When egregious examples of tax fraud by identity theft using the Social Security Numbers of recently deceased children began making headlines in 2011, the initial narrative became that the public availability of their SSNs in the Social Security Administration’s Death Master File (DMF) facilitated this despicable crime. Recognition that the vulnerability to this fraud was the inevitable result of the emphasis to expedite the payment of tax refund claims rather than actually using the DMF to flag fraudulent returns was not reflected in the early Congressional hearings addressing this issue. Efforts on the part of the genealogical community urging the IRS to do so essentially fell upon deaf ears and were never officially acknowledged.
Only recently have members of the Congress begun to ask the right questions and to focus on solutions that could actually intercept this particular form of fraud. A May 18, 2015 letter from Senate Finance Committee Chairman Orrin Hatch addressed to IRS Commissioner John Koskinen specifically sought “assurances that the IRS is doing all that it can feasibly do, with full Death Master File data available to it, to prevent tax fraud.” 5 18 2015 letter to IRS Regarding Death Master File
The letter cites a Treasury Inspector General for Tax Administration (TIGTA) report quite clearly identifying that: “The Death Master File is one of the Government’s most effective tools against financial fraud.” (emphasis added) Furthermore the TIGTA report indicates that the IRS first developed identity theft filters for use in Processing Year 2012.
The penultimate paragraph of the Senator’s letter laments the fact that legislation limiting access to and content of the DMF (Section 203 of the Bipartisan Budget Act of 2013) was written outside of regular order in the Senate. He further suggests that the predictable and unfortunate result may well be that the costs of denying access to legitimate users may outweigh whatever benefits may be claimed in thwarting identity theft.
The IRS response describes in some detail ways in which they use the DMF as a tool to combat identity theft and refund fraud. 6 8 Hatch Response 68790
“Over the past four years, the IRS has developed a series of filters, scoring algorithms, and clustering methodologies that significantly improved the detection of identity theft returns.” They assert that “[e]very year our filters have stopped more fraudulent refund claims from being paid than they did in the prior year.”
In subsequent posts I anticipate sharing additional data that gives visibility over the effectiveness of the IRS fraud prevention efforts.
Spoiler Alert: By the time limitations on public access to the DMF were statutorily mandated by the Bipartisan Budget Act in December of 2013, the IRS was already accomplishing all of the potential benefits claimed for closure by more targeted, less disruptive measures.