereafter), the 
Secretary shall issue additional notifications to such 
individual (or such individual's designee) regarding: (1) 
whether an investigation has been initiated in regards to such 
unauthorized use; (2) whether the investigation substantiated 
an unauthorized use of the taxpayer's identity; and (3) whether 
any action has been taken with respect to the individual who 
committed the substantiated violation, including whether any 
referral has been made for criminal prosecution of such 
individual, and, to the extent such information is available, 
whether such person has been criminally charged by indictment 
or information.
    For purposes of this provision, the unauthorized use of the 
identity of an individual includes the unauthorized use of the 
identity of the individual to obtain employment (herein 
``employment-related identity theft''). In making a 
determination as to whether there has been or may have been an 
unauthorized use of the identity of an individual to obtain 
employment, the Secretary shall review any information obtained 
from a statement described in section 6051 or an information 
return relating to compensation for services rendered other 
than as an employee, or provided to the IRS by the SSA 
regarding any statement described in section 6051 which 
indicates that the Social Security account number provided on 
such statement or information return does not correspond with 
the name provided on such statement or information return or 
the name on the tax return reporting the income which is 
included on such statement or information return. This 
provision requires the Secretary to examine the statements, 
information returns, and tax returns described in the provision 
for any evidence of employment-related identity theft, 
regardless of whether such statements or returns are submitted 
electronically or on paper. The provision amends the Social 
Security Act to require the Commissioner of SSA to request 
information described in the provision not less than annually. 
The provision also requires that the IRS establish procedures 
to ensure that identity theft victims are not penalized for 
underreporting of income as a result of the unauthorized use of 
their identity.

                             EFFECTIVE DATE

    The provision applies to determinations made after the date 
of enactment.

 B. Administrative Authority To Prevent Identity Theft and Tax Refund 
                                 Fraud


 1. Authority to transfer IRS appropriations to combat tax fraud (sec. 
                            111 of the bill)


                              PRESENT LAW

    Article I, section nine of the Constitution provides that 
``No money shall be drawn from the Treasury, but in Consequence 
of Appropriations made by Law.'' Under section 1301 of Title 
31, public funds may be used only for the purposes(s) for which 
Congress appropriated the funds, except as otherwise provided 
by law. An officer or employee of the United States government 
cannot make or authorize an expenditure or obligation exceeding 
an amount available in an appropriation or fund for the 
expenditure or obligation.\10\ Such officer or employee 
violating this rule will be subject to appropriate disciplinary 
measures, including when circumstances warrant, suspension from 
duty without pay or removal from office.\11\ In addition, a 
Federal officer or employee who knowingly and willfully 
violates the rule is subject to a fine of up to $5,000, 
imprisonment of up to two years, or both.\12\
---------------------------------------------------------------------------
    \10\31 U.S.C. sec. 1341.
    \11\31 U.S.C. sec. 1349.
    \12\31 U.S.C. sec. 1350.
---------------------------------------------------------------------------
    Section 101 of the Consolidated and Continuing 
Appropriations Act of 2015\13\ allows the IRS, with advance 
approval of the Appropriations Committees, to transfer up to 
five percent of any appropriation:

    \13\Pub. L. No. 113-235.
---------------------------------------------------------------------------
          SEC. 101. Not to exceed 5 percent of any 
        appropriation made available in this Act to the 
        Internal Revenue Service may be transferred to any 
        other Internal Revenue Service appropriation upon the 
        advance approval of the Committees on Appropriations.

                           REASONS FOR CHANGE

    In recent years, the IRS has acknowledged providing 
``abysmal'' customer service\14\ to taxpayers seeking 
assistance during tax filing season. The Committee is concerned 
that the IRS spending priorities may contribute to such poor 
service, to the extent that customer service funds are 
reallocated to other spending priorities of the IRS. As a 
result, the Committee believes it is necessary to place 
restraints on the IRS discretion to transfer appropriated funds 
from the purpose for which Congress appropriated the funds to 
any other agency purposes. The Committee further believes that 
an exception to such restraint is advisable if the transfer of 
funds is necessary to enable the IRS to fund its efforts to 
reduce identity theft and refund fraud.
---------------------------------------------------------------------------
    \14\For example, see prepared remarks of the Commissioner, before 
the National Press Club, on March 31, 2015, available at https://
www.irs.gov/uac/newsroom/commissioner-koskinen-speech-before-the-
national-press-club.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    Under the provision, for any fiscal year, the Commissioner 
of Internal Revenue (``Commissioner'') may transfer not more 
than $10 million to any account of the IRS from amounts 
appropriated to other IRS accounts. Any amounts so transferred 
shall be used solely for the purposes of preventing, detecting, 
and resolving potential cases of tax fraud. The prevention of 
tax fraud includes educating taxpayers about scams that target 
them and providing information about how they can protect 
themselves.
    In addition, such transfer of funds can only be made if the 
Commissioner has determined that customer service to the 
general public (including telephone operations, forms and 
publications, and similar taxpayer assistance provided by the 
IRS) will not be impaired by such transfer. This authority to 
transfer $10 million among IRS accounts is in addition to any 
other permitted transfers of appropriations (such as the five 
percent referenced above).

