BILL NUMBER:  S7536

 TITLE OF BILL :

An act to amend the tax law, in relation to the confidentiality 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
("Commissioner"), or an authorized officer or employee of the Tax
Department reasonably 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
              

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.

Section 2 of the bill provides that the bill would take effect
immediately.

 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
authorized 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 identification number of the taxpayer, or if the return
claims as a dependent 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 information on one return does not match the correct
information on the taxpayer's return, or when a return is filed for a
taxpayer who has no obligation to file in New York. Allowing for such
information to be provided to a law enforcement agency would be useful
for the agency to investigate 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 fraudulent 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.