Identity Theft and Tax Fraud Prevention Act of 2017

To amend the Internal Revenue Code of 1986 to prevent taxpayer identity theft and tax refund fraud, and for other purposes. 1. Short title; etc (a) Short title This Act may be cited as the Identity Theft and Tax Fraud Prevention Act of 2017 (b) Amendment of 1986 Code Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. (c) Secretary In this Act, the term Secretary (d) Table of contents The table of contents of this Act is as follows: Sec. 1. Short title; etc. TITLE I—Identity Theft and Tax Refund Fraud Prevention Subtitle A—General Provisions Sec. 101. Guidelines for stolen identity refund fraud cases. Sec. 102. Criminal penalty for misappropriating taxpayer identity in connection with tax fraud. Sec. 103. Increased penalty for improper disclosure or use of information by preparers of returns. Sec. 104. Notification of suspected identity theft. Sec. 105. Local law enforcement liaison. Subtitle B—Administrative Authority To Prevent Identity Theft and Tax Refund Fraud Sec. 111. Authority to transfer Internal Revenue Service appropriations to combat tax fraud. Sec. 112. Streamlined critical pay authority for information technology positions. Sec. 113. Access to the National Directory of New Hires for tax administration purposes. Sec. 114. Use of information in Do Not Pay Initiative in prevention of identity theft refund fraud. Sec. 115. Minimum standards for professional tax preparers. Sec. 116. Sense of the Senate on strengthened penalties and enforcement for impersonating an IRS official or agent. Subtitle C—Reports Sec. 121. IRS Report on stolen identity refund fraud. Sec. 122. Report on status of the Identity Theft Tax Refund Fraud Information Sharing and Analysis Center. Sec. 123. Report on IRS imposter phone scam. TITLE II—Improvements to Electronic Filing of Tax Returns Sec. 201. Study on feasibility of blocking electronically filed tax returns. Sec. 202. Enhancements to IRS PIN Program. Sec. 203. Increasing electronic filing of returns. Sec. 204. Internet platform for Form 1099 filings. Sec. 205. Requirement that electronically prepared paper returns include scannable code. Sec. 206. Authentication of users of electronic services accounts. I Identity Theft and Tax Refund Fraud Prevention A General Provisions 101. Guidelines for stolen identity refund fraud cases (a) In general Not later than 6 months after the date of the enactment of this Act, the Secretary, in consultation with the National Taxpayer Advocate, shall develop and implement publicly available guidelines for management of cases involving stolen identity refund fraud in a manner that reduces the administrative burden on taxpayers who are victims of such fraud. (b) Standards and procedures To be considered The guidelines described in subsection (a) may include— (1) standards for— (A) the average length of time in which a case involving stolen identity refund fraud should be resolved, (B) the maximum length of time, on average, a taxpayer who is a victim of stolen identity refund fraud and is entitled to a tax refund which has been stolen should have to wait to receive such refund, and (C) the maximum number of offices and employees within the Internal Revenue Service with whom a taxpayer who is a victim of stolen identity refund fraud should be required to interact in order to resolve a case, (2) standards for opening, assigning, reassigning, or closing a case involving stolen identity refund fraud, and (3) procedures for implementing and accomplishing the standards described in paragraphs (1) and (2), and measures for evaluating such procedures and determining whether such standards have been successfully implemented. 102. Criminal penalty for misappropriating taxpayer identity in connection with tax fraud (a) In general Section 7206 (1) by striking Any person (a) In general Any person , and (2) by adding at the end the following new subsection: (b) Misappropriation of identity Any person who willfully misappropriates another person's taxpayer identity (as defined in section 6103(b)(6)) for the purpose of making any list, return, account, statement, or other document submitted to the Secretary under the provisions of this title shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $250,000 ($500,000 in the case of a corporation) or imprisoned not more than 5 years, or both, together with the costs of prosecution. . (b) Identity protection personal identification number Section 6109 (e) Identity protection personal identification number (1) In general For purposes of this section, the term identifying number (2) Definition The term identity protection personal identification number . (c) Effective date The amendments made by subsection (a) shall apply to offenses committed on or after the date of the enactment of this Act. 103. Increased penalty for improper disclosure