Death List Limits to Curb Tax Fraud by Identity Thieves

The U.S. government is poised to limit public access to death records that have been used for years by identity thieves to commit tax fraud.

A provision in the budget measure passed 64-36 by the U.S. Senate today would limit access to information in the Social Security Administration’s Death Master File to certified entities, such as life insurers and pension funds that use the data to combat fraud and administer benefits. The limits would apply for three years after an individual’s death.

“We’re going to save the U.S. government money that otherwise is being stolen,” said Senator Bill Nelson, a Florida Democrat.

The changes would save the U.S. government an estimated $786 million over the next decade by reducing fraudulent claims, according to the Congressional Budget Office. The limits also may keep genealogists from seeing the records immediately.

The bill is now headed to President Barack Obama for his signature.

Nelson and other lawmakers have been trying for several years to limit access to the death records. On the Senate floor yesterday, he cited the cases of children whose identities had been stolen after they died.

In a typical case, an identity thief files a tax return using a stolen Social Security number before the legitimate return could be filed, claiming a refund and plunging the real taxpayer’s family into months of limbo.

‘Grieving Family’

“Worrying about the stolen identity of a loved one is the last thing a grieving family should do,” Representative Sam Johnson, a Texas Republican and chairman of the House Ways and Means Committee’s panel on Social Security, said in a statement.

According to the independent National Taxpayer Advocate, the annual caseload for the Internal Revenue Service’s identity theft unit increased 78 percent to 450,000 in fiscal 2012.

Thieves obtain taxpayers’ personal information in other ways, including through stolen payroll records.

Companies including New York Life Insurance Co., Equifax Inc. (EFX) and Nationwide Mutual Insurance Co. have been lobbying Congress on the death list issue, according to Senate records.

Stuart Pratt, chief executive officer of the Consumer Data Industry Association, said lawyers are studying the language to see how it would work in practice. The group, which includes companies such as credit-reporting service Experian Plc (EXPN) and credit data provider CoreLogic Inc. (CLGX), was encouraged by exceptions for business purposes, he said.

1980 Lawsuit

“It’s critically important that the legitimate business needs are preserved,” Pratt said.

The death records became public after the government settled a lawsuit in 1980. The government created the file and began selling it rather than responding to individual requests.

The legislation would exempt the records from the federal Freedom of Information Act and give the Commerce Department 90 days to set up a process to certify legitimate users. The public would have access to the data three years after an individual’s death.

The language in the bill was taken from a Senate Finance Committee draft from which lawmakers had asked for comment by mid-January, said Alane Dent, vice president for taxes and retirement security at the American Council of Life Insurers.

Dent said her group is trying to get assurances from agencies and lawmakers about how the certification process will work.

‘Confusion,’ Ambiguity

In a statement, Utah Senator Orrin Hatch cited “confusion and ambiguity” during the legislative process and said there should be “balance” as Commerce officials write rules.

“We need a robust rulemaking process, where all interested parties are afforded the time and opportunity to adequately express their interests,” said Hatch, the top Republican on the Senate Finance Committee.

In the Senate yesterday, Nelson, Washington Democrat Patty Murray and Pennsylvania Democrat Bob Casey said the government shouldn’t interpret the law to cut off access immediately.

“It’s essential to strike the correct balance,” Casey said, adding that banks and investment companies in his state use the information.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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