Assembly Bill A10840

                                BILL NUMBER:A10840

TITLE  OF BILL:   An act to amend the tax law, in relation to the confi-
dentiality of personal income tax returns involved in identity theft

PURPOSE:

This bill would allow the  Department  of  Taxation  and  Finance  ("Tax
Department")  to  (1)  share personal income tax returns law enforcement
officials when the Commissioner of Taxation  and  Finance  ("Commission-
er"), or an authorized officer or employee of the Tax Department reason-
ably  believes that the returns involve identity theft; and (2) disclose
to a taxpayer 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.

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.