[Federal Register Volume 64, Number 231 (Thursday, December 2, 1999)]
[Notices]
[Pages 67621-67624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31313]


-----------------------------------------------------------------------

DEPARTMENT OF TREASURY

Internal Revenue Service


Announcement of Opportunity To Obtain a Debt Indicator in a Pilot 
Program for Tax Year 1999 Form 1040 IRS e-file and On-Line Returns

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: Authorized IRS e-file Providers, Form 1040 On-Line 
Transmitters and financial institutions may apply to obtain a Debt 
Indicator for their customer/client taxpayers in exchange for actively 
screening individual income tax returns and return information for 
potential fraud and abuse and to reporting the findings to the IRS in 
accordance with a proposal accepted with a proposal accepted by the 
IRS.

ADDRESSES: Questions or concerns should be directed to Lisa Johnson at 
the IRS, Electronic Tax Administration, Electronic Program Operations 
Office, OP:ETA:O:C, New Carrollton Federal Building, ATTN: Lisa 
Johnson, 5000 Ellin Road C4-187, Lanham, MD 20706 or via E-mail at 
LJJOHN[email protected] or faxed to (202) 283-4786, ATTN: Lisa Johnson.

SUPPLEMENTARY INFORMATION:

Background

    The Debt Indicator is useful to taxpayers who wish to use their 
anticipated individual income tax return refunds to apply for bank 
products, for example, refund anticipation loans. The Debt Indicator 
tells a taxpayer whether or not there are any scheduled offsets against 
the refund by IRS, for example, for back taxes, or by the Financial 
Management Service (FMS), for example, for outstanding child support or 
federal debts, such as student loans. These bank products are offered 
by financial institutions in conjunction with tax practitioners that 
file returns electronically. An indicator called the Direct Deposit 
Indicator or DDI was available to taxpayers seeking bank products prior 
to 1994.
    The DDI was discontinued because it was thought to be a 
contributing factor to fraudulent claims for the Earned Income Tax 
Credit. The new Debt Indicator seeks to address this issue through a 
joint fraud detection program. Authorized IRS e-file Providers, Form 
1040 On-Line Filers, and financial institutions will sign agreements 
with the IRS to actively screen returns and return information for 
potential fraud and abuse and report findings to the IRS. Parties to 
the agreements are eligible to obtain the Debt Indicator for their 
taxpayers who apply for bank products and sign consents to disclose the 
Debt Indicator to Authorized IRS e-file Providers, Form 1040 On-Line 
Filers, and financial institutions. The application and instructions 
for applying to obtain an agreement follow.

    Approved:
Terence H. Lutes,
National Director, Electronic Program Operations Office, Electronic Tax 
Administration.

Application for Memorandum of Agreement Debt Indicator

Name:------------------------------------------------------------------

DBA Name:--------------------------------------------------------------

Address:---------------------------------------------------------------

Authorized Representative:---------------------------------------------

Phone Number:----------------------------------------------------------

Fax Number:------------------------------------------------------------

ETIN(s):---------------------------------------------------------------

EFIN(s) Covered By This Proposal:--------------------------------------

----------------------------------------------------------------------
(attach separate sheet if necessary)

IRS Authorized Representative: Lisa Johnson
Phone Number: (202) 283-0980
Fax Number: (202) 283-4786
E-mail: LJJOHN[email protected]

Address: IRS, Attn: Lisa Johnson, OP:ETA:O:C, 5000 Ellin Road, Lanham, 
MD 20706.

1. Introduction

    (A) The Internal Revenue Service (IRS) faces the challenge of 
eliminating barriers by providing incentives and using competitive 
market forces to make progress towards its goal to electronically 
transact 80% of IRS business by the year 2007 and the interim goal 
that, to the extent practicable, all returns prepared electronically 
should be filed electronically by the year 2002. One of these 
incentives was the issuance of the Debt Indicator Pilot Request For 
Agreement (RFA) that was issued on June 22, 1999. This RFA provided the 
opportunity for electronic return originators (EROs), transmitters and 
On-line service providers to obtain a Debt Indicator in exchange for 
screening the returns they transmit for potential abuse. Authorized e-
file providers and financial institutions that did not submit proposals 
under this RFA or are not covered under one of the announced agreements 
may still apply to obtain the DI for the upcoming filing season through 
this Memorandum of Agreement (MOA).
    (B) The Electronic Tax Administration (ETA) MOA between the 
Internal Revenue Service (IRS) and the Participant sets forth the 
complete agreement of the parties with regard to participation in the 
Debt Indicator Pilot

