[House Report 112-639]
[From the U.S. Government Publishing Office]
112th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 112-639
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STOPPING TAX OFFENDERS AND PROSECUTING IDENTITY THEFT ACT OF 2012
_______
July 31, 2012.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Smith of Texas, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 4362]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 4362) to provide effective criminal prosecutions for
certain identity thefts, and for other purposes, having
considered the same, reports favorably thereon without
amendment and recommends that the bill do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 2
Hearings......................................................... 4
Committee Consideration.......................................... 5
Committee Votes.................................................. 5
Committee Oversight Findings..................................... 5
New Budget Authority and Tax Expenditures........................ 5
Congressional Budget Office Cost Estimate........................ 5
Performance Goals and Objectives................................. 6
Advisory on Earmarks............................................. 6
Section-by-Section Analysis...................................... 6
Changes in Existing Law Made by the Bill, as Reported............ 7
Dissenting Views................................................. 9
Purpose and Summary
H.R. 4362, the ``Stopping Tax Offenders and Prosecuting
Identity Theft Act,'' provides additional tools to combat the
serious problem of tax-return identity theft. This criminal
activity has expanded exponentially as identity thieves file
for and receive other people's income tax returns, victimizing
unsuspecting taxpayers. H.R. 4362 adds tax fraud to the list of
predicate offenses for aggravated identity theft and expands
the definition of an ``identity theft victim'' to include
businesses and charitable organizations, which often have their
identities stolen and used in ``phishing'' schemes to extract
the sensitive information from unsuspecting taxpayers used in
tax return thefts. H.R. 4362 also calls for better coordination
between the Department of Justice (DOJ) and state and local law
enforcement in tax-return identity theft cases, and requires
DOJ to report back on trends in tax-return identity theft,
progress on prosecuting these crimes, and recommendations for
additional legal tools to combat it.
Background and Need for the Legislation
Federal law prohibits identity theft and identity fraud,
specifically the knowing possession, production, transfer, or
use of an identification document, a false identification
document, or a means of identification without lawful
authority. Penalties for violating this law range from up to 5
years for garden-variety identity theft to up to 20 years if
the identity theft facilitates a drug offense, crime of
violence, or is a second offense, or up to 30 years if the
identity theft facilitates an act of terrorism. This statute
was enacted in 1998 at 18 U.S.C. Sec. 1028.
In 2004, the law was expanded to add a provision known as
``aggravated identity theft.'' Codified at 18 U.S.C.
Sec. 1028A, this statute provides for a consecutive 2-year
sentence for
``Whoever, during and in relation to any felony
enumerated in subsection (c), knowingly transfers,
possesses, or uses, without lawful authority, a means
of identification of another person . . .''
Subsection (c) contains a list of ``predicate'' felonies
that if accompanied by identity theft can result in the
consecutive 2-year sentence that is in addition to the sentence
for the predicate felony. These felonies include theft,
embezzlement, fraud, false statements, wire fraud, and false
statements in connection to acquiring a firearm.
Like other forms of identity theft, tax fraud through
identity theft is a rapidly growing problem in the United
States. As a general matter, this crime is committed when an
individual uses the Social Security Number and other
information of another individual to file a false tax return
with the Internal Revenue Service (``IRS'') or fraudulently
claims someone as a dependent in order to receive a refund.
Tax fraud through identity theft is often committed by
gangs and organized crime organizations who defraud large
groups of people.\1\ These groups see it as a low-risk, high-
return crime that often carries low penalties. Tax fraud is
also being committed at high rates by prison inmates. In just
2009, there were 1,464 fraudulent tax returns filed by
inmates.\2\
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\1\Written Statement of Nina E Olson, National Taxpayer Advocate,
Hearing on Tax Fraud by Identity Theft, Part 2: Statute, Progress, and
Potential Solutions, Subcommittee on Fiscal Responsibility and Economic
Growth, Committee on Finance, March 20, 2012.
\2\Senators Press IRS to Stop Prisoner Tax Fraud, Accounting Today,
January 19, 2011, at http://www.accountingtoday.com/news/Senators-
Press-IRS-Stop-Prisoner-Tax-Fraud-56973-1.html.
