[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 3432 Introduced in Senate (IS)]

112th CONGRESS
  2d Session
                                S. 3432

                To prevent identity theft and tax fraud.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 25, 2012

   Mr. Nelson of Florida (for himself and Mr. Coburn) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL


 
                To prevent identity theft and tax fraud.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Identity Theft and Tax Fraud 
Prevention Act''.

SEC. 2. CRIMINAL PENALTY FOR USING A FALSE IDENTITY IN CONNECTION WITH 
              TAX FRAUD.

    (a) In General.--Section 7206 of the Internal Revenue Code of 1986 
is amended--
            (1) by striking ``Any person'' and inserting the following:
    ``(a) In General.--Any person'', and
            (2) by adding at the end the following new subsection:
    ``(b) Use of False 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) Aggravated Identity Theft.--Section 1028A(c) of title 18, 
United States Code, is amended by striking ``or'' at the end of 
paragraph (10), by striking the period at the end of paragraph (11) and 
inserting ``; or'', and by adding at the end the following new 
paragraph:
            ``(12) section 7206(b) of the Internal Revenue Code of 1986 
        (relating to use of false identity in connection with tax 
        fraud).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to offenses committed after the date of the enactment of this 
Act.

SEC. 3. INCREASED PENALTY FOR IMPROPER DISCLOSURE OR USE OF INFORMATION 
              BY PREPARERS OF RETURNS.

    (a) In General.--Section 6713(a) of the Internal Revenue Code of 
1986 is amended--
            (1) by striking ``$250'' and inserting ``$1,000'', and
            (2) by striking ``$10,000'' and inserting ``$50,000''.
    (b) Criminal Penalty.--Section 7216(a) of the Internal Revenue Code 
of 1986 is amended by striking ``$1,000'' and inserting ``$100,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to disclosures or uses after the date of the enactment of this 
Act.

SEC. 4. PIN SYSTEM FOR PREVENTION OF IDENTITY THEFT TAX FRAUD.

    (a) In General.--Not later than 1 year after the date of the 
enactment of this Act, the Secretary of the Treasury (or the 
Secretary's delegate) shall implement an identity theft tax fraud 
prevention program under which--
            (1) a person who has filed an identity theft affidavit with 
        the Secretary may elect--
                    (A) to be provided with a unique personal 
                identification number to be included on any Federal tax 
                return filed by such person, or
                    (B) to prevent the processing of any Federal tax 
                return submitted in an electronic format by a person 
                purporting to be such person, and
            (2) the Secretary will provide additional identity 
        verification safeguards for the processing of any Federal tax 
        return filed by a person described in paragraph (1) in cases 
        where a unique personal identification number is not included 
        on the return.

SEC. 5. AUTHORITY TO TRANSFER INTERNAL REVENUE SERVICE APPROPRIATIONS 
              TO USE FOR TAX FRAUD ENFORCEMENT.

    For any fiscal year, the Commissioner of Internal Revenue may 
transfer not more than $10,000,000 to the ``Enforcement'' account of 
the Internal Revenue Service from amounts appropriated to other 
Internal Revenue Service accounts. Any amounts so transferred shall be 
used solely for the purposes of preventing and resolving potential 
cases of tax fraud.

SEC. 6. 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 may 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
            (4) any other duties as delegated by the Commissioner of 
        Internal Revenue.

SEC. 7. REPORT ON TAX FRAUD.

    Subsection (a) of section 7803 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new paragraph:
            ``(4) Annual report on tax fraud.--The Commissioner shall 
        submit to the Committee on Finance of the Senate and the 
        Committee on Ways and Means of the House of Representatives an 
        annual report detailing--
                    ``(A) the number of reports of tax fraud and 
                suspected tax fraud received from State and local law 
                enforcement agencies in the preceding year, and
                    ``(B) the actions taken in response to such 
                reports.''.

SEC. 8. STUDY ON THE USE OF PREPAID DEBIT CARDS AND COMMERCIAL TAX 
              PREPARATION SOFTWARE IN TAX FRAUD.

    (a) In General.--The Comptroller General of the United States shall 
conduct a study to examine the role of prepaid debit cards and 
commercial tax preparation software in facilitating fraudulent tax 
returns through identity theft.
    (b) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Comptroller General of the United States shall submit 
to the Committee on Finance of the Senate and the Committee on Ways and 
Means of the House of Representatives a report with the results of the 
study conducted under subsection (a), together with any 
recommendations.

SEC. 9. RESTRICTION ON ACCESS TO THE DEATH MASTER FILE.