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

   2. Streamlined critical pay authority for information technology 
                    positions (sec. 112 of the bill)


                              PRESENT LAW

    The IRS is currently subject to the personnel rules and 
procedures set forth in Title 5 of the United States Code. 
Under these rules, IRS employees generally are classified under 
the General Schedule or the Senior Executive Service.
    The IRS Restructuring and Reform Act of 1998 
(``Restructuring Act'') provided the IRS with certain personnel 
flexibilities, one of which was the streamlined critical pay 
authority.\15\ This authority was originally provided for 10 
years; it was extended on two occasions and ultimately expired 
on September 30, 2013.\16\
---------------------------------------------------------------------------
    \15\Pub. L. No. 105-206, 112 Stat. 712 (1998).
    \16\In December 2007, the Consolidated Appropriations Act, 2008, 
Pub. L. No. 110-161, 121 Stat. 1844, (2008), extended the original 
deadline to July 23, 2013. Subsequently, the Consolidated and Further 
Continuing Appropriations Act 2013, Pub. L. No. 113-6, 127 Stat. 198 
(2013), extended the deadline to September 30, 2013.
---------------------------------------------------------------------------
    Under the Restructuring Act, the Secretary of the Treasury, 
or his delegate, was authorized to fix the compensation of, and 
appoint up to 40 individuals to, designated critical technical 
and professional positions, provided that: (1) the positions 
require expertise of an extremely high level in a technical or 
professional field and are critical to the IRS; (2) exercise of 
the authority is necessary to recruit or retain an individual 
exceptionally well qualified for the position; (3) designation 
of such positions is approved by the Secretary; (4) the terms 
of such appointments are limited to no more than four years; 
(5) appointees to such positions are not IRS employees 
immediately prior to such appointment; and (6) the total annual 
compensation for any position (including performance bonuses) 
does not exceed the rate of pay of the Vice President.
    These appointments would not be subject to the otherwise 
applicable requirements under Title 5. All such appointments 
would be excluded from the collective bargaining unit and the 
appointments would not be subject to approval of the Office of 
Management and Budget (``OMB'') or the Office of Personnel 
Management (``OPM'').
    Also, OMB was authorized to approve increases in the pay 
level for certain critical pay positions requested by the 
Secretary. These critical pay positions would be critical, 
technical and professional positions other than those 
designated under the streamlined authority described above. OMB 
was authorized to approve requests for critical position pay up 
to the highest total compensation that does not exceed the rate 
of pay of the Vice President of the United States.
    According to TIGTA, during the years in which it had 
streamlined critical pay authority, the IRS exercised that 
authority to fill 168 positions, the majority of which were in 
the Information Technology function of the IRS.\17\
---------------------------------------------------------------------------
    \17\TIGTA, The Internal Revenue Service's Use of its Streamlined 
Critical Pay Authority,'' Ref. No. 2015-IE-R001, (December 5, 2014), 
available at https://www.treasury.gov/tigta/iereports/2015reports/
2015ier001fr.pdf.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is aware that, in order to identify and 
prevent identity theft or refund fraud, the IRS has focused on 
improving its efforts in cybersecurity, by providing continuous 
monitoring of systems, replacing old technology, developing new 
authentication measures, and working with the private sector to 
identify best practices. To do so, the IRS must be able to 
recruit and retain experts from the private sector in highly 
specialized areas of information technology. The Committee 
believes that the IRS ability to recruit such experts was aided 
by the now-expired streamlined critical pay authority, and 
believes that reauthorization is appropriate.

                        EXPLANATION OF PROVISION

    The provision reinstates streamlined critical pay authority 
at IRS for positions in its information technology operations 
that are necessary to ensure the functionality of such 
operations. Such authority is reinstated for a period starting 
on the date of enactment through September 30, 2021.

                             EFFECTIVE DATE

    The provision is effective for payments made on or after 
the date of enactment.

   3. Access to the National Directory of New Hires to identify and 
 prevent fraudulent tax return filings and claims for refund (sec. 113 
                              of the bill)


                              PRESENT LAW

    The Office of Child Support Enforcement of the Department 
of Health and Human Services (``HHS'') maintains the National 
Directory of New Hires (the ``Directory''), which is a database 
that contains newly-hired employee data from Forms W 4, 
quarterly wage data from State and Federal employment security 
agencies, and unemployment benefit data from State unemployment 
insurance agencies. The Directory was created to help State 
child support enforcement agencies enforce obligations of 
parents across State lines.
    Under the Social Security Act, the IRS may obtain data from 
the Directory for the sole purpose of administering the earned 
income credit (``EIC'')\18\ and verifying a taxpayer's 
employment that is reported on a tax return.\19\ The IRS also 
may negotiate for access to employment data directly from State 
agencies responsible for such data, to the extent permitted by 
the laws of the various States. Generally, the IRS obtains such 
employment data less frequently than quarterly, due to the 
significant internal costs it incurs in preparing these data 
for use.\20\
---------------------------------------------------------------------------
    \18\Sec. 32(a)(1).
    \19\42 U.S.C. secs. 653 and 653a.
    \20\See Department of the Treasury, General Explanations of the 
Administration's Fiscal Year 2016 Revenue Proposals, February 2015, 
p.238.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the more current the 
information available to the IRS as it attempts to authenticate 
returns, the more effective its efforts to deter refund fraud 
can be.

                        EXPLANATION OF PROVISION

    The provision amends the Social Security Act to expand IRS 
access to the Directory data for the sole purpose of 
identifying and preventing fraudulent tax return filings and 
claims for refund. Data obtained by the IRS from the Directory 
are protected by existing taxpayer privacy law.\21\
---------------------------------------------------------------------------
    \21\See section 6103(b)(2)(A), providing that information received 
by or recorded by or furnished to the Secretary with respect to the 
existence or possible existence of a liability under Title 26 is return 
information. Section 6103(A) provides that return information is 
confidential and cannot be disclosed except as authorized. See section 
7431, 7213 and 7213A for civil and criminal penalties for the 
unauthorized disclosure or inspection of return information.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

4. Repeal of provision regarding certain tax compliance procedures and 
                     reports (sec. 114 of the bill)


                              PRESENT LAW

    Under present law, taxpayers generally are required to 
calculate their own tax liabilities and submit returns showing 
their calculations. The IRS Restructuring and Reform Act of 
1998 (``Restructuring Act'') requires the Secretary of the 
Treasury or his delegate (``Secretary'') to study the 
feasibility of, and develop procedures for, the implementation 
of a return-free tax system for appropriate individuals for 
taxable years beginning after 2007.\22\ The Secretary is 
required annually to report to the tax-writing committees on 
the progress of the development of such system. The Secretary 
was required to make the first report on the development of the 
return-free filing system to the tax-writing committees by June 
30, 2000.
---------------------------------------------------------------------------
    \22\Pub. L. No. 105-206, sec. 2004.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the study of implementation of 
a return-free tax system is of low priority among the 
challenges facing the IRS. The Committee believes that the 
broad availability of electronic filing, including free-filing 
for certain groups of taxpayers, has lessened the value of 
continuing to require such study and reporting.