[[Page 67622]]

for electronically filed individual (1040 series) federal income tax 
returns during the 2000 filing season which covers the 1999 tax year. 
The parties agree that, except as provided below, the participant will 
be treated as an ERO, On-line service provider, transmitter, software 
developer or financial institution for the 2000 IRS e-file program as 
those terms are defined in Revenue Procedures 98-50 and 98-51. Also, 
except as provided below, the parties agree to comply with all relevant 
statutory, regulatory, and administrative requirements relating to the 
electronic filing program.
    (C) The IRS is looking for creative and innovative abuse and fraud 
detection beyond what is required in Revenue Procedures 98-50 and 98-51 
in addition to creative and innovative ways to perform the due 
diligence required by these Revenue Procedures. Partnered proposals 
offer greater opportunities for more comprehensive screening of returns 
and return information and have a greater chance of being accepted by 
the IRS.
    (D) There is no deadline for filing this Agreement.

2. Authority

    This Agreement is entered into pursuant to (1) the authority vested 
in the Commissioner of the IRS by Treasury Order 150-10 to administer 
and enforce the internal revenue laws and revenue procedures for 
electronic filing and (2) the authority vested in the Secretary of the 
Treasury by the IRS Restructuring and Reform Act of 1998, implemented 
in Section 6011 of the Internal Revenue Code, to promote the benefits 
of and encourage the use of ETA programs.

3. Background and purpose

    In exchange for providing the screening procedures in the accepted 
proposal, the IRS will provide to the taxpayer through the selected 
Participant, a debt indicator for taxpayers who have entered into an 
agreement with a financial institution. This indicator may show the 
reason that the refund changed was because of a debt owed to either the 
IRS or Financial Management Service (FMS) or both.
    The return software must also be modified to include a voluntary 
consent to disclose when the RAL indicator field is significant. This 
authorizes the Service to provide the debt indicator when financial 
agreements have been made with the taxpayer.

4. Definitions

    (A) ``Days'' as used herein means calendar days unless otherwise 
stated.
    (B) A ``fraudulent return'' is a return in which the individual is 
attempting to file using someone else's name or SSN on the return or 
where the taxpayer is presenting documents or information that have no 
basis in fact. NOTE: Fraudulent returns should not be filed with the 
Service.
    (C) A ``potentially abusive return'' is a return (1) that is not a 
fraudulent return; (2) that the taxpayer is required to file; (3) but 
that may contain inaccurate or unsubstantiated information (including, 
but not limited to, the information subject to reporting) that may lead 
to an understatement of a liability or an overstatement of a credit, 
and production of a refund to which the taxpayer may not be entitled.

    Note: The decision not to provide a RAL or other bank product 
does not necessarily make it an abusive return.

    (D) Refund offset is the reduction of the taxpayer's claimed refund 
in whole or in part for unpaid IRS tax debt or past-due debts submitted 
to FMS' Treasury Offset Program for child support arrearages, Federal 
agency non-tax debt, or state income tax.
    (E) Refund delay is the suspension of the refund process resulting 
from systemic reviews.
    (F) Sub-Participant is an ERO, On-line service provider, 
Transmitter, or Financial Institution other than the Participant who 
has entered into an Agreement with the Participant to perform some of 
the duties and responsibilities of the Participant.

5. Duties and Responsibilities of the Participant

    (A) The Participant will perform all the screening activities 
included in the checklist submitted with, and incorporated by reference 
into, this Agreement.
    (B) The Participant must agree to track and report (by SSN) to the 
IRS on a weekly basis, the potentially abusive federal individual 
income tax returns electronically filed and the reason(s) the return 
may be abusive. The format is as follows and should be delivered via 
electronic mail to [email protected].

------------------------------------------------------------------------
                                    Field
           Field name               length              Format
------------------------------------------------------------------------
Filer EFIN......................          6  Alpha/Numeric
Primary SSN.....................          9  Alpha/Numeric
W2..............................          1  Alpha (Y or blank)
Dependents......................          1  Alpha (Y or blank)
Schedule C......................          1  Alpha (Y or blank)
Filing Status Change............          1  Alpha (Y or blank)
Telephone # Invalid.............          1  Alpha (Y or blank)
Duplicate SSN...................          1  Alpha (Y or blank)
Invalid SSN.....................          1  Alpha (Y or blank)
Duplicate Address...............          1  Alpha (Y or blank)
Other...........................          1  Alpha (Y or blank)
Return Filed....................          1  Alpha (Y or blank)
Explanation of Other............        250  Alpha
------------------------------------------------------------------------