    (a) In General.--The Secretary of Commerce shall not disclose 
information contained on the Death Master File to any person with 
respect to any individual who has died at any time during the calendar 
year in which the request for disclosure is made or the succeeding 2 
calendar years unless such person is certified under the program 
established under subsection (b).
    (b) Certification Program.--
            (1) In general.--The Secretary of Commerce shall establish 
        a program--
                    (A) to certify persons who are eligible to access 
                the information described in subsection (a) contained 
                on the Death Master File, and
                    (B) to perform periodic and unscheduled audits of 
                certified persons to determine the compliance by such 
                certified persons with the requirements of the program.
            (2) Certification.--A person shall not be certified nor 
        remain certified under the program established under paragraph 
        (1) unless--
                    (A) the Secretary of Commerce determines that 
                access to the information described in subsection (a) 
                is appropriate because such person has--
                            (i) a legitimate fraud prevention interest, 
                        or
                            (ii) a legitimate business purpose pursuant 
                        to a law, governmental rule, regulation, or 
                        fiduciary duty, and
                    (B) the Secretary of Commerce verifies that such 
                person has facilities and procedures in place to 
                safeguard such information, and experience in 
                maintaining the confidentiality, security, and 
                appropriate use of such information.
            (3) Fees.--The Secretary of Commerce shall establish under 
        section 9701 of title 31, United States Code, for the charge of 
        fees sufficient to cover all costs associated with evaluating 
        applications for certification and auditing, inspecting, and 
        monitoring certified persons under the program.
    (c) Imposition of Penalty.--Any person who is certified under the 
program established under subsection (b), who receives information 
described in subsection (a), and who during the period of time 
described in subsection (a)--
            (1) discloses such information to any other person, or
            (2) uses any such information for any purpose not listed 
        under subsection (b)(2)(A),
shall pay a penalty of $1,000 for each such disclosure or use, but the 
total amount imposed under this subsection on such a person for any 
calendar year shall not exceed $50,000.
    (d) Exemption From Freedom of Information Act Requirement With 
Respect to Certain Records of Deceased Individuals.--
            (1) In general.--The Social Security Administration shall 
        not be compelled to disclose to any person who is not certified 
        under the program established under subsection (b) the 
        information described in subsection (a).
            (2) Treatment of information.--For purposes of section 552 
        of title 5, United States Code, this section shall be 
        considered a statute described in subsection (b)(3)(B) of such 
        section 552.

SEC. 10. PROHIBITING THE DISPLAY OF SOCIAL SECURITY ACCOUNT NUMBERS ON 
              NEWLY ISSUED MEDICARE IDENTIFICATION CARDS AND 
              COMMUNICATIONS PROVIDED TO MEDICARE BENEFICIARIES.