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Criminals obtain Social Security Numbers from various
sources, including medical facilities, schools, insurance
companies, and pension funds. Another common source for Social
Security Numbers is the Social Security Administration's Death
Master File, a list containing the full name, Social Security
Number, date of birth, and some address information for every
person who dies in the United States that is published each
year. In one instance, scam artists allegedly established a
fake job placement company and used the information they
learned from 300 victims to obtain more than $450,000 in
returns from the IRS.\3\ The fraudulent returns are either paid
to the scam artist in the form of a check, direct deposit, or
debit cards. Debit cards are particularly dangerous because
once a refund is issued in that form, it is extremely difficult
to trace.
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\3\Identity Theft Tops List of Tax Scams, CNBC, available at http:/
/www.cnbc.com/id/47077876/Identity__Theft__Tops__List__of__Tax__Scams.
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The IRS detected 940,000 fake returns among the 2010
returns alone, for which the IRS would have paid over $6.5
billion in fraudulent payments if the fake returns had not been
detected and stopped.\4\ The IRS estimates, however, that it
did pay as much as $5.2 billion in fraudulent refunds in 2010
for unidentified fake tax returns.\5\ Fraudulent returns are
often not detected because the IRS does not verify W-2 forms
until after a refund is paid. Detection is also difficult when
the identity stolen is not an active income tax filer, either
because the person is deceased or because he is not required to
pay Federal income taxes. In these cases, the victim is not
notified of the fraud when he attempts to file a return and,
thus, does not in turn notify the IRS of the fraud.
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\4\Testimony of the Honorable J. Russell George, Treasury Inspector
General for Tax Administration, Joint Hearing before the Committee on
Ways and Means, Subcommittees on Oversight and Social Security, U.S.
House of Representatives, May 8, 2012.
\5\Id.
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The billions of dollars in fraudulent tax returns that are
paid each year harm the taxpayers as a whole because, in many
cases, the IRS pays two refunds--one to the scam artist, and
one to the actual taxpayer. Tax fraud through identity theft
also can be devastating to the individual victim, who must
prove their own identity to the IRS and, oftentimes, wait
months or years to receive refunded money that is rightfully
owed to them. In some instances, individual victims have faced
enforcement actions by the IRS due to fraudulent returns filed
by scam artists under their name. And recipients of Social
Security disability payments could potentially face the loss of
these benefits because the Social Security Administration uses
tax returns as proof that someone is working.
The IRS reports that it is taking a number of steps to
prevent, detect, and prosecute identity theft. These include:
LImplementing identity theft screening filters
designed to spot fake returns before a refund is
issued. As of March 2012, these filters have stopped
potentially fraudulent returns worth $1.15 billion in
refunds.\6\
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\6\Testimony of Steven T. Miller, Deputy Commissioner for Services
and Enforcement, Internal Revenue Service, Before the Senate Committee
on Finance, Subcommittee on Fiscal Responsibility and Economic Growth,
March 20, 2012.
LIssuing identification numbers to taxpayers
whose identities have been stolen in order to
facilitate their income tax filing and prevent others
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from stealing their identity.
LImplementing procedures for using personal
information gathered by law enforcement to flag
taxpayer accounts that may be subject to identity
theft.
LExpanding how the IRS uses lists of prisoners
in order to stop inmates from filing false returns.
LEstablishing a specialized unit for identity
theft within the IRS's Criminal Investigation division.
A recently-released report by the Treasury Inspector
General for Tax Administration, however, found that the IRS was
falling short on its efforts to combat identity theft. Among
the issues cited by the Inspector General are the length of
time the IRS takes to resolve a case, the inadequacy of
communications with victims, confusing and conflicting internal
advice on how to handle such cases, and evidence that the IRS
does not use the information it has to identify trends in
identity theft in order to prevent future crimes.\7\
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\7\Most Taxpayers Whose Identities Have Been Stolen to Commit
Refund Fraud Do Not Receive Quality Customer Service, Treasury
Inspector General for Tax Administration, May 3, 2012.
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This legislation is designed to combat tax return ID theft
specifically; it does not correct or address the Supreme
Court's decision in Flores-Figueroa v. United States, 556 U.S.
646 (2009), involving another aspect of the identity fraud
statute. In Flores-Figueroa, the Supreme Court held 9-0 that
the aggravated identity theft statute requires the government
to prove that the defendant knew the means of identification
belonged to another person. Because of this interpretation, it
is easier for a defendant to escape responsibility by asserting
that while the documents he possessed were improper, he did not
have knowledge that they belonged to an actual person. Until
this decision is addressed, attempts to combat identity theft
within the United States will be hampered.