                        EXPLANATION OF PROVISION

    The provision repeals section 2004 of the Restructuring 
Act.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

 5. Sense of the Senate on strengthened penalties and enforcement for 
     impersonating an IRS official or agent (sec. 115 of the bill)

    Under present law, section 912 of Title 18 provides that it 
is a Federal crime to impersonate an officer or employee of any 
Federal agency in an attempt to obtain money or anything of 
value. Such impersonation is punishable by a fine, imprisonment 
for up to three years, or both. The provision expresses the 
sense of the Senate that penalties for impersonating an IRS 
official or agent should be increased and enforced to the 
fullest extent of the law.

                               C. Reports


  1. IRS Report on stolen identity refund fraud (sec. 121 of the bill)


                              PRESENT LAW

    The IRS is not currently required to prepare reports on 
identity theft refund fraud.

                           REASONS FOR CHANGE

    The Committee recognizes that tax-related identity theft is 
an evolving criminal activity that targets innocent taxpayers 
nationwide and robs the Treasury of billions of dollars each 
year. The Committee believes that requiring that the IRS report 
periodically on its effort to prevent identity theft refund 
fraud will provide useful information on the scope of the 
problem and aid development of practical solutions necessary to 
reduce this growing threat.

                        EXPLANATION OF PROVISION

    The provision requires the IRS to report every two years 
through September 30, 2026, to the Senate Committee on Finance 
and the House Committee on Ways and Means on the extent and 
nature of fraud involving the use of a misappropriated taxpayer 
identity with respect to claims for refund under the Code based 
on the most recent data that is available. The first report is 
due by September 30, 2018.
    Each report shall discuss the detection, prevention, and 
enforcement activities undertaken by the IRS with respect to 
such fraud, and include: detailing IRS efforts to combat 
identity theft refund fraud, including an update on the 
victims' assistance unit; providing an update on IRS efforts 
and results associated with limiting multiple refunds to the 
same financial accounts and physical addresses, with 
appropriate exceptions; and discussing IRS efforts associated 
with other avenues for addressing identity theft refund fraud 
(e.g., the hash-based message authentication code).
    Each report shall also include the following: an update on 
the implementation of the bill; information on both the average 
and maximum amounts of time that elapsed before victims' cases 
were resolved; analysis of ways to accelerate information 
matching; and discussion of the need for any further 
legislation to protect taxpayer resources and information, 
including preventing tax refund fraud related to the IRS e-
Services tools and electronic filing identification numbers.
    In addition to the information described above, the initial 
biannual report must contain an assessment of the agency's 
progress on identity theft outreach and education to 
individuals, businesses, State agencies, and other external 
organizations and the results of a feasibility study on the 
costs and benefits to enhancing its taxpayer authentication 
approach to the electronic tax return filing process.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

2. Report on status of the Identity Theft Tax Refund Fraud Information 
     Sharing and Analysis Center (``ISAC'') (sec. 122 of the bill)


                              PRESENT LAW

    In June 2015, IRS joined with representatives of tax 
preparation and software firms, payroll and tax financial 
product processors, and State tax administrators to announce 
that they would look at establishing a formalized Identity 
Theft Tax Refund Fraud Information Sharing and Analysis Center 
(``ISAC'') to more aggressively and efficiently share 
information between the public and private sector to help stop 
the proliferation of fraud schemes and reduce the risk to 
taxpayers.\23\ For example, ISAC would provide better data to 
law enforcement to improve the investigations and prosecution 
of identity thieves. The IRS does not currently have a center 
within which the private and public sectors, including State 
government and subsidiaries thereof can share data and 
information analysis to protect against identity theft.
---------------------------------------------------------------------------
    \23\IR-2015-87, June 11, 2015, available at http://www.irs.gov/uac/
Newsroom/IRS-and-Industry-and-States-Take-New-Steps-Together-to-Fight-
Identity-Theft-and-Protect-Taxpayers.
---------------------------------------------------------------------------
    The IRS is not currently required to report on the status 
of ISAC.

                           REASONS FOR CHANGE

    The Committee believes it is desirable to establish a 
system under which both governmental and private organizations 
can share and analyze data to detect patterns and warn against 
potential risks. The Committee is aware that such information-
sharing centers have been successful in the fields of financial 
services and aviation, and believes formation of such a center 
in the field of tax administration will provide significant 
gains in detection and prevention of identity theft.

                        EXPLANATION OF PROVISION

    The provision requires the IRS to submit a report to the 
Senate Committee on Finance and the House Committee on Ways and 
Means no later than 90 days after the date of enactment that 
includes information on whether ISAC is fully operational (and, 
if not, what additional steps are necessary for it to be 
operational and the best estimate of when ISAC will be 
operational), what challenges remain in the effective sharing 
of information, and steps that are being taken to address these 
challenges.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

3. GAO Reports on identity theft and tax refund fraud (sec. 123 of the 
                                 bill)


                              PRESENT LAW

    The U.S. Government Accountability Office (``GAO'') is not 
currently required to prepare reports on identity theft and tax 
refund fraud.