or use of information by preparers of returns (a) In general Section 6713 (1) by redesignating subsections (b) and (c) as subsections (c) and (d), respectively, and (2) by inserting after subsection (a) the following new subsection: (b) Enhanced penalty for improper use or disclosure relating to identity theft (1) In general In the case of a disclosure or use described in subsection (a) that is made in connection with a crime relating to the misappropriation of another person's taxpayer identity (as defined in section 6103(b)(6)), whether or not such crime involves any tax filing, subsection (a) shall be applied— (A) by substituting $1,000 $250 (B) by substituting $50,000 $10,000 (2) Separate application of total penalty limitation The limitation on the total amount of the penalty under subsection (a) shall be applied separately with respect to disclosures or uses to which this subsection applies and to which it does not apply. . (b) Criminal penalty Section 7216(a) $1,000 $1,000 ($100,000 in the case of a disclosure or use to which section 6713(b) applies) (c) Effective date The amendments made by this section shall apply to disclosures or uses on or after the date of the enactment of this Act. 104. Notification of suspected identity theft (a) In general Chapter 77 7529. Notification of suspected identity theft If the Secretary determines that there has been or may have been an unauthorized use of the identity of any individual, the Secretary shall, without jeopardizing an investigation relating to tax administration— (1) as soon as practicable, notify the individual of such determination and provide— (A) instructions on how to file a report with law enforcement regarding the unauthorized use of the identity of the individual, (B) the identification of any forms necessary for the individual to complete and submit to law enforcement to permit access to personal information of the individual during the investigation, (C) information regarding actions the individual may take in order to protect the individual from harm relating to such unauthorized use, and (D) an offer of identity protection measures to be provided to the individual by the Internal Revenue Service, such as the use of an identity protection personal identification number (as defined in section 6109(e)), and (2) at the time the information described in paragraph (1) is provided (or, if not available at such time, as soon as practicable thereafter), issue additional notifications to such individual (or such individual's designee) regarding— (A) whether an investigation has been initiated in regards to such unauthorized use, (B) whether the investigation substantiated an unauthorized use of the identity of the individual, and (C) whether— (i) any action has been taken against a person relating to such unauthorized use, or (ii) any referral has been made for criminal prosecution of such person and, to the extent such information is available, whether such person has been criminally charged by indictment or information. . (b) Clerical amendment The table of sections for chapter 77 Sec. 7529. Notification of suspected identity theft. . (c) Effective date The amendments made by this section shall apply to determinations made after the date of the enactment of this Act. 105. Local law enforcement liaison (a) Establishment The Commissioner of Internal Revenue shall establish within the Criminal Investigation Division of the Internal Revenue Service the position of Local Law Enforcement Liaison. (b) Duties The Local Law Enforcement Liaison shall serve as the primary source of contact for State and local law enforcement authorities with respect to tax-related identity theft and other tax fraud matters, having duties that shall include— (1) receiving information from State and local law enforcement authorities, (2) responding to inquiries from State and local law enforcement authorities, (3) administering authorized information-sharing initiatives with State or local law enforcement authorities and reviewing the performance of such initiatives, (4) ensuring any information provided through authorized information-sharing initiatives with State or local law enforcement authorities is used only for the prosecution of identity theft-related crimes and not re-disclosed to third parties, and (5) any other duties as delegated by the Commissioner of Internal Revenue. B Administrative Authority To Prevent Identity Theft and Tax Refund Fraud 111. Authority to transfer Internal Revenue Service appropriations to combat tax fraud (a) In general For any fiscal year, in addition to any other authority to transfer amounts appropriated to an Internal Revenue Service account, the Commissioner of Internal Revenue (referred to in this section as the Commissioner (b) Limitation The Commissioner shall not transfer any amounts described in subsection (a) unless the Commissioner has determined that taxpayer services provided by the Internal Revenue Service to the public (including telephone operations, forms and publications, and similar types of taxpayer assistance) will not be impaired by such transfer. 