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White House to propose restrictions on Master Death File to fight tax fraud

It has an ominous sounding name: the Master Death File. The Obama administration will urge Congress to restrict access to it as part of a package of recommendations for reducing the fastest growing type of tax fraud, according to an official familiar with the proposals. 

Since 1980, the Social Security Administration has aggregated data on Americans who die, updating its list every week. The Master Death File was created in 1980 in response to a court case seeking access to death records through the Freedom of Information Act.

The government sells the data to financial firms, investigative agencies, credit reporting and insurance companies, and medical customers. A version of the data is also available publicly, and federal investigators say it has become a rich source of information for criminals.

The crime of stealing someone's identity to get a tax refund has exploded,  and some of that growth involves fraud based on the identify of taxpayers or dependents who have died. The IRS says it stopped five million suspicious returns last year, up from three million in 2011.  That amounts to phony claims for $20 billion in refunds blocked last year, up from $14 billion the year before.

The government says the Master Death File contains personal information on roughly 85 million holders of Social Security numbers who have died since 1936. Data on 1.3 million new deaths are added each year.

In its budget proposal to be sent to Congress Wednesday, the administration will propose delaying public release of death data for at least three years, while still making it available to users able to demonstrate a legitimate need for it.

Rep. Sam Johnson, a Texas Republican who chairs the House Social Security subcommittee, is expected to introduce a bill within a few weeks to impose restrictions on access to the death data. He introduced a similar bill in the last Congress.

"Worrying about a loved one's Social Security number is the last thing a grieving family should have to do," he said.

The administration will also ask Congress to allow employers to use shortened versions of Social Security numbers on W-2 wage statements for their employees, to prevent criminals from being able to use statements they obtain illegally in order to file fraudulent returns.

And the White House will seek tougher penalties for tax fraud based on identity theft, including longer prison sentences and civil fines of up to $5,000, according to an administration official.

The Internal Revenue Service says it has committed more manpower to detecting fraudulent refund claims, looking for such red flags as several returns that are filed from the same address or claimants seeking multiple refunds payable to the same bank account.

"We now have 3,000 folks that are dedicated solely to identify thefts, and that's double what we had working identify theft last year," said Beth Tucker, Deputy IRS Commissioner for Operations.

"Our filters are working, but the fraudsters are out there, trying to get some money off the filing season," she said. 

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