                           REASONS FOR CHANGE

    The Committee believes that a study by GAO of IRS efforts 
in identity theft outreach and education is desirable to assist 
the Committee in exercising its oversight responsibility and in 
identifying necessary legislative action.

                        EXPLANATION OF PROVISION

    The provision requires the GAO to prepare a report to the 
Senate Committee on Finance and the House Committee on Ways and 
Means evaluating the clarity of the language the IRS uses for 
notifying taxpayers of instances of potential and known tax-
related identity theft refund fraud and the IRS systems that 
generate tax-related identity theft notifications. The report 
is required to be provided by September 30, 2018.
    The provision also requires the GAO to prepare a report to 
the Senate Committee on Finance and the House Committee on Ways 
and Means evaluating the IRS's progress on identity theft 
outreach and education to individuals, businesses, State 
agencies, and external organizations. The report is required to 
be provided by September 30, 2020.
    The provision further requires the GAO to prepare a report 
to the Senate Committee on Finance and the House Committee on 
Ways and Means evaluating the IRS's feasibility study on the 
costs and benefits to enhancing its taxpayer authentication 
approach to the electronic tax return filing process. The 
report is required to be provided by September 30, 2020.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

       TITLE II--IMPROVEMENTS TO ELECTRONIC FILING OF TAX RETURNS


 1. Study on feasibility of blocking electronically-filed tax returns 
                         (sec. 201 of the bill)


                              PRESENT LAW

    The Restructuring Act established a Congressional policy to 
promote the paperless filing of Federal tax returns and set a 
goal for the IRS to have at least 80 percent of all Federal tax 
and information returns filed electronically by 2007.\24\ 
Section 2001(b) of the Restructuring Act requires the IRS to 
establish a 10-year strategic plan to eliminate barriers to 
electronic filing.
---------------------------------------------------------------------------
    \24\The Electronic Tax Administration Advisory Committee, the body 
charged with oversight of IRS progress in reaching that goal, reported 
that e-filing by most categories of taxpayers exceeded 80 percent in 
the 2014 filing season, but projected an overall rate of 77.5 percent 
based on all Federal returns. See Electronic Tax Administration 
Advisory Committee, Annual Report to Congress, June 2015 IRS Pub. 3415, 
page 9, available at https://www.irs.gov/pub/irs-pdf/p3415.pdf.
---------------------------------------------------------------------------
    Present law requires the Secretary to issue regulations 
regarding electronic filing and specifies certain limitations 
on the rules that may be included in such regulations.\25\ The 
statute requires that Federal income tax returns prepared by 
specified tax return preparers be filed electronically,\26\ and 
that all partnerships with more than 100 partners be required 
to file electronically. For taxpayers other than partnerships, 
the statute prohibits any requirement that persons who file 
fewer than 250 returns during a calendar year file 
electronically. With respect to individuals, estates, and 
trusts, the Secretary may permit, but generally cannot require, 
electronic filing of income tax returns. In crafting any of 
these required regulations, the Secretary must take into 
account the ability of taxpayers to comply at a reasonable 
cost.
---------------------------------------------------------------------------
    \25\Sec. 6011(e).
    \26\Section 6011(e)(3)(B) defines a ``specified tax return 
preparer'' as any return preparer who reasonably expects to file more 
than 10 individual income tax returns during a calendar year.
---------------------------------------------------------------------------
    Individuals who either report to the IRS that they are 
victims of identity theft or who the IRS determines 
independently are victims of identity theft are eligible to 
receive an IP PIN (a special, six-digit identity protection 
personal identification number) to use as an additional 
authentication feature with their social security number, as a 
taxpayer identifying number on returns the next filing season. 
If the taxpayer files electronically, an additional, e-file PIN 
is also required.

                           REASONS FOR CHANGE

    The Committee is aware that numerous taxpayers who have 
experienced identity theft that was accomplished by 
electronically filing a false return may wish to elect to 
preclude any future electronic filing of a return on their 
behalf. It is not known how widely shared that sentiment is, 
nor is it clear whether such an election could be honored. The 
Committee requires more information about the feasibility of 
such an election and its effectiveness in preventing further 
violations.

                        EXPLANATION OF PROVISION

    The provision requires the Secretary of the Treasury (or 
his or her delegate) to provide a feasibility study to the 
Senate Committee on Finance and the House Committee on Ways and 
Means describing 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 anyone purporting to be that taxpayer. 
The study is due within 180 days after the date of enactment 
and should also include a recommendation on whether to 
implement such a program.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

       2. Enhancements to IRS PIN program (sec. 202 of the bill)


                              PRESENT LAW

    In 2011, the IRS launched a pilot program to test the IP 
PIN that authenticates a return filer as the legitimate 
taxpayer at the time the return is filed. The IP PIN allows 
affected taxpayers to avoid delays in filing returns and 
receiving refunds. For the 2014 filing season, the IRS issued 
IP PINs to more than 1.2 million taxpayers who had identity 
theft markers on their tax accounts.\27\ The IRS also started a 
limited pilot program in January 2014 whereby taxpayers who 
obtained an electronic filing PIN through an IRS authentication 
website and live in the District of Columbia, Florida, or 
Georgia are provided an opportunity to obtain an IP PIN.\28\ 
The IRS verified the presence of the IP PIN at the time of 
filing, and rejected returns associated with a taxpayer's 
account where an IP PIN had been assigned but was missing.
---------------------------------------------------------------------------
    \27\Inspector General for Tax Administration, Department of the 
Treasury, Identity Protection Personal Identification Numbers Are Not 
Provided to All Eligible Taxpayers (TIGTA 2014-40-086), September 24, 
2014, available at http://www.treasury.gov/tigta/auditreports/
2014reports/201440086fr.html.
    \28\Internal Revenue Service, IP PIN pilot continues in Georgia, 
Florida and the District of Columbia, available at http://www.irs.gov/
Individuals/Identity-Protection-PIN-Pilot-Program.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is aware that the use of an IP PIN is an 
effective means of preventing identity theft refund fraud via 
an electronically filed return. The Committee believes that the 
success of the pilot program for IP PINs warrants expansion of 
the program beyond the residents of the District of Columbia, 
Florida and Georgia and persons who have already been subject 
to identity theft.

