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Issue  109
Published:  8/1/2004

Federal Legislative Update
Chris Burti, Vice President and Legal Counsel

Identity Theft Penalty Enhancement Act

H.R. 1731 has been passed by Congress and signed into law.

The terms ‘‘identity theft’’ and ‘‘identity fraud’’ refer to all types of crimes in which someone wrongfully obtains and uses another person’s personal information. This Act addresses the growing problem of identity theft. Many identity thieves receive short terms of imprisonment or probation in Federal prosecutions. This does not discourage many of these thieves from going on to use false identities to commit much more serious crimes after their release.

The following are examples of instances in which persons involved in identity theft received little or no prison time edited from the legislative history:

U. S. v. Amry. On October 15, 2003, Mohamed Amry, a former employee of a Bally’s Health Club in Cambridge, Massachusetts, pleaded guilty to a multi-count indictment charging him with conspiracy to commit bank fraud (18 U.S.C. § 371), bank fraud (18 U.S.C. § 1344), conspiracy to commit access device fraud and access device fraud (18 U.S.C. § 1029), and conspiracy to commit identity theft (18 U.S.C. § 1028). Amry, using a skimmer to obtain credit card data from members of the health club, provided stolen names, Social Security numbers, and credit-card information of at least 30 people to Abdelghani Meskini, who pleaded guilty to conspiracy in connection with the plot to blow up Los Angeles International Airport in 1999. Using victims’ names, Amry reportedly assisted Meskini in creating false green cards and Social Security cards.

Meskini used the information to open bank accounts in New York, where he deposited counterfeit checks. Amry was not charged with knowledge of the terrorists’ intentions in obtaining and using the stolen identities. On January 17, 2003, Amry was sentenced to 15 months imprisonment.

U. S. v. Scheller. Suzanne M. Scheller was a financial institution employee. Scheller accessed the financial institution’s computer system and searched for potential customers for a friend who was starting a real estate business. After identifying prospects, Scheller then provided the friend with the customer account information. Scheller admitted that she knew her unauthorized access was against the policy of the financial institution. The investigation established that some of the information provided by Scheller was actually used by another individual unknown to her as part of an identity theft scheme. Imposters used the customer account information to steal the identity of the customers and conduct transactions at the financial institution. Scheller pleaded guilty to one count of obtaining unauthorized computer access to customer account information from a financial institution, in violation of 18 U.S.C. §§ 2, 1030(a)(2)(A), 1030(c)(2)(B)(i), 1030(c)(2)(B)(iii). On November 30, 2001, Scheller was sentenced to 36 months probation.

U. S. v. Opara. On February 7, 2002, Chuck Opara, after having pleaded guilty to multiple counts of submitting false claims and identity theft, was sentenced to 15 months imprisonment. According to court documents filed in this case, Opara engaged in a multimillion-dollar fraud scheme.

U. S. v. Maxfield. On five separate occasions between 1996 and 1998, William K. Maxfield used the Social Security number of a William E. Maxfield (no relation) to obtain loans and lines of credit. Maxfield defaulted on some of the loans however, the more significant injury was to William E. Maxfield, who suffered harm to his credit rating and had great difficulty in clearing what appeared to be delinquent accounts. On January 9, 2003, William K. Maxfield was sentenced to 10 months imprisonment.

U. S. v. Rodriguez. While receiving Title II disability benefits, Dolores Rodriguez worked as a science teacher at a school under her husband’s Social Security number. She received over $80,000 in disability benefits. She pled guilty to a violation of 18 U.S.C. § 641. She was sentenced to 12 months home confinement, 5 years probation, and restitution.

U. S. v. Fergerson. Diana Fergerson had stolen the identity of another person years earlier. She used the stolen identity to apply for and receive Social Security benefits. She also used the stolen identity to establish credit. She received over $45,000 in Social Security disability benefits. She pled guilty to several charges including violations of 18 U.S.C. § 641 and 18 U.S.C. § 1028(a)(7). She was sentenced to 5 years probation and restitution.

U. S. v. Benavides-Holguin. Porfirio Benavides-Holguin, a resident of Chihuahua, Mexico, received Title XVI benefits under the name and Social Security number of his former brother-in-law, a U.S. citizen. He pled guilty to both counts of a 2-count indictment alleging violations of 42 U.S.C. § 1383(a)(2). He was sentenced to 10 months confinement, 3 years of non-reporting supervised release, and restitution.

