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Should the IRS share data with police?

The proliferation of ID theft in stealing tax returns has the government re-evaluating whether the IRS should share tax information with police agencies.

By MSN Money Partner Apr 9, 2012 8:07PM

This post is by Kelly Phillips Erb at Forbes.com.

 

Do you know where your refund is?

 

It’s possible that it’s in someone else’s mailbox. Thieves are becoming more sophisticated these days with IRS posting “identity theft” and “phishing” at the top of its list of the "Dirty Dozen Tax Scams for 2012."

 

Increasingly, criminals are using information gleaned from stolen financial forms, internet scams and phishing schemes both to empty bank accounts and to file fraudulent tax returns in order to snag bogus refunds.

 

During tax season, these efforts are on the rise with the IRS reporting (.pdf file) that, as of March 9, it had stopped 215,000 questionable returns with $1.15 billion in claimed refunds from filters specifically targeting refund fraud.

 

And it’s not just small-time crooks and thieves: some so-called "boiler rooms" are operating on a massive scale.  (Post continues below video.)

You need to take steps to protect yourself and your valuable financial information. But even the most diligent taxpayers can’t always stop the professionals.

 

That’s why the IRS is considering taking the bold steps of sharing information with police agencies in hopes of stem the tide of tax refund fraud and identity theft. The effort will begin in Tampa, Fla.

 

Fraud is especially rampant in Tampa, with the damage from stolen Social Security numbers and other financial information topping $130 million in 2011 alone. Det. Sal Augeri of the Tampa Police Department emphasized the size of the problem in his testimony (.pdf file) to the Senate Finance Committee, saying: "The tax refund fraud scams mirrors the spread of crack cocaine here in Tampa."

 

That’s why, in what’s considered a groundbreaking move, the IRS is considering a pilot program in Tampa that would allow the IRS to work with the police in instances of suspected fraud. While such an effort seems like a no-brainer, it may actually be illegal under current law. Augeri stressed this in his testimony: "As you are aware, tax code prevents the IRS from sharing information with local law enforcement."

 

Tax data was public record

 

Believe it or not, until 1977, taxpayer information was considered public record and the rules regarding disclosure were left to the executive branch. As concerns rose about the dissemination of taxpayer information for nontax purposes, Congress took matters into its hands in 1976 and revised Section 6103 of the Tax Code to eliminate executive discretion.

 

Now, Section 6103 limits disclosure of taxpayer information except under specific circumstances. Disclosure is authorized in response to requests from federal agencies for use in criminal investigations. There appears to be no corresponding exception that allows for the release of identity theft information to state or local agencies, leading Steven Miller of the IRS to note in testimony, "We are limited in what we can supply to local law enforcement."

 

Augeri echoed this frustration, pointing to a targeted effort in September 2011 that led to 47 arrests for identity theft and credit card fraud. In addition to the arrests, several cars were seized, including a Mercedes, Jaguar, BMW and a Bentley Rolls Royce. Despite the arrests and seizures, there have been no federal indictments for tax fraud. More disturbing, adds Augeri, is that none of those arrested appeared to have slowed their tax fraud activities.

 

Sen. Bill Nelson, D-Fla.,  wants to change that. Nelson held a hearing at the Senate Finance Committee to tout his proposed legislation, the Identity Theft and Tax Fraud Prevention Act, to allow, among other things, more sharing of taxpayer information among the IRS and local law enforcement agencies.

 

Seizing on a point made by Augeri, Nelson said about the increasing problem of identity theft, "People describe it as cocaine on a card." His legislation would, he added, protect taxpayers from an ID theft crime wave.

 

Would police share tax returns?

 

Some worry, however, that changing the safeguards currently in place might do more harm than good. Nina Olson, the National Taxpayer Advocate, cautioned (.pdf file) that once local law enforcement has access to taxpayers’ returns, they could be shared with other people.

 

She suggested that if "we place a greater value on protecting taxpayers against identity theft and the Treasury against fraudulent refund claims, we may need to make a substantial shift in the way the IRS does business. Specifically, we may need to ask all taxpayers to wait longer to receive their tax refunds, or we may need to increase IRS staffing significantly."

 

Considering that Congress just slashed the IRS budget, it's likely that that last suggestion can be ruled out. And forcing taxpayers to wait longer for refunds? One can imagine the backlash.

 

Realistically, some level of cooperation between local law enforcement agencies and IRS may be needed to curb identity theft and tax fraud, giving up what was until now sacrosanct taxpayer privacy in order to protect taxpayers. Is it worth it?