                        EXPLANATION OF PROVISION

    The provision requires the Secretary of the Treasury (or 
his or her delegate) to issue an IP PIN to any individual 
requesting such IP PIN after the individual's identity has been 
verified to the satisfaction of the Secretary.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment and is 
required to be available by July 1, 2019.

   3. Increasing electronic filing of returns (sec. 203 of the bill)


                              PRESENT LAW

In general

    The Restructuring Act states a Congressional policy to 
promote the paperless filing of Federal tax returns. Section 
2001(a) of the Restructuring Act set a goal for the IRS to have 
at least 80 percent of all Federal tax and information returns 
filed electronically by 2007.\29\ Section 2001(b) of the 
Restructuring Act requires the IRS to establish a 10-year 
strategic plan to eliminate barriers to electronic filing.
---------------------------------------------------------------------------
    \29\The Electronic Tax Administration Advisory Committee, the body 
charged with oversight of IRS progress in reaching that goal reported 
that e-filing by individuals exceeded 80 percent in the 2013 filing 
season, but projected an overall rate of 72.8 percent based on all 
Federal returns. See Electronic Tax Administration Advisory Committee, 
Annual Report to Congress, June 2013, IRS Pub. 3415, page 6.
---------------------------------------------------------------------------
    Present law requires the Secretary to issue regulations 
regarding electronic filing and specifies certain limitations 
on the rules that may be included in such regulations.\30\ The 
statute requires that Federal income tax returns prepared by 
specified tax return preparers be filed electronically,\31\ and 
that all partnerships with more than 100 partners be required 
to file electronically. For taxpayers other than partnerships, 
the statute prohibits any requirement that persons who file 
fewer than 250 returns during a calendar year file 
electronically. With respect to individuals, estates, and 
trusts, the Secretary may permit, but generally cannot require, 
electronic filing of income tax returns. In crafting any of 
these required regulations, the Secretary must take into 
account the ability of taxpayers to comply at a reasonable 
cost.
---------------------------------------------------------------------------
    \30\Sec. 6011(e).
    \31\Section 6011(e)(3)(B) defines a ``specified tax return 
preparer'' as any return preparer who reasonably expects to file more 
than 10 individual income tax returns during a calendar year.
---------------------------------------------------------------------------
    The regulations require corporations that have assets of 
$10 million or more and file at least 250 returns during a 
calendar year to file electronically their Form 1120/1120S 
income tax returns (U.S. Corporation Income Tax Return/U.S. 
Income Tax Return for an S Corporation) and Form 990 
information returns (Return of Organization Exempt from Income 
Tax) for tax years ending on or after December 31, 2006. In 
determining whether the 250 returns threshold is met, income 
tax, information, excise tax, and employment tax returns filed 
within one calendar year are counted.

                           REASONS FOR CHANGE

    Consistent with the policy expressed in the Restructuring 
Act, the Committee supports paperless filing as the preferred 
and most convenient means of filing Federal tax and information 
returns. Electronic filing produces a number of benefits both 
for taxpayers and the IRS, including shorter processing times, 
fewer errors, and better data. The Committee believes that the 
efficiencies and cost savings achieved through electronic 
filing justify expanding such requirements. For example, 
electronic filing has enabled the IRS to close two processing 
centers, and save 1,600 staff years of work. The Committee is 
aware that present law restricts the IRS ability to expand the 
scope of returns that are required to be filed electronically. 
The Committee believes that the widespread adoption of computer 
technology since the Restructuring Act has reduced the 
additional burden that mandatory e-filing imposes on taxpayers.

                        EXPLANATION OF PROVISION

    The provision relaxes the current restrictions on the 
authority of the Secretary to mandate electronic filing based 
on the number of returns required to be filed by a taxpayer in 
a given taxable period. First, it phases in a reduction in the 
threshold requirement that taxpayers have an obligation to file 
a specified number of returns and statements during a calendar 
year in order to be subject to a regulatory mandate. The 
threshold is reduced from 250 to 200 for calendar year 2019, 
from 200 to 150 for calendar year 2020, from 150 to 100 for 
calendar year 2021, from 100 to 50 for calendar year 2022, and 
from 50 to 20 for calendar years thereafter.
    Second, the provision requires that any individual income 
tax return prepared and filed by a tax return preparer be filed 
electronically, regardless of the number of returns filed by 
such return preparer. The Secretary is authorized to waive this 
requirement if a tax return preparer applies for a waiver and 
demonstrates that the inability to file electronically is due 
to technological constraints such as lack of internet 
availability in the geographic location in which the return 
preparation business is operated.

                             EFFECTIVE DATE

    The provision is effective for returns with a due date, 
determined without regard to extensions, after December 31, 
2017.

   4. Internet platform for Form 1099 filings (sec. 204 of the bill)


                              PRESENT LAW

    The Code does not presently require the IRS to make 
available an internet platform for the preparation or filing of 
information returns, such as the series, Form 1099.

