Benny Watters, 5, died of a brain tumor in September 2010. Ten months later, when his parents sought to file their taxes and claim him as a dependent, they found that an identity thief already had done so, using government data about Benny’s death on a fraudulent return.
“It was almost like somebody had stolen him from us,” said his mother, Lisa Watters of Lake Forest, Illinois, who described in an interview how she quickly found the data needed to co-opt her dead son’s identity on the Internet. “It’s just so easy, and I don’t know what purpose it serves.”
The information about Benny Watters and more than 89 million other people resides in the U.S. Social Security Administration’s Death Master File, a compilation of records the agency uses to stop paying benefits and start paying survivors after people die. Updates to the file also provide raw material for identity thieves who obtain tax refunds before the legitimate returns arrive at the Internal Revenue Service.
U.S. lawmakers working with identity-fraud victims are trying to limit or prohibit access to the Death Master File. The most restrictive proposals are meeting resistance from credit reporting companies, pension funds and life insurers that use the data to prevent fraud and administer benefits. A panel in the U.S. House of Representatives is holding a hearing on the subject today.
IRS Balancing Act
The IRS must balance accuracy and fraud prevention with taxpayers’ need to get their returns and refunds processed quickly. Once the IRS sends a refund to a disposable debit card, the government’s money is gone, said Senator Bill Nelson, a Florida Democrat who sponsored legislation that would limit access to the file.
“It’s very hard to trace,” he said in an interview. “The fact that people’s Social Security numbers are being published is a huge problem.”
More than 460,000 people have been the victims of tax-related identity theft since 2008, according to the IRS. The agency has been trying to flag deceased taxpayers’ final returns and prevent anyone else from using those Social Security numbers. As of mid-March, the agency had stopped 66,000 returns this year for that reason.
Nina Olson, the national taxpayer advocate, has called the use of dead people’s identities a “relatively new tactic” in the broader identity-theft problem. The IRS uses automated fraud filters, which it frequently refines, to flag questionable tax returns.
“You would just assume in this day and age all the systems might be linked a little better,” Watters said.
Furthermore, because of taxpayer privacy laws, identity theft victims or their surviving relatives don’t know who filed the fake returns. The IRS is starting a pilot program that will allow state and local law enforcement officials to gain access to some of the information with those taxpayers’ consent.
The Death Master File dates to 1980, when Social Security settled a lawsuit filed under the Freedom of Information Act. The agency created the file and the government began selling it rather than responding to individual requests. Information from the file can be found on genealogy websites, among other places.
Michael Astrue, the commissioner of the Social Security Administration, told a congressional subcommittee in February that his agency doesn’t have the authority to stop making the information available without legislation.
“Identity theft is a spreading plague on our nation,” he said in prepared testimony. “The federal government must do all that we can to curtail this problem, and we certainly should not make it worse.”
Nelson said he disagrees and thinks the government should wait six or 12 months before posting full Social Security numbers online.
“We think they have more flexibility than what the head of Social Security is saying,” he said.
Last year, the Social Security Administration removed data it received from state agencies. The file still contains death reports from family members, funeral homes and financial institutions, and it contains complete Social Security numbers.
Representative Sam Johnson, a Texas Republican, has introduced a bill to keep the information from being made public. Johnson is chairman of one of the two subcommittees holding today’s hearing.
The same data that can be used to commit fraud also is used to prevent it, said Stuart Pratt, chief executive officer of the Consumer Data Industry Association, a Washington-based trade group of data companies whose members include Equifax Inc. and CoreLogic Inc.
‘Prevent the Fraud’
“The faster that we can get it and the more current that information is, the more likely we can prevent the fraud that occurs in that early window right after someone dies,” Pratt said.
Companies including Trans Union LLC, Prudential Financial Inc., and the Northwestern Mutual Life Insurance Co. have been lobbying on the issue, according to U.S. Senate records.
Life insurance companies use the Death Master File to stop or change annuity payments upon death and to close out policies that beneficiaries may not have claimed.
“The removal of data or the threat that it wouldn’t be available at all would be troubling to the life insurance industry,” said Mary Jo Hudson, an attorney at Bailey Cavalieri LLC in Columbus, Ohio, who represents life insurers. Hudson, a former director of the Ohio Department of Insurance, said most life insurers probably could accept limits on how the data is used or shared.
Using the File
States including New York, Maryland and Kentucky are requiring or urging companies to use the file more often so that beneficiaries who may not know about policies can obtain money they are owed.
Such legitimate uses aren’t the problem, said Jonathan Agin, a lawyer from Arlington, Virginia, whose 2010 tax return was blocked because someone had used the Social Security number of his deceased 4-year-old daughter, Alexis. What’s especially galling, he said, is that the information is “served up on a silver platter” for thieves.
“It’s bad enough when you lose your child. You’ve lost such a huge part of your life,” Agin said in an interview. “Then to have their identity taken and utilized, it’s just a compounding injury to a family. That’s something that I don’t think a lot of people understand.”
Nelson’s bill is S. 1534. Johnson’s bill is H.R. 3475.