    Filer EFIN--Electronic Filer Identification Number of the ERO 
processing the return.
    Primary SSN--Primary SSN on the return, which is suspected of 
abuse/fraud.
    W2--the W2 was the reason for suspecting abuse/fraud.
    Dependents--questions about the dependents was the reason for 
suspecting fraud (i.e. last name of dependent is different from 
taxpayer).
    Schedule C--no substantiation for the Schedule C.
    Filing Status Change--questions about the filing status changes was 
the reason for suspecting abuse/fraud.
    Telephone Number Invalid--telephone numbers given by the taxpayer 
were found to be either invalid, disconnected, or that the taxpayer was 
not known by the person answering the telephone.
    Duplicate SSN--a duplicate primary, secondary, dependent or EIC 
qualifying

[[Page 67623]]

SSN is found within the ERO's own universe of returns.
    Invalid SSN--the ERO determines that the primary, secondary, 
dependent or EIC qualifying SSN is invalid.
    Duplicate Address--multiple returns filed for the same address for 
seemingly unrelated taxpayers found within the ERO's own universe of 
returns.
    Other--any reason, not conforming to those previously listed, for 
which a return could be considered fraudulent.
    Return Filed--the ``Y'' will indicate that the return was filed and 
blank will mean that the return was not filed.
    If you have additional information, provide it in a flat file 
format, comma delimited (e.g., SSN information on returns that were not 
processed).
    (C) The Participant will provide the Service with a Final Pilot 
Finding report. This report will be sent to the Authorized IRS 
Representative via email no later than May 31, 2000. The report shall 
include information on each of the following items:
      Number of RALs applied for and 1999 vs. 2000 comparison
      Average amount of RAL and 1999 vs. 2000 comparison
      Distribution of RAL applicants with respect to adjusted 
gross income (AGI)
      Range of fees charged for RALs
      Comparison of fees prior to DI pilot
      Breakdown of e-filers between RAL applicants and non-RAL 
applicants and 1999 vs. 2000 comparison

6. Liability

    The IRS shall not be liable for any injury to the Participant's 
personnel or damage to the Participant's property unless such injury or 
damage is due to negligence on the part of the Government and is 
recoverable under the Federal Tort Claims Act (28 U.S.C. 1346(b)), or 
pursuant to other statutory authority.

7. Third Party Rights

    This Agreement does not alter, change, or eliminate any rights or 
responsibilities that taxpayers have under the Internal Revenue Code.

8. Period of Performance and Termination

    (A) This Agreement shall be in effect from the date of IRS' 
signature for the 2000 filing season with an option to extend for the 
2001 filing season subject to a modification of the agreement.
    (B) This Agreement may be terminated by either party upon 30 days 
after receipt of written notice signed by either of the signatories to 
this Agreement or by their successors or designees. The Participant 
understands that in the event the IRS terminates this Agreement, the 
Participant has no right to any claim against the Government, including 
a claim for termination costs.

9. Modification

    This Agreement may be modified by the IRS, and the Participant may 
submit requests for modifications to the IRS Authorized Representative. 
All modifications must be in writing and signed by both of the 
signatories to this Agreement or by their successors or designees.

10. Inspection

    (A) The IRS has the right to inspect the work performed by the 
Participant or any Sub-Participant as stated below. If the duties and 
responsibilities of the Participant or any Sub-Participant are not 
being met, then the IRS may terminate this Agreement for default, and 
the Participant and any Sub-Participant may be suspended from the IRS 
e-file program.
    (B) The IRS may inspect the work performed by the Participant upon 
reasonable notice to the Participant's Authorized Representative and in 
a manner that will not interfere with the Participant's performance of 
this Agreement. The Participant shall provide access for this purpose 
to the IRS' Authorized Representative(s) to the location where the work 
is being performed. The IRS shall also have the right to inspect the 
Participant's Report(s) of the work performed as a result of this 
Agreement. The IRS's Authorized Representative shall provide the 
results of any inspections to the Participant's Authorized 
Representative for any necessary resolution.

11. Release of Information

    The Participant shall provide written notice to the IRS and obtain 
consent in advance of releasing any national press releases for the 
purposes of performing the work described in this Agreement or 
publicizing this partnership with the IRS. The text and purpose of the 
intended release shall be provided to the IRS's Authorized 
Representative for this Agreement. The Service may monitor advertising 
standards as authorized in Section 12 of Revenue Procedure 98-50.

12. Remedies

    There are no remedies other than the termination rights described 
in 11(B) and (C) of this Agreement unless provided in a modification to 
this Agreement. The Contract Disputes Act does not apply.

13. Order of Precedence

    In the event the terms of this Agreement are inconsistent with the 
terms of the checklist, the Agreement shall take precedence.