112. Streamlined critical pay authority for information technology positions (a) Authority Section 9503(a) of title 5, United States Code, is amended— (1) in the matter preceding paragraph (1), by striking the Secretary of the Treasury establish the Secretary of the Treasury may, during the period beginning on the date of the enactment of the Identity Theft and Tax Fraud Prevention Act of 2017 (2) in paragraph (1)(B), by striking the Internal Revenue Service's successful accomplishment of an important mission the functionality of the information technology operations of the Internal Revenue Service (b) Recruitment, retention, relocation incentives, and relocation expenses Section 9504 of title 5, United States Code, is amended— (1) in subsection (a)— (A) by striking Before September 30, 2013 During the period beginning on the date of the enactment of the Identity Theft and Tax Fraud Prevention Act of 2017 (B) by inserting for employees holding positions described in section 9503(a)(1) incentives (2) in subsection (b)— (A) by striking Before September 30, 2013 During the period beginning on the date of the enactment of the Identity Theft and Tax Fraud Prevention Act of 2017 (B) by striking employees transferred or reemployed employees holding positions described in section 9503(a)(1) who are transferred or reemployed during such period (C) by striking section 9502 or 9503 after June 1, 1998 section 9503 during such period (c) Performance awards for senior executives Section 9505(a) of title 5, United States Code, is amended— (1) by striking Before September 30, 2013 During the period beginning on the date of the enactment of the Identity Theft and Tax Fraud Prevention Act of 2017 (2) by striking significant functions the information technology operations (d) Effective date The amendments made by this section shall apply to payments made on or after the date of the enactment of this Act. 113. Access to the National Directory of New Hires for tax administration purposes (a) In general Paragraph (3) of section 453(i) of the Social Security Act 42 U.S.C. 653(i) (3) Administration of Federal tax laws The Secretary of the Treasury shall have access to the information in the National Directory of New Hires solely for purposes of administering the Internal Revenue Code of 1986. . (b) Effective date The amendment made by this section shall take effect on the date of the enactment of this Act. 114. Use of information in Do Not Pay Initiative in prevention of identity theft refund fraud The Secretary shall use the information available under the Do Not Pay Initiative established under section 5 of the Improper Payments Elimination and Recovery Improvement Act of 2012 ( 31 U.S.C. 3321 115. Minimum standards for professional tax preparers (a) In general Subsection (a) of section 330 of title 31, United States Code, is amended— (1) by striking paragraph (1) and inserting the following: (1) establish minimum standards regulating— (A) the practice of representatives of persons before the Department of the Treasury; and (B) the practice of tax return preparers; and , and (2) in paragraph (2)— (A) by inserting or tax return preparer representative (B) by inserting or in preparing their tax returns, claims for refund, or documents in connection with tax returns or claims for refund cases (b) Authority To sanction regulated tax return preparers Subsection (b) of section 330 of title 31, United States Code, is amended— (1) by striking before the Department (2) by inserting or tax return preparer representative (3) in paragraph (4), by striking misleads or threatens misleads or threatens— (A) any person being represented or any prospective person being represented; or (B) any person or prospective person whose tax return, claim for refund, or document in connection with a tax return or claim for refund, is being or may be prepared. . (c) Tax return preparer defined Section 330 of title 31, United States Code, is amended by adding at the end the following new subsection: (e) Tax return preparer For purposes of this section— (1) In general The term tax return preparer section 7701(a)(36) (2) Tax return The term tax return return section 6696(e)(1) (3) Claim for refund The term claim for refund . 