[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[S. 2736 Introduced in Senate (IS)]

113th CONGRESS
  2d Session
                                S. 2736

 To amend the Internal Revenue Code of 1986 to prevent identity theft 
           related tax refund fraud, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 31, 2014

 Mr. Hatch (for himself and Mr. Wyden) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to prevent identity theft 
           related tax refund fraud, and for other purposes.

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

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Tax Refund Theft 
Prevention Act of 2014''.
    (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) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; etc.
Sec. 2. Safe harbor for de minimis errors on information returns and 
                            payee statements.
Sec. 3. Internet platform for Form 1099 filings.
Sec. 4. Requirement that electronically prepared paper returns include 
                            scannable code.
Sec. 5. Single point of contact for identity theft victims.
Sec. 6. Criminal penalty for misappropriating taxpayer identity in 
                            connection with tax fraud.
Sec. 7. Extend Internal Revenue Service authority to require truncated 
                            social security numbers on Form W-2.
Sec. 8. Improvement in access to information in the National Directory 
                            of New Hires for tax administration 
                            purposes.
Sec. 9. Password system for prevention of identity theft tax fraud.
Sec. 10. Increased penalty for improper disclosure or use of 
                            information by preparers of returns.
Sec. 11. Increase electronic filing of returns.
Sec. 12. Increased real-time filing.
Sec. 13. Limitation on multiple individual income tax refunds to the 
                            same account.
Sec. 14. Identity verification required under due diligence rules.
Sec. 15. Report on refund fraud.

SEC. 2. SAFE HARBOR FOR DE MINIMIS ERRORS ON INFORMATION RETURNS AND 
              PAYEE STATEMENTS.

    (a) In General.--Subsection (c) of section 6721 is amended--
            (1) by striking ``Exception for De Minimis Failure to 
        Include All Required Information'' in the heading and inserting 
        ``Exceptions for Certain De Minimis Failures'',
            (2) by striking ``In general'' in the heading of paragraph 
        (1) and inserting ``Exception for de minimis failure to include 
        all required information'', and
            (3) by adding at the end the following new paragraph:
            ``(3) Safe harbor for certain de minimis errors.--
                    ``(A) In general.--If, with respect to an 
                information return filed with the Secretary--
                            ``(i) there are 1 or more failures 
                        described in subsection (a)(2)(B) relating to 
                        an incorrect dollar amount, and
                            ``(ii) no single amount in error differs 
                        from the correct amount by more than $25,
                then no correction shall be required and, for purposes 
                of this section, such return shall be treated as having 
                been filed with all of the correct required 
                information.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to returns required under section 6049.
                    ``(C) Regulatory authority.--The Secretary may 
                issue regulations to prevent the abuse of the safe 
                harbor under this paragraph, including regulations 
                providing that this subparagraph shall not apply to the 
                extent necessary to prevent any such abuse.''.
    (b) Failure To Furnish Correct Payee Statements.--Subsection (c) of 
section 6722 is amended by adding at the end the following new 
paragraph:
            ``(3) Safe harbor for certain de minimis errors.--
                    ``(A) In general.--If, with respect to any payee 
                statement--
                            ``(i) there are 1 or more failures 
                        described in subsection (a)(2)(B) relating to 
                        an incorrect dollar amount, and
                            ``(ii) no single amount in error differs 
                        from the correct amount by more than $25,
                then no correction shall be required and, for purposes 
                of this section, such statement shall be treated as 
                having been filed with all of the correct required 
                information.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to payee statements required under section 6049.
                    ``(C) Regulatory authority.--The Secretary may 
                issue regulations to prevent the abuse of the safe 
                harbor under this paragraph, including regulations 
                providing that this subparagraph shall not apply to the 
                extent necessary to prevent any such abuse.''.
    (c) Conforming Amendments.--
            (1) Subsection (i) of section 408 is amended by striking 
        ``$10'' and inserting ``$25''.
            (2) Paragraph (5) of section 3406(b) is amended--
                    (A) by striking ``$10'' both places it appears and 
                inserting ``$25'', and
                    (B) by adding at the end the following flush text:
        ``The preceding sentence shall not apply to payments of 
        interest to which section 6049 applies.''.
            (3) Subparagraphs (A) and (B) of section 6042(a)(1) are 
        each amended by striking ``$10'' and inserting ``$25''.
            (4) Paragraph (2) of section 6042(a) is amended by striking 
        ``$10'' and inserting ``$25''.
            (5) Paragraphs (1) and (2) of section 6044(a) are each 
        amended by striking ``$10'' and inserting ``$25''.
            (6) Paragraph (1) of section 6047(d) is amended by striking 
        ``$10'' and inserting ``$25''.
            (7) Subsection (a) of section 6050B is amended by striking 
        ``$10'' and inserting ``$25''.
            (8) Subsection (a) of section 6050E is amended by striking 
        ``$10'' and inserting ``$25''.
            (9) Paragraphs (1) and (2) of section 6050N(a) are each 
        amended by striking ``$10'' and inserting ``$25''.
            (10) Paragraphs (1) and (2) of section 6652(a) are each 
        amended by striking ``$10'' and inserting ``$25''.
            (11) The heading of subsection (a) of section 6652 is 
        amended by striking ``$10'' and inserting ``$25''.
    (d) Effective Date.--The amendments made by this section shall 
apply to information returns required to be filed, and payee statements 
required to be provided, on or after the date of the enactment of this 
Act.

