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Neal Pledges To Work On GOP Tax Identity Theft Bill

By Stephen Cooper · February 10, 2021, 6:38 PM EST

House Ways and Means Committee Chairman Richard Neal, D-Mass., said Wednesday that he's open to Republican legislation to ensure that victims of unemployment fraud and tax identity theft don't have to pay federal taxes on income they never received.

During committee work on President Joe Biden's $1.9 trillion pandemic relief proposal, Neal pledged to work with Rep. Brad Wenstrup, R-Ohio, on his legislation to stop the Internal Revenue Service from collecting taxes on fraudulently claimed unemployment benefits.

Wenstrup's IRS tax administration proposal was offered as an amendment to the unemployment provisions of the pandemic relief plan, which the committee had originally scheduled to complete work on by Friday. Neal said he thought the committee might finish by Thursday.

Unemployment benefits are considered taxable income and must be reported on IRS Form 1099-G, Wenstrup told lawmakers, noting that many identity theft victims learn they owe taxes on UI benefits they never received once they get these forms.

In Ohio, the state attorney general's office expects 1.7 million 1099-G tax forms will be mailed in February, but thousands of these forms will be for fraudulent claims that were filed using stolen identities, Wenstrup said, adding that the numbers are expected to grow as the 2021 tax filing season gets underway.

"To avoid having to pay taxes on benefits they haven't received, taxpayers will have to contact the state to report the fraud and correct the form," he said.

Wenstrup's bill would give states an extra 30 days to file Form 1099-G with the IRS so that officials will have more time to work with taxpayers to correct information. The legislation would also hold taxpayers immune to IRS penalties and interest from the fraudulent claims and require the service to report the amount of fraud so that Congress can learn how much in unemployment benefits is diverted.

The legislation drew plaudits from Neal, who called it a sensible proposal, but Wenstrup decided to delay a vote on it after Neal pledged to work with him on the plan. Neal and committee Democrats were prepared to reject it on grounds that it primarily dealt with IRS tax administration; therefore, it was not germane to the underlying unemployment legislation.

Neal said that he and his staff would work with Wenstrup on the issue over the next several days.

"I've certainly heard arguments that gentleman has made from my own constituents," Neal said.

Rep. Kevin Brandy, R-Texas, the ranking member on the Ways and Means Committee, called it crucial for the IRS and the Department of Labor to help taxpayers whose identities are stolen and who are stuck with tax bills. 

Wenstrup and a group of House Republicans wrote Treasury Secretary Janet Yellen and Acting Labor Secretary Al Stewart asking they protect taxpayers and help states meet the challenge of dealing with fraudulent claims. 

"In addition to the unprecedented burden placed on the states to reissue so many corrected Forms 1099-G with less than three months before the tax filing deadline on April 15, the most recent IRS guidance places the onus on the taxpayer to simply 'file an accurate tax return, reporting only the income they received' should they be unable to obtain a revised Form 1099-G in time to file," the letter reads. "However, many of our constituents will be wary of self-correcting this error for fear of adverse IRS action."

An IRS representative did not respond to an email seeking comment on Wenstrup's proposal.

--Editing by Vincent Sherry. 

Update: This story was updated to reflect when Neal believes the markup will be finished.

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