                           REASONS FOR CHANGE

    The Committee believes that it is desirable to provide a 
simple and secure manner for small businesses to file critical 
tax information returns electronically. The Committee further 
believes that such a secure manner of filing can be modeled on 
the online platform, SSA Business Services Online. The 
Committee believes that an online platform for submitting 
information returns to the IRS, similar to SSA Business 
Services Online, could improve compliance of small business 
taxpayers while reducing their administrative burden. 
Businesses would be able to prepare and file information 
returns such as IRS Form 1099-MISC, Miscellaneous Income, 
online while preparing the payee statements and creating 
necessary business records.

                        EXPLANATION OF PROVISION

    The provision requires the Secretary of the Treasury (or 
his or her delegate) to make available, by January 1, 2021, an 
internet website or other electronic medium (the ``website''), 
similar to the Business Services Online Suite of Services 
provided by the SSA.\33\ The website will allow taxpayers, with 
access to resources and guidance provided by the IRS, to 
prepare, file, and distribute Forms 1099, and create and 
maintain taxpayer records. The provision also requires the 
website to be available, by January 1, 2019, in a partial form 
that will allow taxpayers to prepare, file, and distribute 
Forms 1099-MISC, and create and maintain taxpayer records.
---------------------------------------------------------------------------
    \33\Available at http://www.ssa.gov/bso/bsowelcome.htm.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

   5. Requirement that electronically prepared paper returns include 
                 scannable code (sec. 205 of the bill)


                              PRESENT LAW

    Every citizen, whether residing in or outside the United 
States, and every resident of the United States within the 
meaning of section 7701(b) must file an income tax return if 
the individual has income that equals or exceeds the exemption 
amount.\34\ Treasury regulations require individual taxpayers 
to make this return using a Form 1040, U.S. Individual Income 
Tax Return.\35\ Similarly, every corporation subject to Federal 
income tax, regardless of the amount of its gross or taxable 
income for the taxable year, is required to file a return.\36\
---------------------------------------------------------------------------
    \34\Sec. 6012(a)(1); Treas. Reg. sec. 1.6012-1(a)(1).
    \35\Treas. Reg. sec. 1.6012-1(a)(6).
    \36\Sec. 6012(a)(2).
---------------------------------------------------------------------------
    In 1998, Congress declared a policy that (1) paperless 
filing should be the preferred and most convenient means of 
filing Federal tax and information returns, (2) the IRS's goal 
should be to receive at least 80 percent of all returns 
electronically by 2007, and (3) the IRS should encourage 
private-sector competition to increase electronic filing.\37\ 
Section 6011(f), also enacted in 1998, authorizes the 
Department of the Treasury to advertise the benefits of 
electronic tax administration programs and to make payment of 
appropriate incentives for electronically-filed returns.
---------------------------------------------------------------------------
    \37\The Internal Revenue Service Restructuring and Reform Act of 
1998, Pub. L. No. 105-206, sec. 2001.
---------------------------------------------------------------------------
    The Department of the Treasury generally is authorized to 
prescribe regulations providing standards for determining which 
returns must be filed on magnetic media or in another machine-
readable form. However, except under certain circumstances, the 
Department of the Treasury ``may not require returns of any tax 
imposed by subtitle A on individuals, estates, and trusts, to 
be other than on paper forms supplied by the Secretary.''\38\
---------------------------------------------------------------------------
    \38\Sec. 6011(e)(1).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Although the policy of Congress favoring paperless filing 
as the preferred means of filing Federal tax and information 
returns, and urging private-sector competition to increase 
electronic filing\39\ has led to greatly increased use of 
electronic filing, and despite the greatly increased use of 
computers since 1998, many taxpayers continue to prefer to 
print and file their returns on paper with the IRS, which must 
then manually transcribe the data on the paper returns into its 
computer databases. Of the returns filed on paper, many were 
prepared electronically but printed and mailed to the IRS on 
paper. The Committee understands that converting paper returns 
into an electronic format would significantly reduce the high 
costs to process paper-filed returns (including the cost of 
hiring people during filing season to enter data from paper-
filed tax returns into its databases), and error rates 
resulting from keypunch mistakes when inputting information 
from the paper tax returns into IRS computers. Both TIGTA and 
GAO have recommended use of scanning technology on paper 
returns. The Committee believes that the reduced costs and 
error rates warrant requiring that returns prepared using 
software be printed with an embedded code that would ensure 
that the data on the return could be input into the IRS systems 
by scanning. The Committee understands that some of the 
fillable forms on the IRS website that taxpayers now use 
already include such a code on them.
---------------------------------------------------------------------------
    \39\Internal Revenue Service Restructuring and Reform Act of 1998, 
Pub. L. No. 105-206, sec. 2001.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision requires that taxpayers who prepare their 
returns electronically, but print and file the returns on paper 
must print their returns with a scannable code. A scannable 
code enables the IRS to convert paper-filed tax returns into an 
electronic format using scanning technology.

                             EFFECTIVE DATE

    The provision is effective for tax returns with a due date, 
determined without regard to extensions, after December 31, 
2017.

6. Authentication of users of electronic services accounts (sec. 206 of 
                               the bill)


                              PRESENT LAW

    The IRS has developed a suite of web-based products, called 
e-Services Online Tools for Tax Professionals, which provides 
multiple electronic products and services to tax professionals.

                           REASONS FOR CHANGE

    The Committee is aware that multi-factor authentication of 
the identity of users of online accounts increases the security 
of datasets. The Committee also believes that taxpayers are 
entitled to demand that the IRS carefully guard the sensitive 
information entrusted by taxpayers to the IRS from intruders.

                        EXPLANATION OF PROVISION

    The provision requires the IRS to verify the identity of 
any individual opening an e-Services account before he or she 
is able to use such services.

                             EFFECTIVE DATE

    The provision is effective not later than 180 days after 
the date of enactment.

