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Bill to Prevent Tax Refund Theft

(posted: August 4th, 2014)

The Senate Finance Committee has proposed a set of changes to help fix the problem of tax refund identity theft.

This bill would make tax refund theft a felony, adds assistance for taxpayers who have been victims of identity theft, and requires the Internal Revenue Service to establish a new security feature that individuals can use to protect their tax return filings.

The problem of refund-related identity theft has grown dramatically in the last several years, forcing the Internal Revenue Service to deal with millions of phony returns each year claiming oversized refunds. These returns generally use a stolen Social Security number, and made-up income and deductions. The IRS has trouble blocking them all, because it usually doesn't get compensation data from third parties - such as employers - until later in the year.

If the bill passes, businesses would be required to report both employee compensation and certain non-employee compensation to the government earlier in tax season.

In addition, paid preparers would be required to file individual income tax returns and most information returns electronically, enhancing the IRS's ability to detect fraudulent claims; victims of tax refund theft would be assigned a single contact person within the IRS for help with correcting their tax records and receiving their tax refunds, and individuals' ability to use passwords would be expanded.

Congressional action on the bill is likely a ways off, but it is good to see the problem being addressed.

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