In light of the Flores-Figueroa opinion, the Committee
supports amending Section 1028A to correct the problem the
Supreme Court addressed. To achieve this, in 2011, the
Committee reported H.R. 2552, the Identity Theft Improvement
Act of 2011. H.R. 2552 specifically amends Title 18, United
States Code, Section 1028, so that the Government need not
prove that the defendant knew the means of identification was
of another person in order to prosecute for identity theft.
This legislation would restore the identity theft statute and
enable law enforcement to prosecute those who steal and use
other people's identities.
Hearings
The Subcommittee on Crime, Terrorism, and Homeland Security
held a hearing on June 28, 2012, on ``Identity Theft and Tax
Preparation Fraud.'' Testimony was received from Ms. Rebecca
Sparkman, Director, Operations Policy & Support, Criminal
Investigation Division, Internal Revenue Service; Ms. Nina
Olson, National Taxpayer Advocate, U.S. Department of Treasury;
Mr. Sanford Zinman, National Tax Chair, National Conference of
CPA Practitioners; and Mr. Michael Robinson, a victim of tax-
return identity theft.
Committee Consideration
On July 10, 2012, the Committee met in open session and
ordered the bill H.R. 4362 favorably reported without
amendment, by voice vote, a quorum being present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that there
were no rollcall votes during the Committee's consideration of
H.R. 4362.
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 4362, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 26, 2012.
Hon. Lamar Smith, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4362, the ``STOP
Identity Theft Act of 2012.''
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Mark
Grabowicz, who can be reached at 226-2860.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 4362--STOP Identity Theft Act of 2012.
As ordered reported by the House Committee on the Judiciary
on July 10, 2012.
H.R. 4362 would direct the Department of Justice (DOJ) to
better utilize its existing resources to combat identity theft
related to the filing of tax returns. The department currently
allocates its funding to investigate and prosecute a wide range
of criminal activity, including identify theft. CBO expects
that the legislation could result in a reallocation of DOJ
resources, but we estimate that implementing the bill would
have no significant net cost to the Federal Government.
Enacting H.R. 4362 would not affect direct spending or
revenues; therefore, pay-as-you-go procedures do not apply.
H.R. 4362 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of State, local, or tribal
governments.
On August 1, 2011, CBO transmitted a cost estimate for H.R.
2552, the Identity Theft Improvement Act of 2011, as ordered
reported by the House Committee on the Judiciary on July 21,
2011. That legislation would eliminate the state-of-mind
requirement in certain identity theft cases. CBO estimated that
H.R. 2552 would not have a significant impact on the Federal
budget.
The CBO staff contact for this estimate is Mark Grabowicz.
The estimate was approved by Theresa Gullo, Deputy Assistant
Director for Budget Analysis.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
4362 is intended to clarify the statutory authority for the
longstanding practice of the Department of Justice of providing
investigatory assistance on request of State and local
authorities with respect to certain violent crimes.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 4362 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(e), 9(f), or 9(g) of rule XXI.
Section-by-Section Analysis
Section 1--Short Title.
This section cites the short title of the Act as the
Stopping Tax Offenders and Prosecuting Identity Theft Act (STOP
Identity Theft).
Section 2--Use of Department of Justice Resources With Regard to Tax
Return Identity Theft.
This section encourages the Department of Justice to
dedicate additional resources, including the use of
investigative task forces, to address tax-return identity
theft. The section encourages the Department to focus its
resources in areas with a high rate of tax-return identity
theft, to coordinate investigations with state and local law
enforcement agencies, and to protect vulnerable victims,
including veterans, seniors and minors.
Section 3--Victims of Identity Theft May Include Organizations.
This section amends the Federal identity theft statute (18
U.S.C. Sec. 1028) to clarify that the victim of such an offense
includes not just individuals, but businesses and organizations
as well.
Section 4--Tax Fraud as a Predicate for Aggravated Identity Theft.
This section amends the Federal aggravated identity theft
statute to add tax fraud to the list of predicate offenses.
Section 5--Reporting Requirement.