 

More from Forbes.com and MSN Money:

VIDEO ON MSN MONEY

10Comments
Apr 11, 2012 12:07PM
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The IRS should only share information after probable cause is established and the courts issue warrants. The IRS files should not be open for trolling by any and every law enforcement agency to go on fishing expeditions in our private lives. I don't have a problem with  the IRS sharing information if proper oversight by the courts is in place. While access to IRS files may give law enforcement agencies additional tools to go after criminals, you would have a double edged sword. It also opens the door to government and criminal abuse and security breeches by illegal enterprises. In other words, whatever information becomes available to law enforcement will inevitably become compromised because of lax and inadequate security measures. After it is all said and done we might as well publish all our tax and financial records in a public forum since privacy would no longer exist .
Apr 10, 2012 5:00PM
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The IRS has much knowledge about  people who are using stolen identities or others'  SSN's and personal information. I think that as soon as a legit taxpayer presents a verifieble complaint about someone else using his or her identity, the IRS should immediately  turn the  case to a court to produce an arrest warrant the police could enforce. 

 

I suppose many undocumented workers would be apprehended, but I know many others not in that department would end with their bones in jail.  The fact is all  govt.  agencies, including the IRS,  have to help victimized taxpayers regain their normal lives...

Apr 10, 2012 3:47PM
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@seeyes22.

 

Paying taxes is not a law?

 

Did you read the part in the story about "Section 6103 of the Tax Code"?  Hint:  That means it's written into Federal Law!

 

Only a dimwit (or an actor) would try to hold that "The IRS is not a law" or "paying taxes is not a law".

 

Try it, and you'll wind up where they all wound up (Google Wesley Snipes).

 

Apr 10, 2012 2:58PM
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the fair tax  solves the problem.    also solves such items as unreported income, illegal immigrant income, illegal income (ie-drugs), etc.     plus a small goodie.  many of our 'friends' at IRS would know the joys of unemployment.
Apr 10, 2012 2:14PM
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Get rid of the IRS, establish a flat tax on gross earnings period with no loopholes.  The IRS is the biggest thieves along with congress.   With a flat tax on EVERYONE when unemployment goes up tax revenue goes down.  If government wants money they should promote business and employment policies.  When the budget is not in check or in deficit ALL members of congress receive 50% pay until it is brought back into balance.
Apr 10, 2012 1:41PM
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As for the IRS not being something that is law, the identity thieves ARE breaking the law when they sell info that causes a person financial harm, or cause the harm themselves. So if the IRS has info on people who tried to collect money not owed to them by using another persons' identity, yes, the police should know this, but only IF the info shows an actual law broken. If the thief was not successful, and no actual harm done, then it may not be a law broken, and that info not given out. Until the thief does cause harm, then the info can be passed on. It doesn't matter what we think anyway, if you read all of our recent news, agencies are all putting everyones' info into one huge database so all law enforcement agencies can access it at any time. DNA now can be taken just by creating some minor offence that gets you taken to jail, which means at some point every one of us will be subject to some excuse to get us to jail just to get our DNA into the database. " You have your dog off leash". "You drove too fast/ rolled thru a stopsign...". Even if you didn't do these things, you will be accused of it, because the point is to get you in for processing. My fingerprints are already on file from my last job; if they want my DNA I will gladly give it. I am not afraid of what or why the Gov't needs every little thing known about us, I am only worried that private persons like thieves would find this info and use it. I can imagine someone with big bucks available paying off a policeman or FBI agent or other person with database access to have bank info and passwords, etc., given to them. Humans aren't perfect, and history has shown there are weak individuals in the highest, most honorable careers going, so the probability of having this treasure trove of info accessible by so many if just begging for problems. Bad guys from other countries will get into it, too, no doubt about it.
Apr 10, 2012 1:23PM
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The problem is that some identity thieves make an effort to befriend one or more policemen, so even if info was turned over to police, I wonder if some thieves would be given a free pass. I love our local police, awesome, hardworking gentlemen, BUT one is a friend of my identity thief and talked to witnesses then told me basically to keep quiet. Not cool. I want to trust all police to do the right thing, although all I wanted was for Bernie to apologise and tell me what exactly he sold and how to repair my computer now full of his manipulations. The biggest thing wrong with agencies sharing info is that in all groups, there are those who will use that info improperly. If shared info was only available to the higher ups of other agencies, then I believe it would be a good thing to do. There are way too many gangs, thieves and outright crooks out there, and the police do an incredibly hard job trying to keep things under control, so something that helps them with their job and keeps them safer is nothing but welcome.
Apr 10, 2012 12:57PM
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Everyone should report to Wall Street CEO's for everything. Duh. The IRS should have to tell Wall Street and they should be in charge of the police. Like they should be able to tell the cops to beat up protesters...ok,wait...they can already do that...
Apr 10, 2012 12:17PM
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Not such a problem since half the tax filing public pays no federal  taxes. The amount of income taxes you pay to the federal treasury should be public anyway.

Apr 10, 2012 12:10PM
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No.  The IRS is not a law.  Never has been and it has no place working with organizations that operate within the Law.  Paying taxes is not a Law.   Do a research on just where your taxes go. NOT what you are told.  Research it.  Be sure you are sitting down when you do.
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