    (a) In General.--Not later than 2 years after the date of enactment 
of this Act, the Secretary of Health and Human Services, in 
consultation with the Commissioner of Social Security, shall establish 
and begin to implement procedures to eliminate the unnecessary 
collection, use, and display of Social Security account numbers of 
Medicare beneficiaries.
    (b) Newly Issued Medicare Cards and Communications Provided to 
Beneficiaries.--
            (1) Newly issued cards.--
                    (A) In general.--Not later than 4 years after the 
                date of enactment of this Act, the Secretary of Health 
                and Human Services, in consultation with the 
                Commissioner of Social Security, shall ensure that each 
                newly issued Medicare identification card meets the 
                requirements described in subparagraph (B).
                    (B) Requirements.--
                            (i) In general.--Subject to clauses (ii) 
                        and (iii), the requirements described in this 
                        subparagraph are, with respect to a Medicare 
                        identification card, that the card does not 
                        display or electronically store (in an 
                        unencrypted format) a Medicare beneficiary's 
                        Social Security account number.
                            (ii) Exception.--The Secretary may waive 
                        the requirements under clause (i) in the case 
                        where the health insurance claim number of a 
                        beneficiary is the Social Security number of 
                        the beneficiary, the beneficiary's spouse, or 
                        another individual.
                            (iii) Use of partial account number.--The 
                        Secretary of Health and Human Services, in 
                        consultation with the Commissioner of Social 
                        Security, may provide for the use of a partial 
                        Social Security account number on a Medicare 
                        identification card if the Secretary determines 
                        that such use does not allow an unacceptable 
                        risk of fraudulent use.
            (2) Communications provided to beneficiaries.--Not later 
        than 4 years after the date of enactment of this Act, the 
        Secretary of Health and Human Services shall prohibit the 
        display of a Medicare beneficiary's Social Security account 
        number on written or electronic communication provided to the 
        beneficiary unless the Secretary, in consultation with the 
        Commissioner of Social Security, determines that inclusion of 
        Social Security account numbers on such communications is 
        essential for the operation of the Medicare program.
    (c) Medicare Beneficiary Defined.--In this section, the term 
``Medicare beneficiary'' means an individual who is entitled to, or 
enrolled for, benefits under part A of title XVIII of the Social 
Security Act or enrolled under part B of such title.
    (d) Conforming Amendments.--
            (1) Reference in the social security act.--Section 
        205(c)(2)(C) of the Social Security Act (42 U.S.C. 
        405(c)(2)(C)) is amended--
                    (A) by moving clause (x), as added by section 
                1414(a)(2) of the Patient Protection and Affordable 
                Care Act (Public Law 111-148), 6 ems to the left;
                    (B) by redesignating clause (x), as added by 
                section 2(a)(1) of the Social Security Number 
                Protection Act of 2010 (42 U.S.C. 1305 note), as clause 
                (xii); and
                    (C) by adding after clause (xii), as redesignated 
                by subparagraph (B), the following new clause:
    ``(xiii) Subject to section 203 of the Medicare and Medicaid 
Fighting Fraud and Abuse to Save Taxpayers' Dollars Act, social 
security account numbers shall not be displayed on Medicare 
identification cards or on communications provided to Medicare 
beneficiaries.''.
            (2) Access to information.--Section 205(r) of the Social 
        Security Act (42 U.S.C. 405(r)) is amended by adding at the end 
        the following new paragraph:
    ``(10) To prevent and identify fraudulent activity, the 
Commissioner shall upon the request of the Attorney General or upon the 
request of the Secretary of Health and Human Services enter into a 
reimbursable agreement with the Attorney General or the Secretary to 
provide information collected under paragraph (1) if--
            ``(A) the requirements of subparagraphs (A) and (B) of 
        paragraph (3) are met; and
            ``(B) such agreement includes appropriate provisions to 
        protect the confidentiality of information provided by the 
        Commissioner under such agreement.''.
    (e) Pilot Program.--
            (1) Establishment.--The Secretary shall establish a pilot 
        program utilizing smart card technology to evaluate--
                    (A) the applicability of smart card technology to 
                the Medicare program under title XVIII of the Social 
                Security Act (42 U.S.C. 1395 et seq.), including the 
                applicability of such technology to Medicare 
                beneficiaries or Medicare providers; and
                    (B) whether such cards would be effective in 
                preventing fraud under the Medicare program.
            (2) Implementation.--
                    (A) Initial implementation.--The Secretary shall 
                implement the pilot program under this subsection not 
                later than 1 year after the date of enactment of this 
                Act.
                    (B) Scope and duration.--The Secretary shall 
                conduct the pilot program--
                            (i) in not less than 2 States; and
                            (ii) for a period of not less than 180 days 
                        or more than 2 years.
            (3) Report.--Not later than 12 months after the completion 
        of the pilot program under this subsection, the Secretary shall 
        submit to the appropriate committees of Congress and make 
        available to the public a report that includes the following:
                    (A) A summary of the pilot program and findings, 
                including--
                            (i) the costs or savings to the Medicare 
                        program as a result of the implementation of 
                        the pilot program;
                            (ii) whether the use of smart card 
                        technology resulted in improvements in the 
                        quality of care provided to Medicare 
                        beneficiaries under the pilot program; and
                            (iii) whether such technology was useful in 
                        preventing or detecting fraud, waste, and abuse 
                        in the Medicare program.
                    (B) Recommendations regarding whether the use of 
                smart card technology should be expanded under the 
                Medicare program.
            (4) Definitions.--In this subsection:
                    (A) Medicare beneficiary.--The term ``Medicare 
                beneficiary'' means an individual entitled to, or 
                enrolled for, benefits under part A of title XVIII of 
                the Social Security Act (42 U.S.C. 1395c et seq.) or 
                enrolled for benefits under part B of such title (42 
                U.S.C. 1395j et seq.).
                    (B) Medicare provider.--The term ``Medicare 
                provider'' includes a provider of services (as defined 
                in section 1861(u) of the Social Security Act (42 
                U.S.C. 1395x(u))) and a supplier (as defined in section 
                1861(d) of such Act (42 U.S.C. 1395x(d))).
                    (C) Secretary.--The term ``Secretary'' means the 
                Secretary of Health and Human Services.
                    (D) Smart card.--The term ``smart card'' means 
                identification used by a Medicare beneficiary or a 
                Medicare provider that includes anti-fraud attributes. 
                Such a card--
                            (i) may rely on existing commercial data 
                        transfer networks or on a network of 
                        proprietary card readers or databases; and
                            (ii) may include--
                                    (I) cards using technology adapted 
                                from the financial services industry;
                                    (II) cards containing individual 
                                biometric identification, provided that 
                                such identification is encrypted and 
                                not contained in any central database;
                                    (III) cards adapting technology and 
                                processes utilized in the TRICARE 
                                program under chapter 55 of title 10, 
                                United States Code, or by the Veterans' 
                                Administration; or
                                    (IV) such other technology as the 
                                Secretary determines appropriate.