This section instructs the Department of Justice to include
in an existing annual report information about trends in tax-
return identity theft, the effectiveness of the additional
prosecutorial tools provided by the Act, recommendations for
additional improvements to Federal law, and the status of the
Department's implementation of the DOJ IG's 2010 report
entitled ``The Department of Justice's Efforts to Combat
Identity Theft.''
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
TITLE 18, UNITED STATES CODE
PART I--CRIMES
* * * * * * *
CHAPTER 47--FRAUD AND FALSE STATEMENTS
* * * * * * *
Sec. 1028. Fraud and related activity in connection with identification
documents, authentication features, and information
(a) * * *
* * * * * * *
(d) In this section and section 1028A--
(1) * * *
* * * * * * *
(7) the term ``means of identification'' means any
name or number that may be used, alone or in
conjunction with any other information, to identify a
[specific individual] specific person, including any--
(A) * * *
* * * * * * *
Sec. 1028A. Aggravated identity theft
(a) * * *
* * * * * * *
(c) Definition.--For purposes of this section, the term
``felony violation enumerated in subsection (c)'' means any
offense that is a felony violation of--
(1) * * *
* * * * * * *
(10) any provision contained in chapter 8 of title II
of the Immigration and Nationality Act (8 U.S.C. 1321
et seq.) (relating to various immigration offenses);
[or]
(11) section 208, 811, 1107(b), 1128B(a), or 1632 of
the Social Security Act (42 U.S.C. 408, 1011, 1307(b),
1320a-7b(a), and 1383a) (relating to false statements
relating to programs under the Act)[.]; or
(12) section 7206 or 7207 of the Internal Revenue
Code of 1986.
* * * * * * *
Dissenting Views
INTRODUCTION
H.R. 4362 amends the Federal aggravated identity theft
statute to add tax fraud to the list of predicate offenses. The
penalty for aggravated identity theft is a mandatory term of
imprisonment of 2 years or 5 years for a terrorism offense.
This bill would, therefore, subject more people to mandatory
minimum sentences and would consequently present all of the
problems associated with those sentences. For these reasons,
and those stated below, we urge our colleagues to oppose this
legislation and we respectfully dissent.
DESCRIPTION AND BACKGROUND
Identity theft is a serious problem. Like other forms of
identity theft, tax fraud through identity theft is a growing
problem in the United States. This crime is committed when an
individual uses the Social Security number and other
information of another individual to file a false tax return
with the Internal Revenue Service (``IRS'') or fraudulently
claims someone as a dependant in order to receive a refund. Tax
fraud through identity theft is often committed by gangs and
organized crime organizations who defraud large groups of
people.\1\
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\1\Written Statement of Nina E Olson, National Taxpayer Advocate,
Hearing on Tax Fraud by Identity Theft, Part 2: Statute, Progress, and
Potential Solutions, Subcommittee on Fiscal Responsibility and Economic
Growth, Committee on Finance, March 20, 2012, 2-3.
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The IRS detected 940,000 fake returns among the 2010
returns alone, for which the IRS would have paid over $6.5
billion in fraudulent payments if the fake returns had not been
detected and stopped.\2\ The IRS estimates, however, that it
did pay as much as $5.2 billion in fraudulent refunds in 2010
for unidentified fake tax returns.\3\
---------------------------------------------------------------------------
\2\Testimony of the Honorable J. Russell George, Treasury Inspector
General for Tax Administration, Joint Hearing before the Committee on
Ways and Means, Subcommittees on Oversight and Social Security, U.S.
House of Representatives, May 8, 2012, 1.
\3\Id. at 3.
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H.R. 4362 directs the Department of Justice to bring more
prosecutions of tax return identity theft; expands the
definition of victims of identity theft to include
organizations in addition to individuals; requires the
Department of Justice to report on the incidence of tax return
identity theft and enforcement efforts; and adds tax fraud as a
predicate for aggravated identity theft under 18 U.S.C.
Sec. 1028A(c), which subjects offenders to a mandatory minimum
sentence of two or 5 years.\4\ A detailed section-by-section
follows.
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\4\See Charles Doyle, Mandatory Minimum Sentencing: Federal
Aggravated Identity Theft, Congressional Research Service Report for
Congress (Feb. 15, 2012), at 1.
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Section 1, Short Title. This section cites the short title
of the Act as the Stopping Tax Offenders and Prosecuting
Identity Theft Act (STOP Identity Theft).