SEC. 3. INTERNET PLATFORM FOR FORM 1099 FILINGS.

    (a) In General.--Not later than 3 years after the date of the 
enactment of this Act, the Secretary of the Treasury (or such 
Secretary's delegate) 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 (in batches of not more than 50) 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 1 
year after the date of the enactment of this Act, 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.

SEC. 4. REQUIREMENT THAT ELECTRONICALLY PREPARED PAPER RETURNS INCLUDE 
              SCANNABLE CODE.

    (a) In General.--Subsection (e) of section 6011 is amended by 
adding at the end the following new paragraph:
            ``(5) 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) is 
amended by striking ``paragraph (3)'' and inserting ``paragraphs (3) 
and (5)''.
    (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, 2014.

SEC. 5. SINGLE POINT OF CONTACT FOR IDENTITY THEFT VICTIMS.

    (a) In General.--Not later than 180 days after the date of the 
enactment of this Act, the Secretary of the Treasury (or such 
Secretary's delegate) shall establish new procedures to ensure that any 
taxpayer whose return has been delayed or otherwise adversely affected 
due to misappropriation of the taxpayer's taxpayer identity (as defined 
in section 6103(b)(6) of the Internal Revenue Code of 1986) has a 
single point of contact who--
            (1) is an individual employee of the Internal Revenue 
        Service, and
            (2) tracks the case of the taxpayer from start to finish 
        and coordinates with other specialized units to resolve case 
        issues as quickly as possible.
    (b) Change of Contact.--The procedures under subsection (a) shall 
provide that the single point of contact may be changed--
            (1) upon request of the taxpayer, or
            (2) in any case where the individual employee ceases 
        employment or is otherwise unavailable for any period, or a 
        change is required to meet agency staffing needs, but only if 
        the taxpayer is notified of any such change within 5 business 
        days.

SEC. 6. CRIMINAL PENALTY FOR MISAPPROPRIATING TAXPAYER IDENTITY IN 
              CONNECTION WITH TAX FRAUD.

    (a) In General.--Section 7206 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) 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) 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 misappropriation of identity in connection with 
        tax fraud).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to offenses committed on or after the date of the enactment of 
this Act.

SEC. 7. EXTEND INTERNAL REVENUE SERVICE AUTHORITY TO REQUIRE TRUNCATED 
              SOCIAL SECURITY NUMBERS ON FORM W-2.

