Taxing Definitions

Definitions — Not so strictly confidential

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You’ve probably heard the old joke about life’s two rules. The first one is to never give out all the information.

That’s a rule the IRS follows and most of the time you’re probably happy they do. But for identity theft victims, the IRS rules can mean difficulty in getting the theft sorted out.

The general rule is that section 6103 of the internal revenue code keeps “tax returns” and other “tax return information” confidential unless the disclosure is specifically allowed under that code section. Taxpayers can get their own return information and can give consent so others can access the information. But what about information on returns filed by identity thieves using the taxpayer’s name? Whose information is that?

In Office of Chief Counsel Memorandum AM2017-004, the IRS consolidated previous advice related to questions about the release of information in identity theft cases. The answer depends on what kind of return information is involved, whose return information it is, and who would receive the information.

So, for example, to determine whether section 6103 allows for disclosure of returns or return information, the IRS has to determine the “owner” of the return or return information.

Here are questions about IRS disclosure issues related to identity theft.

1.

A fraudulent refund return is the return information of both the victim and the thief. True or false?

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or

 

 

THE ANSWER

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2.

The IRS is not authorized to disclose the identity thief’s separate and distinct return information to an identity thief victim. True or false?

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or

 

 

THE ANSWER

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3.

An identity thief is not necessarily a taxpayer for purposes of disclosure of tax information. True or false?

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or

 

 

THE ANSWER

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4.

Victims of identity theft may obtain copies of fraudulent returns.

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or

 

 

THE ANSWER

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Note: Taxing Lessons provides a summarized version of sometimes lengthy court decisions. The full case may include facts and issues not presented here. Please use the link provided in the post to read the entire case.

This information should not be considered legal, investment, or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment, or tax advice. Always consult your legal, investment, and/or tax advisor regarding your personal situation.

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A fraudulent refund return is the return information of the victim and the thief from the moment it is filed with the IRS.

When a fraudulent refund return is first filed with the IRS, the IRS will assume it is the return information of the victim, since the victim’s identifying information is on the return.

Information such as the date the return was filed, the document locator number assigned to it, the liability and payment amounts reported on the return, and the steps taken to process the return (including any refund) will all be posted to the victim’s account for that taxable year.

All this information was collected by the IRS with respect to the possible tax liability of the victim, making that information the victim’s return information. Section 6103 does not incorporate any temporal limit on the designation or identification of returns and return information of being that of a particular taxpayer, so the return would remain the return information of the victim.

At the same time, the identity thief, by knowingly filing a false return, subjects himself to other possible liabilities, so the return is the thief’s return information as well. As a result, the return filed in an identity theft scenario is often the return information of both the victim and the thief.

Even though the IRS may not be aware that the return or return information belongs to the thief until the identity theft is discovered, it is still the return information of the identity thief from the moment it is filed with the IRS.

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The tax code provides no authority for disclosure of an identity thief’s separate and distinct return information to an identity theft victim. The victim is not even entitled to disclosure of the identity thief’s identity.

However, where the information is the return information of both the victim and the thief, the IRS may legally disclose the information to the victim.

The IRS, however, may conclude as a matter of policy that disclosure of return information of the thief to the victim will impair tax administration and accordingly refuse to make such disclosures. See I.R.C. § 6103(e)(7).

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The IRS must determine to whom any return information would be disclosed before releasing that information because the exceptions to section 6103 are often based on who is receiving the disclosure. For example, the IRS may disclose to a taxpayer his or her own returns or return information, but the IRS is limited in who else may receive disclosures.

Section 6103(e)(1)(A)(i) and (7) authorize the IRS to release returns and return information of any taxpayer to the taxpayer himself. As a result, if information related to an identity theft return is the victim’s return information, the IRS may disclose that information to the victim. Additionally, an undocumented worker’s return or return information may be disclosed to the worker.

There is an argument, however, that a refund fraud identity thief must demonstrate that he is a taxpayer before the IRS can disclose return information to him as the taxpayer under section 6103(e)(7). Section 7701(a)(14) defines the term “taxpayer” as “any person subject to any internal revenue tax.” An identity thief generally has not filed the fraudulent return because he is subject to some internal revenue tax. Unless the identity thief can demonstrate that he is subject to an internal revenue tax, the identity thief is not entitled to his return information.

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A victim of identity theft may request a copy of a return that was filed using his or her own information, though it may be heavily redacted.

For example, redactions will include other victims’ return information. For additional information about obtaining fraudulent returns, the identity theft victim should visit https://www.irs.gov/Individuals/Instructions-for-Requesting-Copy-of-Fraudulent-Returns.

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