IRS may share tax info with police to fight fraud

WASHINGTON Tue Mar 20, 2012 6:37pm EDT

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WASHINGTON (Reuters) - A surge in tax refund fraud and identity theft has prompted the Internal Revenue Service to consider sharing more tax return information with police, a senior official told a congressional hearing on Tuesday.

In a move that could spark concerns over personal privacy, the IRS said it is considering a pilot program in Tampa, Florida, where identity theft and refund fraud are rife.

"We are limited in what we can supply to local law enforcement," said Steven Miller, deputy IRS commissioner for services and enforcement.

Tax return information is normally kept tightly secret by the IRS. Under the program, exceptions could be made, with the permission of victims of identity theft and tax refund fraud, so that bogus tax return documents could be shared with police.

Tampa has seen a rash of identity theft and tax refund fraud cases since last year, totaling $130 million in stolen funds. Suspected wrongdoers steal Social Security numbers and file returns seeking tax refunds, using an abandoned home or another phony address as a delivery point.

Democratic Senator Bill Nelson of Florida held the hearing to tout his legislation to allow more taxpayer information sharing between the IRS and local law enforcement.

No date has been set for the Tampa program to begin, according to IRS.

In 1976, Congress made it a crime for IRS workers to share taxpayer information.

"There was a reason why we are limited in providing to local law enforcement, in an unfettered matter, tax returns," Miller said. "Congress has treated tax return information as sacrosanct."

Nina Olson, the national taxpayer advocate at the IRS, supported some information sharing, but cautioned that once local law enforcement has access to taxpayers' returns, they could be shared with other people.

Congress should modify the IRS information-sharing prohibition but limit the disclosure of the information for any purpose other than law enforcement, she said.

(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh; Desking by Lisa Shumaker)