TAX FRAUD SCHEMES. - 60 Minutes

[FEDUKE404]

EIN inaccuracies

It still is a common fraud scheme. The employer in your case didn't give an employer name/EIN that matched anything in the IRS database on the bogus W-2's. If they were around just one year they may have not even bothered to get an EIN and just made one up.

Several years ago I encountered a different flavor with an employer EIN matching problem.

Seems a client had been doing some part-time teaching at XYZ College. The same institution of higher learning also had associated with it something like XYZ College Foundation. Both had separate EINs, similar/same mailing addresses, and the foundation generated a meaningful number of W2s to its own employees. My client was paid by the college proper, and for several years had been receiving similar W2s for the part-time (night school) teaching.

So, the client's tax return bounced because of an EIN mismatch. Put on my bifocals, checked everything carefully, and resubmitted with same results. Contacted IRS via phone (back when I did such foolish things!) and the best answer I could get was the information did not match their data base. Of course, they would not tell me what was IN their data base.

I contacted the school (this was probably in month of June since return was a monster. . .LAST thing you would ever want to submit via paper) and had been extended. Person in payroll was fully aware of the problem, said there was "an issue" with the IRS/SocSec folks, and no corrected W2s would be issued nor any other suggestions offered. When I asked what "their" employees were doing/had done for tax filing, in a monotone she basically said "no one who worked for us can electronically file this year."

So, we filed a paper return and paid a lot of postage to get it to Memphis or wherever the location was at the time.

I find it ironic the legitimate tax preparers have to run the gauntlets put into place by the IRS, but apparently just about anyone can file a boat-load of returns with TaxSlayer and similar and then just wait for (some of) the checks to arrive in the mail. . .

Oh well. Have a pleasant 4th.

FE

[David1980]

That used to be a common fraud scheme with paper filing. In 2010 a new client of mine kept on getting an e-file reject because one of the W2's he had for part-time work had a EIN /name mismatch. Come to find out that this employer issued bogus W2s to all its employees that particular year, closed shop and disappeared! I suspect they never deposited any of the payroll taxes.

It still is a common fraud scheme. The employer in your case didn't give an employer name/EIN that matched anything in the IRS database on the bogus W-2's. If they were around just one year they may have not even bothered to get an EIN and just made one up.

[ATSMAN]

There is a reject for EIN and employer name not matching. But it's not very hard to find an EIN online when you don't need a specific company. So someone just googles "Walmart EIN" and they've got all they need for that part of it. The IRS doesn't currently match that the taxpayer actually received a W-2 from that company. Then they just need the first 4 characters of the last name and the SSN and they're golden. (DOB also if using DIY software.)

That used to be a common fraud scheme with paper filing. In 2010 a new client of mine kept on getting an e-file reject because one of the W2's he had for part-time work had a EIN /name mismatch. Come to find out that this employer issued bogus W2s to all its employees that particular year, closed shop and disappeared! I suspect they never deposited any of the payroll taxes.

[David1980]

There is a reject for EIN and employer name not matching. But it's not very hard to find an EIN online when you don't need a specific company. So someone just googles "Walmart EIN" and they've got all they need for that part of it. The IRS doesn't currently match that the taxpayer actually received a W-2 from that company. Then they just need the first 4 characters of the last name and the SSN and they're golden. (DOB also if using DIY software.)

[FEDUKE404]

Solutions

Yes, it really wouldn't matter what the source of the refund is on an identity theft return. Avoiding EIC isn't a bad strategy - one return per SSN instead of using some for dependents and hoping you have accurate DOBs (and if you're using Practitioner PIN method of signing return, you don't have to get a match on taxpayer DOB!)

One way to cut back on identity theft would be to do matching of all withholding forms before issuing a refund. So if you report $2,000 of tax withheld for Walmart and the IRS can't match up any W-2 with $2,000 of Walmart on their end the refund isn't issued.

Of course, that would require W-2 be submitted earlier and better computers to do the matching so it's not likely. But let's say they did it - all an identity theft would have to do is transition from W-2 withholding to Sch C (or more likely Household Help on line 7) with EIC to generate the refund.