The bill toughens penalties for violations of the law by adding a mandatory two-year prison sentence for persons convicted of using stolen personal information or credit card numbers to commit crimes. It also amends current law to impose a higher maximum penalty for identity theft used to facilitate acts of terrorism by providing that those convicted of identity theft to "commit an act of terrorism" will receive and additional five years in prison. President Bush signed the bill into law on July 16, 2004. Portions of the edited text of the Act follows:


This Act may be cited as the ‘‘Identity Theft Penalty Enhancement Act’’.


(a) IN GENERAL. —Chapter 47 of title 18, United States Code, is amended by adding after section 1028, the following:

‘‘§ 1028A. Aggravated identity theft

‘‘(a) OFFENSES. —

‘‘(1) IN GENERAL. —Whoever, during and in relation to any felony violation enumerated in subsection (c), knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person shall, in addition to the punishment provided for such felony, be sentenced to a term of imprisonment of 2 years.

‘‘(2) TERRORISM OFFENSE. —Whoever, during and in relation to any felony
violation enumerated in section 2332b(g)(5)(B), knowingly transfers, possesses,
or uses, without lawful authority, a means of identification of another person
or a false identification document shall, in addition to the punishment provided
for such felony, be sentenced to a term of imprisonment of 5 years.

‘‘(b) CONSECUTIVE SENTENCE. —Notwithstanding any other provision of law—

‘‘(1) a court shall not place on probation any person convicted of a violation
of this section;

‘‘(2) except as provided in paragraph (4), no term of imprisonment imposed
on a person under this section shall run concurrently with any other term of
imprisonment imposed on the person under any other provision of law, including
any term of imprisonment imposed for the felony during which the means
of identification was transferred, possessed, or used;

‘‘(3) in determining any term of imprisonment to be imposed for the felony
during which the means of identification was transferred, possessed, or used,
a court shall not in any way reduce the term to be imposed for such crime so
as to compensate for, or otherwise take into account, any separate term of imprisonment imposed or to be imposed for a violation of this section; and

‘‘(4) a term of imprisonment imposed on a person for a violation of this section
may, in the discretion of the court, run concurrently, in whole or in part,
only with another term of imprisonment that is imposed by the court at the
same time on that person for an additional violation of this section, provided
that such discretion shall be exercised in accordance with any applicable guidelines and policy statements issued by the Sentencing Commission pursuant to section 994 of title 28.

‘‘(c) DEFINITION. —For purposes of this section, the term ‘felony violation enumerated
in subsection (c)’ means any offense that is a felony violation of—

‘‘(1) section 641 (relating to theft of public money, property, or rewards),
section 656 (relating to theft, embezzlement, or misapplication by bank officer
or employee), or section 664 (relating to theft from employee benefit plans);

‘‘(2) section 911 (relating to false personation of citizenship);

‘‘(3) section 922(a)(6) (relating to false statements in connection with the acquisition
of a firearm);

‘‘(4) any provision contained in this chapter (relating to fraud and false
statements), other than this section or section 1028(a)(7);

‘‘(5) any provision contained in chapter 63 (relating to mail, bank, and wire

‘‘(6) any provision contained in chapter 69 (relating to nationality and citizenship);

‘‘(7) any provision contained in chapter 75 (relating to passports and visas);

‘‘(8) section 523 of the Gramm-Leach-Bliley Act (15 U.S.C. 6823) (relating to obtaining customer information by false pretenses);

‘‘(9) section 243 or 266 of the Immigration and Nationality Act (8 U.S.C. 1253 and 1306) (relating to willfully failing to leave the United States after deportation and creating a counterfeit alien registration card);

‘‘(10) any provision contained in chapter 8 of title II of the Immigration and Nationality Act (8 U.S.C. 1321 et seq.) (relating to various immigration offenses); or

‘‘(11) section 208, 811, 1107(b), 1128B(a), or 1632 of the Social Security Act

(42 U.S.C. 408, 1011, 1307(b), 1320a–7b(a), and 1383a) (relating to false statements
relating to programs under the Act).’’

Toxic Mold Bill Pending in Congress:

H.R.1268 was introduced on 3/13/2003 and sponsored by Representative John Conyers, Jr. with 34 Cosponsors. The bill was referred to House Subcommittee on Housing and Community Opportunity on 3/28/2003, for a period to be determined by the Chairman. No major action has occurred since that date.

The legislation would amend the Toxic Substances Control Act, the Internal Revenue Code of 1986, and the Public Buildings Act of 1959 to "protect human health from toxic mold, and for other purposes."

A summary follows:

The United States Toxic Mold Safety and Protection Act of 2003 (or the Melina Bill) –

Directs the Centers for Disease Control, the Environmental Protection Agency (EPA), and the National Institutes of Health (NIH) to jointly study the health effects of indoor mold growth and toxic mold.