                    III. BUDGET EFFECTS OF THE BILL


                         A. Committee Estimates

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate, the following statement is made 
concerning the estimated budget effects of the revenue 
provisions of the ``Stolen Identity Refund Fraud Prevention 
Act'' as reported.
    The bill is estimated to have the following effects on 
Federal budget receipts for fiscal years 2016 through 2026:


                B. Budget Authority and Tax Expenditures


Budget authority

    In compliance with section 308(a)(1) of the Congressional 
Budget and Impoundment Control Act of 1974 (``Budget 
Act''),\40\ the Committee states that no provisions of the bill 
as reported involve new or increased budget authority.
---------------------------------------------------------------------------
    \40\Pub. L. No. 93-344.
---------------------------------------------------------------------------

Tax expenditures

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that the provisions of the bill do not involve 
increased tax expenditures (see revenue table in part A., 
above).

            C. Consultation with Congressional Budget Office

    In accordance with section 403 of the Budget Act, the 
Committee advises that the Congressional Budget Office has not 
submitted a statement on the bill. The letter from the 
Congressional Budget Office will be provided separately.

                       IV. VOTES OF THE COMMITTEE


Motion to report the bill

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee states that, with a 
majority and quorum present, the ``Stolen Identity Refund Fraud 
Prevention Act,'' as modified by the Chairman's modifications 
to the mark and amended by the Committee, was ordered favorably 
reported by voice vote on April 20, 2016.

Votes on amendments

    The Committee considered two amendments, as follows:
    1. An amendment by Senators Wyden, Cardin, Carper, Warner 
and Stabenow to authorize the Secretary of Treasury to develop 
minimum standards for paid return preparers was defeated by a 
roll call vote, 12 ayes, 13 nays, as follows:
    Ayes: Wyden, Schumer (proxy), Stabenow, Cantwell, Nelson, 
Menendez, Carper (proxy), Cardin, Brown, Bennet (proxy), Case, 
Warner (proxy).
    Nays: Hatch, Grassley, Crapo, Roberts, Enzi (proxy), 
Cornyn, Thune (proxy), Burr (proxy), Isakson, Toomey (proxy), 
Coats, Heller (proxy), Scott (proxy).
    Not voting: Portman
    2. An amendment by Senator Coats to require that the IRS 
provide notice to victims of employment-related identity theft 
was approved by voice vote.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill as amended.

Impact on individuals and businesses, personal privacy and paperwork

    The provisions of the bill are not expected to impose 
additional administrative requirements or regulatory burdens on 
individuals or businesses.
    The provisions of the bill do not impact personal privacy.

                     B. Unfunded Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the tax provisions of the 
reported bill do not contain Federal private sector mandates or 
Federal intergovernmental mandates on State, local, or tribal 
governments within the meaning of Public Law 104-4, the 
Unfunded Mandates Reform Act of 1995.

                       C. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 requires the staff of the Joint 
Committee on Taxation (in consultation with the Internal 
Revenue Service and the Treasury Department) to provide a tax 
complexity analysis. The complexity analysis is required for 
all legislation reported by the Senate Committee on Finance, 
the House Committee on Ways and Means, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code and has 
widespread applicability to individuals or small businesses. 
The staff of the Joint Committee on Taxation has determined 
that there are no provisions that are of widespread 
applicability to individuals or small businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                         VII. ADDITIONAL VIEWS

