Relates to disclosure by the commissioner of taxation and finance of personal income tax returns involved in possible identity theft

Summary of provisions

Section 1 of the bill would add a new subsection (p) to Tax Law § 697 to allow disclosure of personal income tax returns to federal, state, and local law enforcement officials in cases involving identity theft of a taxpayer or a taxpayer's dependent, and to allow disclosure to a taxpay- er such information regarding a return as is necessary to facilitate an investigation of identity theft, when the return purports to be that of the taxpayer or to claim as a dependent an individual claimed as a dependent by the taxpayer.

Section 2 of the bill provides that the bill would take effect imme- diately.

Existing law

Tax Law § 697 contains numerous exceptions to confidentiality, but none of these exceptions apply to identity theft. For example, Tax Law 697(e) contains an exception that allows the Tax Department to provide a copy of a tax return to the taxpayer if the return is filed in connection with his or her tax. However, a return used in an identity theft circumstance arguably might not be considered to be a return filed in connection with the taxpayer's tax, but rather as part of a scheme to defraud the Tax Department by computing an erroneous refund to be paid to the thief.

Statement in support

Identity theft is a growing problem. Millions of dollars in fraudulent refund claims are received by the Tax Department every year. Stopping this fraudulent activity will save revenue and processing time for the State and, most importantly, protect the victims of these crimes.

Under current law, a taxpayer may receive a copy of his or her own return from the Tax Department. However, when identity theft occurs or

is suspected, it is not clear under current law that information from the fraudulent return can be provided by the Tax Department to the taxpayer or to law enforcement officials. Indeed, Tax Law § 697 (e) makes such a disclosure of information a crime. So read, the provision in Tax Law . 697(e) which makes unauthorized disclosure of information from a tax return a crime unwittingly protects the perpetrator of the fraud, hinders law enforcement, and impairs the Tax Department's ability to recover fraudulent refunds.

This bill would allow the Tax Department to share personal income tax returns with law enforcement officials if the Commissioner, or author- ized officer or employee of the Tax Department, reasonably believes that the filed return contains the name or identification number of the taxpayer, or a dependent without consent. Further, where necessary to facilitate an identity theft investigation, it would permit disclosure of information from a tax return to a taxpayer if the return at issue purports to be the return of the taxpayer by use of the name or iden- tification number of the taxpayer, or if the return claims as a depend- ent an individual who has been claimed as a dependent by the taxpayer.

This bill would apply only where the Commissioner has an indication that identity theft has occurred. identity theft is indicated in situations where, for example, two returns have been filed using the same taxpayer name and identification number and where the wage or employer informa- tion on one return does not match the correct information on the taxpay- er's return, or when a return is filed for a taxpayer who has no obli- gation to file in New York. Allowing for such information to be provided to a law enforcement agency would be useful for the agency to investi- gate the crime. Information about the refund, such as where it was mailed, or directed to in the case of direct deposit, may provide the investigative leads necessary to solve the crime.

One of the more common types of identity theft within tax administration is the theft of dependents' identities. This is often discovered when another return is filed and the return cannot be processed because the Tax Department's automated tax processing system recognizes that two taxpayers have claimed the same dependent. The Tax Department's ability to deal with fraudulent dependent claims would be greatly enhanced if the Tax Department was permitted to provide information from the fraudu- lent return to the legitimate taxpayer. The legitimate taxpayer could then verify to the Tax Department that the return was fraudulent. It would also allow taxpayers to pursue claims against individuals who have stolen their dependents' identities, and to help them avoid future theft.

This bill would not create complications with respect to familial and custodial disputes associated with different taxpayers claiming a dependent for tax administration purposes. The Tax Department already has a system in place to distinguish such cases from those in which a dependent's identity has been stolen.

Prior legislative history

This is a new bill.

Budget implications

This bill would not have an impact on state finances.

Effective date

This bill would take effect immediately.