Section 2, Use of Department of Justice Resources with
Regard to Tax Return Identity Theft. This section encourages
the Department of Justice to dedicate additional resources,
including the use of investigative task forces, to address tax-
return identity theft. The section encourages the Department to
focus its resources in areas with a high rate of tax-return
identity theft, to coordinate investigations with state and
local law enforcement agencies, and to protect vulnerable
victims, including veterans, seniors and minors.
Section 3, Victims of Identity Theft May Include
Organizations. This section amends the Federal identity theft
statute (18 U.S.C. Sec. 1028) to clarify that the victim of
such an offense includes not just individuals, but businesses
and organizations as well.
Section 4, Tax Fraud as a Predicate for Aggravated Identity
Theft. This section amends the Federal aggravated identity
theft statute to add tax fraud to the list of predicate
offenses. The penalty for aggravated identity theft is a
mandatory term of imprisonment of 2 years or, for a terrorism
offense, 5 years.
Section 5, Reporting Requirement. This section instructs
the Department of Justice to include in an existing annual
report information about trends in tax-return identity theft,
the effectiveness of the additional prosecutorial tools
provided by the Act, recommendations for additional
improvements to Federal law, and the status of the Department's
implementation of the DOJ IG's 2010 report entitled ``The
Department of Justice's Efforts to Combat Identity Theft.''
CONCERNS WITH H.R. 4362
By adding certain tax offenses to the list of predicate
crimes for aggravated identity theft, H.R. 4362 includes
mandatory minimums of 2 or 5 years. Mandatory minimums have
been studied extensively and have been found to distort
rational sentencing systems, to discriminate against
minorities, and to violate common sense. Even if everyone
involved in a case, from arresting officer, prosecutor, judge
and victim, believes that the mandatory minimum would be an
unjust sentence for a particular defendant in a case, it still
must be imposed. Mandatory minimum sentences, based merely on
the name of a crime, remove sentencing discretion from the
sentencing commission and the judge. Regardless of the role of
the offender in the particular crime, the offender's record or
lack thereof, or the facts and circumstances of the case, the
judge has no discretion but to impose the mandatory minimum set
by legislators long before the crime has been committed.
One major consequence is that mandatory minimums contribute
to over-incarceration. As Federal Public Defender Michael
Nachmanoff testified before the U.S. Sentencing Commission in
2009, ``[t]he Federal prison population is currently at 206,786
inmates, a nearly five-fold increase since mandatory minimums
and mandatory guidelines became law.''\5\
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\5\Statement of Michael Nachmanoff, Federal Public Defender for the
Eastern District of Virginia, Public Hearing Before the United States
Sentencing Commission, ``The Sentencing Reform Act of 1984: 25 Years
Later,'' New York, New York, July 9, 2009, available at http://
www.fd.org/pdfllib/
Statement%20of%20Michael%20Nachmanoff%20USSC%20Regional%20Hearing%
207.9.09.pdf.
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Congressman John Conyers, Jr. (D-MI) and Congressman Robert
C. ``Bobby'' Scott (D-VA) offered an amendment to double the
statutory maximum for tax fraud identity theft and remove the
mandatory minimums. As previously discussed, the current law
provides for penalties of 2 years for aggravated identity theft
and 5 years for aggravated identity theft involving terrorism.
The amendment offered by Congressmen Conyers and Scott doubles
those maximum sentences to 4 years for aggravated identity
theft and 10 years for aggravated identity theft involving
terrorism. The amendment also removes the mandatory minimum
sentences. This approach is superior because it permits the
sentencing judge to impose longer sentences than current law
allows in cases where longer sentences are warranted but does
not mandate sentences of a set length regardless of the
circumstances. The amendment failed by voice vote.
CONCLUSION
Although tax fraud identity theft is a serious problem and
Congress has an interest in combating it, mandatory minimums
are not the solution. H.R. 4362 includes several provisions
that would have effectively addressed the problem, such as the
provision directing the Department of Justice to bring more
prosecutions of tax return identity theft, without causing the
harms of mandatory minimums. With the mandatory minimums
included, H.R. 4362 exacerbates current law by including one
more irrational sentencing provision that will result in unjust
sentences for some defendants.
For the foregoing reasons, we respectfully dissent.
John Conyers, Jr.
Robert C. ``Bobby'' Scott.
Melvin L. Watt.
Zoe Lofgren.
Judy Chu.