116. Sense of the Senate on strengthened penalties and enforcement for impersonating an IRS official or agent It is the sense of the Senate that the penalties under section 912 of title 18, United States Code, for impersonating an officer or employee acting under the authority of the United States should be amended to increase the penalties for impersonating an official or agent of the Internal Revenue Service and enforced to the fullest extent of the law. C Reports 121. IRS Report on stolen identity refund fraud (a) In general Not later than September 30, 2018, and every even-numbered calendar year thereafter through September 30, 2026, the Secretary shall report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate on the extent and nature of stolen identity refund fraud under the Internal Revenue Code of 1986, as based on the most recent data that is available. (b) Contents The report described in subsection (a) shall include— (1) a discussion of the detection, prevention, and enforcement activities undertaken by the Internal Revenue Service with respect to such fraud, including— (A) efforts to combat stolen identity refund fraud, including an update on the victims’ assistance unit (or any equivalent unit), (B) an update on Internal Revenue Service efforts and results associated with limiting multiple refunds to the same financial account and physical address, with appropriate exceptions, and (C) Internal Revenue Service efforts associated with other avenues for addressing stolen identity refund fraud, (2) information regarding the average and maximum amounts of time that elapsed before resolution of a victim's case, (3) an analysis of ways to accelerate information matching in order to prevent stolen identity refund fraud, (4) an update on the implementation of the relevant provisions of this Act and the amendments made by this Act, and (5) identification of any further legislation to protect taxpayer resources and information, including preventing tax refund fraud related to the Internal Revenue Service’s e-Services tools and electronic filing identification numbers. (c) Additional information for the first report The first report required under this section shall include— (1) an assessment of the progress made by the Internal Revenue Service on identity theft outreach and education to individuals, businesses, State agencies, and other external organizations, and (2) the results of a study on the costs and benefits relating to enhancement of the taxpayer authentication approach employed by the Internal Revenue Service in the electronic tax return filing process. 122. Report on status of the Identity Theft Tax Refund Fraud Information Sharing and Analysis Center Not later than 90 days after the date of the enactment of this Act, the Secretary shall report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate on— (1) whether the Identity Theft Tax Refund Fraud Information Sharing and Analysis Center (referred to in this section as the Center (2) if the Center is not fully operational, what steps are necessary for the Center to be fully operational and an estimate of when the Center will be fully operational, and (3) any challenges that remain for effective sharing of information between the public and private sectors and efforts that are being undertaken to address such challenges. 123. Report on IRS imposter phone scam (a) In general Not later than 1 year after the date of the enactment of this Act, the Inspector General for Tax Administration, in consultation with the Federal Communications Commission and the Federal Trade Commission, shall submit a report to Congress regarding identity theft phone scams under which individuals attempt to obtain personal information over the phone from taxpayers by falsely claiming to be calling from or on behalf the Internal Revenue Service. (b) Contents of report Such report shall include— (1) a description of the nature and form of such scams, (2) an estimate of the number of taxpayers contacted pursuant to, and the number of taxpayers who have been victims of, such scams, (3) an estimate of the amount of wrongful payments obtained from such scams, and (4) details of potential solutions to combat and prevent such scams, including best practices from the private sector and technological solutions. II Improvements to Electronic Filing of Tax Returns 201. Study on feasibility of blocking electronically filed tax returns Not later than 180 days after the date of the enactment of this Act, the Secretary shall report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate on the feasibility of implementing 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 such person, including a recommendation on whether to implement such a program. 