     ADDITIONAL VIEWS OF SENATORS WYDEN, NELSON, BROWN, AND WARNER

    We respectfully file our additional views to the Stolen 
Identity Refund Fraud Prevention Act, which was approved by the 
Senate Finance Committee on April 20, 2016. We appreciate the 
work of Chairman Hatch and committee staff for holding the 
mark-up and bringing this package together and to Senators 
Brown, Cardin, Grassley, Nelson, and Thune for contributing 
their valuable legislative proposals to this effort. We wish to 
begin by recognizing that the Finance committee considered 
several important, bipartisan proposals pertaining to identity 
theft and taxpayer protection. Every new headline about hackers 
and crooks stealing taxpayer dollars and personal data is a 
reminder that there is a lot more to be done to protect 
taxpayers from cyber harm. There's the recent example of the 
hack into the ``Get Transcript'' system at the IRS. Lax 
security on the IRS system left the front door open to cyber 
criminals, who stole tax return data on three quarters of a 
million taxpayers. Then when the IRS distributed special 
Identity Protection Personal Identification Numbers to the 
victims, it opened the back door by again using a security 
system that did not keep fraudsters and criminals out.
    That is why this package restores streamline critical pay 
authority, which the IRS can use to build and maintain a top-
notch team of tech experts to beat back hackers and protect 
taxpayer data. It also will be much easier to flag and crack 
down on fraudulent returns by making better use of the National 
Database of New Hires. Those are positive, bipartisan steps 
that we fought to include in this legislation. But in our view, 
there is a glaring hole in this package as it stands now, and 
politics have gotten in the way of fixing it.
    So it is very unfortunate for the American people that when 
this legislation comes for consideration before the Senate, it 
will not include minimum standards for paid tax return 
preparers that would allow us to crack down on crooked, 
fraudulent, and incompetent preparers. Instead, it will be one 
more example of lawmakers in Congress willfully failing to 
protect vulnerable taxpayers.
    Right now there are no minimum national standards 
whatsoever for paid tax return preparers. There are nearly half 
a million registered preparers who don't claim to have 
professional credentials. And last year alone, these paid tax 
preparers submitted more than 75 million returns--well more 
than half of all returns filed with the IRS. Finance Democrats 
believe a system that has taxpayers handing over their Social 
Security and bank account numbers to people who meet no 
standards at all is ripe for fraud and abuse.
    Study after study has found high rates of errors in tax 
returns filed by paid preparers who were not required to meet 
minimum competency standards. By comparison, preparers in 
states like Oregon, Maryland, and New York with minimum 
standards have lower error rates than paid preparers 
nationally. Even unpaid volunteers required to meet minimum 
standards outperform paid tax preparers.
    We can all agree that Congress has a clear responsibility 
to protect honest taxpayers by pursuing legislative policies 
that improve the security of their tax information and simplify 
the filing and refund process. Delivering on that 
responsibility, Finance Democrats and Republicans came together 
last fall and agreed on a bipartisan bill, ``The Preventing 
Identity Theft and Tax Refund Fraud Act'', designed to curb 
identity theft and stop unscrupulous tax preparers--addressing 
two of the top scams on the annual IRS ``Dirty Dozen'' list. 
Since then, incidents of tax refund fraud have only grown in 
number and severity, hurting Americans across the country and 
costing taxpayers millions of dollars.
    An eastern Pennsylvania man who ran Dunmore Cash Checking, 
serving a largely Hispanic clientele, used 250 stolen 
identities to claim $1.6 million in tax refund checks according 
to the Associated Press. Indiana reported that 12% of tax 
refund dollars requested in 2014 were fraudulent according to 
the Indianapolis Star. The Maryland comptroller was recently 
forced to stop accepting returns from 65 questionable tax 
preparation firms at 68 locations in the state. And one 
California man who ran a string of tax preparation businesses 
ripped off taxpayers to the tune of $14 million before he was 
banned from the industry by a federal court.
    Just in the last couple of months, indictments have been 
handed down to accused fraudsters in New Mexico, Texas, 
Maryland, Rhode Island, New York, Alabama and elsewhere. And 
those indictments stem from crimes committed three, four and 
five years ago in some cases. That's often how long it takes to 
bring criminals to justice in this shadowy environment, and 
those are just some of the cases that have been uncovered. In 
our view, what should scare everybody most is that there's no 
good way of figuring out just how much money criminals are 
pocketing. There's no way to tell exactly how many Americans 
have been victimized, or to keep the bad actors out from the 
beginning.
    The bottom line is that Congress has left the door open to 
let fraudsters and organized criminals help themselves to 
taxpayer funds. Their victims are often some of the most 
vulnerable people in this country--working families who 
struggle to make ends meet and turn to paid tax preparers every 
spring. Meanwhile, tax lawyers and accountants who typically 
work with wealthier Americans and business owners go through 
years of schooling and rigorous certifications. They don't 
operate in the shadows the way criminal paid preparers do 
because there are strong rules that protect their clients. So 
when it comes to getting tax help, the well-off are kept safe 
while the less-fortunate are thrown to the wolves.
    Taxpayers who have been victimized--either by tax-based 
identity theft or a fraudulent tax preparer--are left reeling, 
spending on average four months and hundreds of dollars to deal 
with the aftermath of having their returns misappropriated. The 
victims of fraud and incompetence are not just Democrats, 
Republicans or Independents, and they are not exclusive to blue 
states or red states. This issue has nothing at all to do with 
politics. This has everything to do with the Americans we 
represent getting ripped off by criminals, and Congress sitting 
on its hands instead of doing something to stop it.
    Let's be clear, setting minimum standards for tax return 
preparers is not a wacky, new idea from the left side of the 
aisle. A small handful of states have rules in place, including 
states like Maryland, Oregon, and New York. Under Democratic 
and Republican leadership in the recent past, this committee 
supported legislation giving the green light for minimum 
standards. Unfortunately, for unrelated reasons, those efforts 
never got a bill to the President's desk.
    Today, we are filing two bills that we reported out of 
Committee. Part of the second bill writes into permanent law 
the Volunteer Income Tax Assistance program, or VITA, which 
helps some low-income Americans file their taxes. To protect 
these taxpayers near the bottom of the income scale, VITA does 
require testing and minimum standards for its volunteers. So in 
our view, there is a clear double standard at play. We can see 
no reason why minimum protective standards are good enough for 
a modest program like VITA, but they are not good enough for 
paid tax preparers used by millions nationwide.
    Finance Democrats offered an amendment that would end this 
double standard and allow for minimum standards to be set. Our 
amendment differed from previous proposals in two key ways. 
First, we went to great lengths to address all the concerns 
that members heard from outside groups, including those 
representing certified public accountants. After the work we 
put in to address those concerns, they fully supported our 
amendment. Second, some Republican Finance members had 
indicated they opposed setting minimum standards because IRS 
would oversee the process. So the amendment left the IRS out of 
the equation. The Treasury Department can handle setting the 
standards and making sure these standards are met once they are 
in place. And in fact, our amendment moves the office that 
handles these issues out of the IRS entirely.
    In this way, working collaboratively with stakeholders, 
Finance Democrats crafted a minimum standards amendment that 
enjoys broad support from trade groups and advocates alike. For 
example, major supporters of our amendment include the American 
Institute of Certified Public Accountants, the National 
Association of Enrolled Agents, the National Society of 
Accountants, the Leadership Conference on Civil and Human 
Rights, the Center on Budget and Policy Priorities, as well as 
a host of state and local consumer advocates and citizen action 
organizations.
    Unfortunately, our colleagues across the aisle decided to 
vote the amendment down rather than support it at our April 
20th mark-up. While we still voted for the Stolen Identity 
Refund Fraud Protection Act to pass out of Committee, we hope 
this issue can be reconsidered, either during the debate on 
these bills or at another early opportunity. Let's set aside 
our opinions of the IRS. Let's set aside politics. Congress has 
the ability to protect people from financial ruin. We therefore 
urge our colleagues to support requiring minimum standards for 
professional tax return preparation.

                                  [all]