    (a) In General.--Paragraph (2) of section 6051(a) is amended by 
striking ``his social security number'' and inserting ``an identifying 
number for the employee''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 8. IMPROVEMENT IN ACCESS TO INFORMATION IN 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)) is amended to read as follows:
            ``(3) Administration of federal tax laws relating to 
        fraud.--The Secretary of the Treasury shall have access to the 
        information in the National Directory of New Hires for the sole 
        purpose of identifying and preventing fraudulent tax return 
        filings and claims for refund under 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.

SEC. 9. PASSWORD SYSTEM FOR PREVENTION OF IDENTITY THEFT TAX FRAUD.

    (a) In General.--The Secretary of the Treasury shall implement an 
identity theft tax fraud prevention program under which any individual 
taxpayer may elect to be provided with a unique password which, as a 
result of such election, will be required to be included on any Federal 
tax return filed by such individual before the return will be 
processed. Such program shall be available not later than January 1 of 
the first calendar year beginning on or after the date that is 2 years 
after the date of the enactment of this Act.
    (b) Study and Report.--The Secretary of the Treasury shall conduct 
a study of the program under subsection (a) and, not later than 3 years 
after the January 1 date under such subsection, shall report to the 
Committee on Finance of the Senate and the Committee on Ways and Means 
of the House of Representatives on the efficacy of such program in 
reducing tax refund fraud. Such report shall include a recommendation 
as to whether the program under subsection (a) should be made 
mandatory, rather than elective, for all taxpayers.

SEC. 10. INCREASED PENALTY FOR IMPROPER DISCLOSURE OR USE OF 
              INFORMATION BY PREPARERS OF RETURNS.

    (a) In General.--Section 6713 is amended--
            (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' for `$250', and
                    ``(B) by substituting `$50,000' for `$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 paragraph applies and to 
        which it does not apply.''.
    (b) Criminal Penalty.--Section 7216(a) is amended by striking 
``$1,000'' and inserting ``$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 after the date of the enactment of this 
Act.

SEC. 11. INCREASE ELECTRONIC FILING OF RETURNS.

    (a) In General.--Subparagraph (A) of section 6011(e)(2) is amended 
by striking ``250'' and inserting ``the applicable number of''.
    (b) Applicable Number.--Subsection (e) of section 6011, as amended 
by this Act, is amended by adding at the end the following new 
paragraph:
            ``(6) 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 2015, 250,
                    ``(B) in the case of returns and statements 
                relating to calendar year 2015, 100,
                    ``(C) in the case of returns and statements 
                relating to calendar year 2016, 50, and
                    ``(D) in the case of returns and statements 
                relating to calendar years after 2016, 20.''.
    (c) Returns Filed by a Tax Return Preparer.--
            (1) In general.--Subparagraph (A) of section 6011(e)(3) is 
        amended to read as follows:
                    ``(A) In general.--The Secretary shall require 
                that--
                            ``(i) any individual income tax return, and
                            ``(ii) any return or statement under 
                        subpart B, C, or E of part III of this 
                        subchapter,
                which is prepared 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) 
        is amended by striking subparagraph (B), and by redesignating 
        subparagraph (C) as subparagraph (B).
    (d) Effective Dates.--The amendments made by this section shall 
apply to returns the due date for which (determined without regard to 
extensions) is after December 31, 2014.

SEC. 12. INCREASED REAL-TIME FILING.