202. Enhancements to IRS PIN Program Not later than July 1, 2019, the Secretary shall establish a program to issue, upon request, an identity protection personal identification number (as described in section 6109(e)(2) 203. Increasing electronic filing of returns (a) In general Subparagraph (A) of section 6011(e)(2) 250 the applicable number of (b) Applicable number Subsection (e) of section 6011 (5) Applicable number For purposes of paragraph (2)(A), the applicable number is— (A) in the case of returns and statements relating to calendar years before 2020, 250, (B) in the case of returns and statements relating to calendar year 2020, 200, (C) in the case of returns and statements relating to calendar year 2021, 150, (D) in the case of returns and statements relating to calendar year 2022, 100, (E) in the case of returns and statements relating to calendar year 2023, 50, and (F) in the case of returns and statements relating to calendar years after 2023, 20. . (c) Returns filed by a tax return preparer (1) In general Subparagraph (A) of section 6011(e)(3) (A) In general The Secretary shall require that any individual income tax return which is prepared and filed by a tax return preparer be filed on magnetic media. The Secretary may waive the requirement of the preceding sentence if the Secretary determines, on the basis of an application by the tax return preparer, that the preparer cannot meet such requirement based on technological constraints (including lack of access to the Internet). . (2) Conforming amendment Paragraph (3) of section 6011(e) (d) Effective date The amendments made by this section shall apply to returns the due date for which (determined without regard to extensions) is after December 31, 2018. 204. Internet platform for Form 1099 filings (a) In general Not later than January 1, 2022, the Secretary shall make available an Internet website or other electronic media, similar to the Business Services Online Suite of Services provided by the Social Security Administration, that will provide taxpayers access to resources and guidance provided by the Internal Revenue Service and will allow taxpayers to— (1) prepare and file Forms 1099, (2) prepare Forms 1099 for distribution to recipients other than the Internal Revenue Service, and (3) create and maintain necessary taxpayer records. (b) Early implementation for Forms 1099–MISC Not later than January 1, 2020, the Internet website under subsection (a) shall be available in a partial form that will allow taxpayers to take the actions described in such subsection with respect to Forms 1099–MISC required to be filed or distributed by such taxpayers. 205. Requirement that electronically prepared paper returns include scannable code (a) In general Subsection (e) of section 6011 (6) Special rule for returns prepared electronically and submitted on paper The Secretary shall require that any return of tax which is prepared electronically, but is printed and filed on paper, bear a code which can, when scanned, convert such return to electronic format. . (b) Conforming amendment Paragraph (1) of section 6011(e) paragraph (3) paragraphs (3) and (6) (c) Effective date The amendments made by this section shall apply to returns of tax the due date for which (determined without regard to extensions) is after December 31, 2018. 206. Authentication of users of electronic services accounts Beginning 180 days after the date of the enactment of this Act, the Secretary shall verify the identity of any individual opening an e-Services account with the Internal Revenue Service before such individual is able to use the e-Services tools.

Summary: Identity Theft and Tax Fraud Prevention Act of 2017 This bill amends the Internal Revenue Code to establish requirements and authorities for the Internal Revenue Service (IRS) related to: (1) preventing identify theft and tax refund fraud, and (2) the electronic filing of tax returns. The IRS must: develop and implement guidelines for stolen identity refund fraud cases, provide specified notifications to suspected victims of identity theft, establish a local law enforcement liaison for tax-related identity theft and other tax fraud matters, use information from the Do Not Pay Initiative to help prevent identity theft refund fraud, establish a program to issue identity protection personal identification numbers to any individual after the individual's identity has been verified, establish an Internet platform for Form 1099 filings, require electronically prepared paper returns to include a scannable code to convert the form to an electronic format, and verify the identity of individuals opening e-Services accounts. The bill also: increases penalties associated with identify theft, permits the IRS to transfer appropriations between accounts to combat tax fraud, reinstates streamlined critical pay authority for certain IRS information technology positions, amends the Social Security Act to permit the IRS to access the National Directory of New Hires for tax administration purposes, permits the IRS to establish minimum standards for professional tax preparers, and expands the authority of the IRS to require certain taxpayers to file electronic returns. The IRS and the Department of the Treasury must submit to Congress specified reports regarding identify theft and tax refund fraud.