Olson: Death master file data encourages tax fraud

In making public the death master file, the Social Security Administration is actually facilitating tax-related identity theft, said Nina Olson, taxpayer advocate for the Internal Revenue Service. Olson testified June 28 before the House Judiciary subcommittee on crime, terrorism and homeland security.

There are some legal questions as to whether or not SSA can restrict access to the DMF, which includes recently-deceased individuals' full names, social security numbers, dates of birth, dates of death, and the states and zip codes of the last address on record, said Olson.  

"For that reason, I strongly support legislation to restrict public access to the DMF. However, I believe the SSA has at least a reasonable basis for seeking to limit public access to the DMF and if legislation is not enacted, I encourage SSA to act on its own," she said.

Taxpayer privacy is at risk from other sources, besides the SSA's DMF, said Olson. For example, state and local law enforcement want access to tax information in order to combat identity theft, but IRS must "tread carefully" in handing that information over to authorities, she said.

Olson commended a new IRS pilot that allows taxpayers to provide access to law enforcement, so they can view their records for investigations--making the decision to provide access entirely the taxpayer's.   

Olson also used the hearing to push the IRS to change the way it handles the re-routing of direct deposits. Deceptive tax preparers have been known to change the routing number to redirect the deposited refund to their accounts. But because the IRS paid out the refund according to the taxes filed, the taxpayer's only course of action is a civil lawsuit against the preparer, she said.

Her office recommends the IRS use the check forgery insurance fund, which is used for hard-copy checks from IRS, to include direct deposits and other electronic transactions.

Some members of the National Conference of CPA Practitioners take this course of action one step further. They're advocating that refunds not be allowed to go to a bank account unless the IRS confirms the name on the bank account as well as the account number, said Sanford Zinman, national tax chair for the association.

For more:
- go to the hearing page (includes prepared testimony and archived webcast)

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