14. Governing Law

    This Agreement is subject to and governed by the laws of the United 
States of America, that is, by Federal law, and not by the laws of any 
State. The terms of this Agreement are not intended to alter, modify, 
or rescind any current Agreement or provision of Federal law now in 
effect. Any provision of this Agreement that conflicts with Federal law 
will be null and void.

Signatures

Participant:

Terence H. Lutes,
National Director, ETA Operations.

Instructions

    The IRS is encouraging the formation of partnerships among EROs, 
transmitters, software developers and financial institutions to meet 
the requirements of this agreement more efficiently and to cover more 
participants. These partnerships may apply as a group and the 
privileges obtained through successful applications will be extended to 
all member partners.
    Software developers, transmitters and financial institutions are 
encouraged to initiate these partnership applications on behalf of 
their customers--EROs, direct transmitters, small banks--to ensure that 
their entire customer bases have access to the Debt Indicator. 
Partnered proposals offer greater opportunities for more comprehensive 
screening of returns and return information and have a greater chance 
of being accepted by the IRS.
    Individual EROs that apply will need to negotiate changes with 
their software company before they can participate.
    In order to receive this indicator for you and/or your clients, use 
the application and sample checklist (Attachment 1) as resources to 
formulate your submission. Include all screening procedures currently 
employed by all members of the partnership. This could include 
crosschecks of all data received from EROs that could identify 
improbable information; software checks that can identify abusive 
scenarios within ERO practices and fraudulent or abusive situations; 
transmitter databases that can identify duplicated information as well 
as facilitating the reporting process; and fraud screening services and 
other checks.

[[Page 67624]]

Attachment 1

                                                Sample Checklist
 
                                                                                                  Willing to Do
                                                                                 Current Check       for 2000
 
                                      ERO
-Identification:
    Require two forms of valid identification (one must be a photo ID)........         {time}           {time}
    Verify telephone numbers..................................................         {time}           {time}
    Verify residence..........................................................         {time}           {time}
-Social Security Card
    Require a valid SSN card for all SSNs on return...........................         {time}           {time}
-Maintain Previous Client Database
    Document change in filing status..........................................         {time}           {time}
    Document change in number or names of dependents..........................         {time}           {time}
    Document multiple returns to same address in prior year...................         {time}           {time}
                              INCOME VERIFICATION
-Questionable W-2s
    Verification of W-2s when one of the following exist:
         Typed, handwritten or altered forms..........................         {time}           {time}
         W-2s with all copies attached................................         {time}           {time}
         Unknown companies (out of area)..............................         {time}           {time}
         W-2s that differ from other forms issued from the same                {time}           {time}
         company..............................................................
-Schedule C or Other Income Reporting Forms
    Documentation of income...................................................         {time}           {time}
    Validation and recording of expenses......................................         {time}           {time}
-EITC and Filing Status Verification
    Complete Due Diligence worksheet..........................................         {time}           {time}
    Document lack of child care expenses where potential exists...............         {time}           {time}
    Utilize tax package and requirements to ensure:
        A child can be claimed as a dependent.................................         {time}           {time}
        The taxpayer can qualify as Head of Household.........................         {time}           {time}
        A child can be considered as a qualifying child for EITC purposes.....         {time}           {time}
-Return Verification
    Document Schedule A deductions............................................         {time}           {time}
Software Developer
    Validate SSNs are within valid ranges.....................................         {time}           {time}
    Check for Duplicate SSNs..................................................         {time}           {time}
    Check for Multiple Head of Household Returns at the same address..........         {time}           {time}
    Check for improbable Federal withholding amounts..........................         {time}           {time}
    Check for incorrect Social Security or Medicare Withholding...............         {time}           {time}
    Verify math computations are correct......................................         {time}           {time}
    Verify format is correct..................................................         {time}           {time}
Transmitter
    Verify ERO suitability....................................................         {time}           {time}
    Maintain databases for the following:
        Duplicate SSNs........................................................         {time}           {time}
        Addresses and phone numbers for jails, drug treatment centers, health/         {time}           {time}
         welfare agencies, hotels, etc........................................
        SSNs of deceased persons..............................................         {time}           {time}
        Credit card fraud.....................................................         {time}           {time}
Bank
    Contract with a fraud screening service for bank products connected to tax         {time}           {time}
     returns..................................................................
    Request Credit Reports for loan customers.................................         {time}           {time}
Other
Feel free to add any additional screens you currently employ. Attach additional pages as necessary.
 
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
 Use this space to further describe any of the above screens. Attach
 additional pages as necessary.
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
 

 [FR Doc. 99-31313 Filed 12-1-99; 8:45 am]
BILLING CODE 4830-01-U