SEC. 11. IMPROVE AND MAKE PERMANENT THE PROVISION AUTHORIZING THE 
              INTERNAL REVENUE SERVICE TO DISCLOSE CERTAIN RETURNS AND 
              RETURN INFORMATION TO CERTAIN PRISON OFFICIALS.

    (a) In General.--Paragraph (10) of section 6103(k) of the Internal 
Revenue Code of 1986 is amended to read as follows:
            ``(10) Disclosure of certain returns and return information 
        to certain prison officials.--
                    ``(A) In general.--Under such procedures as the 
                Secretary may prescribe, the Secretary may disclose to 
                officers and employees of the Federal Bureau of Prisons 
                and of any State agency charged with the responsibility 
                for administration of prisons any returns or return 
                information with respect to individuals incarcerated in 
                Federal or State prison systems whom the Secretary has 
                determined may have filed or facilitated the filing of 
                a false or fraudulent return to the extent that the 
                Secretary determines that such disclosure is necessary 
                to permit effective Federal tax administration.
                    ``(B) Disclosure to contractor-run prisons.--Under 
                such procedures as the Secretary may prescribe, the 
                disclosures authorized by subparagraph (A) may be made 
                to contractors responsible for the operation of a 
                Federal or State prison on behalf of such Bureau or 
                agency.
                    ``(C) Restrictions on use of disclosed 
                information.--Any return or return information received 
                under this paragraph shall be used only for the 
                purposes of and to the extent necessary in taking 
                administrative action to prevent the filing of false 
                and fraudulent returns, including administrative 
                actions to address possible violations of 
                administrative rules and regulations of the prison 
                facility and in administrative and judicial proceedings 
                arising from such administrative actions.
                    ``(D) Restrictions on redisclosure and disclosure 
                to legal representatives.--Notwithstanding subsection 
                (h)--
                            ``(i) Restrictions on redisclosure.--Except 
                        as provided in clause (ii), any officer, 
                        employee, or contractor of the Federal Bureau 
                        of Prisons or of any State agency charged with 
                        the responsibility for administration of 
                        prisons shall not disclose any information 
                        obtained under this paragraph to any person 
                        other than an officer or employee or contractor 
                        of such Bureau or agency personally and 
                        directly engaged in the administration of 
                        prison facilities on behalf of such Bureau or 
                        agency.
                            ``(ii) Disclosure to legal 
                        representatives.--The returns and return 
                        information disclosed under this paragraph may 
                        be disclosed to the duly authorized legal 
                        representative of the Federal Bureau of 
                        Prisons, State agency, or contractor charged 
                        with the responsibility for administration of 
                        prisons, or of the incarcerated individual 
                        accused of filing the false or fraudulent 
                        return who is a party to an action or 
                        proceeding described in subparagraph (C), 
                        solely in preparation for, or for use in, such 
                        action or proceeding.''.
    (b) Conforming Amendments.--
            (1) Paragraph (3) of section 6103(a) of the Internal 
        Revenue Code of 1986 is amended by inserting ``subsection 
        (k)(10),'' after ``subsection (e)(1)(D)(iii),''.
            (2) Paragraph (4) of section 6103(p) of such Code is 
        amended--
                    (A) by inserting ``subsection (k)(10),'' before 
                ``subsection (l)(10),'' in the matter preceding 
                subparagraph (A),
                    (B) by inserting ``subsection (k)(10) or'' before 
                ``subsection (l)(10),'' in subparagraph (F)(i), and
                    (C) by inserting ``subsection (k)(10) or'' before 
                ``subsection (l)(10),'' both places it appears in the 
                matter following subparagraph (F)(iii).
            (3) Paragraph (2) of section 7213(a) of such Code is 
        amended by inserting ``(k)(10),'' before ``(l)(6),''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 12. TREASURY REPORT ON INFORMATION SHARING BARRIERS WITH RESPECT 
              TO IDENTITY THEFT.

    (a) Review.--
            (1) In general.--The Secretary of the Treasury (or the 
        Secretary's delegate) shall review whether current Federal tax 
        laws and regulations related to the confidentiality and 
        disclosure of return information prevent the effective 
        enforcement of local, State, and Federal identity theft 
        statutes. The review shall consider whether greater information 
        sharing between the Internal Revenue Service and State and 
        local law enforcement authorities would improve the enforcement 
        of criminal laws at all levels of government.
            (2) Consultation.--In conducting the review under paragraph 
        (1), the Secretary of the Treasury (or the Secretary's 
        delegate) shall solicit the views of, and consult with, State 
        and local law enforcement officials.
    (b) Report.--Not later than 180 days after the date of enactment of 
this Act, the Secretary of the Treasury (or the Secretary's delegate) 
shall submit a report with the results of the review conducted under 
subsection (a), along with any legislative recommendations, to the 
Committee on Finance of the Senate and the Committee on Ways and Means 
of the House of Representatives.
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