House passes taxpayer protection bill

WASHINGTON (Reuters) - The U.S. House of Representatives approved legislation on Tuesday that would require the government to notify taxpayers of unauthorized use of their Social Security numbers as a protection against identity theft and tax fraud.

The Taxpayer Prevention Act was passed on a vote of 407-7 as millions of Americans rushed to meet a midnight deadline to file their 2006 tax returns.

"On tax day we are reminded that we must do more to protect taxpayers from fraudulent tax schemes, misleading Web sites and predatory refund loans," said Rep. John Lewis, a Georgia Democrat who heads the Ways and Means oversight subcommittee.

Currently the government is limited in what it can tell people if their Social Security numbers are being used in a fraud case or by an illegal immigrant to gain employment. Taxpayers may not know there is a problem until they receive notification of taxes due to the Internal Revenue Service.

The bill would place new limits on loans made by tax preparers against anticipated tax refunds. Many of those loans are made to low-income people and carry high interest rates and fees that are considered predatory. While the legislation does not ban the loans, it would prevent some lenders from getting information from the IRS about debts to the government that would reduce a borrower's refund.

It also would provide information to prison officials to prevent tax fraud schemes and clarify rules prohibiting use of Treasury Department and IRS names and symbols on the Internet and impose stiffer penalties for their illegal use.

In the Senate, the Finance Committee plans to consider a separate package of taxpayer protections. The two bodies would have to work out their differences before sending a bill to the president for his signature.