Directs EPA to promulgate standards for preventing, detecting, and remediating indoor mold growth.

Directs EPA, NIH, and the Department of Housing and Urban Development (HUD) to sponsor related public education programs.

Directs rental property lessors to conduct annual indoor mold inspections and notify the occupants of such results.

Directs the Secretary of HUD and the Administrator of EPA to promulgate mold hazard disclosure regulations with respect to housing offered for sale or lease.

Directs the Secretary of HUD to establish, with respect to indoor mold in public housing, inspection requirements for existing housing and construction standards for new housing.

Directs the Secretary of HUD to establish model construction standards and techniques for mold prevention in new buildings.

Establishes an indoor/toxic mold inspection requirement with respect to federally made or insured mortgages.

Amends the National Cooperative Research and Production Act of 1993 to provide for industry standards development with respect to building products that are designed to retard mold development.

Directs the Administrator of EPA to make grants to States and local governments for mold growth remediation efforts in buildings owned or leased by such governments, including schools and multifamily dwellings.

Amends the Internal Revenue Code to allow an annual tax credit for 60 percent of non-reimbursed mold inspection and remediation expenses ($50,000 annual maximum) paid or incurred by a taxpayer.

Requires the Director of the Federal Emergency Management Agency to:

    1. establish and carry out a toxic mold insurance program, with priority for one-to-four-family residential properties; and
    2. establish in the Treasury a National Toxic Mold Hazard Insurance Fund.

Authorizes the Director to assist qualifying insurers to form a federally assisted toxic mold hazard insurance pool. Provides for Federal operation of such program under specified circumstances.

Authorizes State waiver of income, resource, and other Medicaid requirements for an individual whose health has been adversely affected by toxic mold exposure, and who lacks adequate medical insurance coverage.

Frequently Asked Questions - 1031 Exchanges
Sarah Friede, Legal Counsel and Senior Underwriter

Those of you who attend Statewide Title’s CLE seminars every year know that for many years we have dedicated a portion of the seminar to Section 1031 tax-deferred exchanges. The segments on 1031 exchanges have become increasingly complex in the last couple of years, so this year we decided to return to the basics: What you think you know, what you know you should know, and what you wish you knew. Some of the answers might surprise you! Here are a few of the questions we’ll be addressing this fall:

Q: My clients are selling vacant land. Do they have to buy vacant land as replacement property?

A: No. The definition of "like-kind property" makes distinctions based on real property vs. personal property but does not make any distinctions based on the type of real property exchanged. Any real property held for productive trade or use can be exchanged for any other.

Q: My clients own property zoned for single-use only. Are they required to find replacement property that’s also zoned for the same use?

A: No. Zoning regulations and restrictions are not taken into consideration when determining whether exchange property is like-kind.

Q: My clients want to exchange a vacation home in the mountains as part of a 1031 exchange. Can they do that?

A: It depends. The IRS requires exchange property to be held for productive use in a trade or business, or be investment property. Most vacation homes do not qualify under those requirements.

However, if the home is made available for rent for at least 50 out of 52 weeks, and the owners have reserved no more than 2 weeks for personal use, then a vacation home can qualify. Note that the IRS does not require the home actually be rented 50 weeks, just that it be available for rent that amount of time.

Q: My clients want to buy a home to use as rental property until they retire. Can they do that as part of a 1031 exchange?

A: While there are no specific guidelines about how long property must be held as investment property before converting it to another use, it seems clear that the IRS looks to the taxpayer’s intent at the time of the exchange. If the taxpayer intended at the time of purchase to use it as investment property and did, in fact, use it as investment property, then the IRS will probably let the exchange stand. Two years is the guideline that most tax professionals use when advising their clients about a holding period.

Q: My clients are wrapping up a reverse exchange in which they obtained a loan for the purchase of the replacement property. When you get the proceeds from the relinquished property, can you just disburse the proceeds to my clients and let them keep paying on the loan? In other words, what difference does it make where the money goes?

A: No. Tufts v. Commissioner, 103 SCt 1826, 461 US 300, 5/2/83 held that loan funds received to purchase property are not considered a taxable benefit to a taxpayer because the taxpayer is obligated to repay them. Repayment of the loan through the sales proceeds are also considered a non-taxable event because it is simply the discharge of a debt. However, proceeds distributed to a taxpayer -- regardless of any obligation to repay an existing loan -- IS a taxable event. Taxpayers can be reimbursed for funds they directly spent out-of-pocket to pay for the replacement property, but they can’t double-dip. They can’t get a loan AND get the proceeds and write both off as non-taxable events.

These and numerous other issues will be addressed during our upcoming seminars.

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