    (a) Accelerated Filing of Forms W-2 and W-3.--
            (1) In general.--Section 6071 is amended by redesignating 
        subsection (c) as subsection (d), and by inserting after 
        subsection (b) the following new subsection:
    ``(c) Returns Relating to Employee Wage Information.--Returns and 
statements made under sections 6051 and 6052 shall be filed on or 
before February 15 of the year following the calendar year to which 
such returns relate.''.
            (2) Conforming amendment.--Subsection (b) of section 6071 
        is amended by striking ``subparts B and C'' and inserting 
        ``section 6053 and subpart B''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to returns and statements relating to calendar 
        years beginning after the date of the enactment of this Act.
    (b) Accelerated Filing for Certain Forms 1099.--
            (1) In general.--Subsection (c) of section 6071, as amended 
        by subsection (a), is amended--
                    (A) by striking ``Wage Information'' in the heading 
                and inserting ``Wage Information and Forms 1099-MISC'', 
                and
                    (B) by inserting ``, and any return which is filed 
                on Form 1099-MISC,'' after ``6052''.
            (2) Conforming amendment.--Subsection (b) of section 6071, 
        as amended by this Act, is amended by striking ``section 6053 
        and subpart B of part III of this subchapter'' and inserting 
        ``subpart B of part III of this subchapter (other than returns 
        filed on Form 1099-MISC)''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to returns relating to calendar years beginning 
        after December 31, 2014.
    (c) Study Regarding Administrative Implementation.--Not later than 
January 1, 2017, the Secretary of the Treasury shall report to the 
Committee on Finance of the Senate and the Committee on Ways and Means 
of the House of Representatives including--
            (1) a recommendation of whether the due dates for filing 
        Forms W-2 and W-3 with the Internal Revenue Service and the 
        Social Security Administration should be accelerated to January 
        31 to match the due date for furnishing copies of such forms to 
        the recipient of the reported income,
            (2) recommendations for processes--
                    (A) to match the information reported on Forms W-2 
                and Forms 1099-MISC for the effective processing of 
                returns and accurate determination of refunds, and
                    (B) to correct errors on such documents, and
            (3) any other recommendations such Secretary may have for 
        accelerating information reporting, including the 
        identification of any other forms that should be due on an 
        accelerated schedule in order to prevent tax refund fraud.

SEC. 13. LIMITATION ON MULTIPLE INDIVIDUAL INCOME TAX REFUNDS TO THE 
              SAME ACCOUNT.

    (a) In General.--Not later than 180 days after the date of 
enactment of this Act, the Secretary of the Treasury shall issue 
regulations that restrict the delivery or deposit of multiple 
individual income tax refunds from the same tax year to the same 
individual account or mailing address.
    (b) Exception.--The regulation promulgated under subsection (a) 
shall provide that the restrictions shall not apply in cases and 
situations where the Secretary of the Treasury determines there is not 
a likelihood of tax fraud.

SEC. 14. IDENTITY VERIFICATION REQUIRED UNDER DUE DILIGENCE RULES.

    (a) In General.--Subsection (g) of section 6695 is amended by 
adding at the end the following new sentence: ``Such due diligence 
requirements shall include a requirement that such preparer verify (in 
such manner and with such documentation as the Secretary shall provide) 
the identity of the taxpayer with respect to such return or claim for 
refund.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to returns or claims for refund filed after December 31, 2014.

SEC. 15. REPORT ON REFUND FRAUD.

    Not later than 1 year after the date of the enactment of this Act, 
and annually thereafter, the Secretary of the Treasury (or the 
Secretary's delegate) shall report to the Committee on Finance of the 
Senate and the Committee on Ways and Means of the House of 
Representatives on the extent and nature of fraud involving the use of 
a misappropriated taxpayer identity with respect to claims for refund 
under the Internal Revenue Code of 1986 during the preceding completed 
income tax filing season, and the detection, prevention, and 
enforcement activities undertaken by the Internal Revenue Service with 
respect to such fraud, including--
            (1) the development of fraud detection filters and how they 
        are or may be updated and improved;
            (2) the effectiveness of fraud detection activities, and 
        the ways in which such effectiveness is measured; and
            (3) the methods by which such Service categorizes of refund 
        fraud, and the amounts of fraud that are associated with each 
        category.
                                 <all>