Thus, if you could eliminate refundable credits combined with withholding form matching prior to refund identity theft would be very hard to pull off. You'd have to actually steal the W-2's and such in addition to the taxpayer SSN and name.

Not to belabor the point, but instead of an "identity theft" issue apparently the only thing needed is a name/SSN/DOB. PERHAPS the IRS software will cross-match the employer's EIN shown on the "W2" ??

If anyone knows: For the online DIY tax filing stuff (I see them advertised all over the place, especially on web sites/newsletters for banks or credit unions) what is REALLY needed to file a return? My guess is, for a "self-filer," that anything related to PTIN and/or EFIN is totally irrelevant. As mentioned in the 60 Minutes segment, all you really need is "a source" to get you some names/SSNs/DOBs and you're in business so long as you file the fake return before the real owner gets around to filing a valid return.

FE

[David1980]

But if you saw the 60 Minutes story, it did not appear as if EIC was a (substantive) issue. The fellow interviewed just made up fake W2s, using a person's known SSN and DOB, filed a reasonably "simple" tax return, and just waited for the refunds to roll in.

Yes, it really wouldn't matter what the source of the refund is on an identity theft return. Avoiding EIC isn't a bad strategy - one return per SSN instead of using some for dependents and hoping you have accurate DOBs (and if you're using Practitioner PIN method of signing return, you don't have to get a match on taxpayer DOB!)

One way to cut back on identity theft would be to do matching of all withholding forms before issuing a refund. So if you report $2,000 of tax withheld for Walmart and the IRS can't match up any W-2 with $2,000 of Walmart on their end the refund isn't issued.

Of course, that would require W-2 be submitted earlier and better computers to do the matching so it's not likely. But let's say they did it - all an identity theft would have to do is transition from W-2 withholding to Sch C (or more likely Household Help on line 7) with EIC to generate the refund.

Thus, if you could eliminate refundable credits combined with withholding form matching prior to refund identity theft would be very hard to pull off. You'd have to actually steal the W-2's and such in addition to the taxpayer SSN and name.

[FEDUKE404]

Nature of the problem

The government doesn't want to stop EIC fraud. Those people go out and spend that money (even the ones receiving it fraudulently) and boost the economy in February and March.

The government could fix it by having the IRS release the children SSN and the person claiming EIC to the states. The states could then cross check if the child is on welfare and who is telling them the child lives with.

Won't solve all EIC fraud, but would put a dent in it.

We all agree the EIC is probably the single largest item for tax fraud. But virtually no one will attack it in a meaningful way, to a large extent because of political and/or politically correct reasons. It is the third rail of income tax issues. While there is now some greater "enforcement," to a large extent that primarily impacts the (legitimate) tax preparers, and for valid reasons many tax preparers, to include myself, shy away from EIC returns except for long-established clients. The "taxpayers" know how to bilk the system by having the correct responses/"identification" ready. For anyone who has worked the "January rush" in a store-front tax business, you know exactly what I mean!! And they laugh all the way to the bank (or more likely the check-cashing kiosk) each year with their "refund."

But if you saw the 60 Minutes story, it did not appear as if EIC was a (substantive) issue. The fellow interviewed just made up fake W2s, using a person's known SSN and DOB, filed a reasonably "simple" tax return, and just waited for the refunds to roll in.

As I think I mentioned earlier, this is a separate chapter to true "ID theft" in that these actions primarily impacted only electronically filed tax returns, likely of the online DIY type. Those unfortunate individuals who have experienced true "ID theft" have other issues - to include drained bank accounts, new credit cards (unknown until the bills arrive), new loans (same), and of course the resulting destruction of their credit history.

With the use of anything above the level of a TRS-80, the IRS should be able to stop multiple refunds to the same mailing address and/or to the same bank account. I don't see why they can't figure out why there might be a problem with multiple heads of household at the same address! And the Additional Child Tax Credit is another area of huge fraud.

But, so it goes. . .

FE

[TAXNJ]

Smart

The government doesn't want to stop EIC fraud. Those people go out and spend that money (even the ones receiving it fraudulently) and boost the economy in February and March.

The government could fix it by having the IRS release the children SSN and the person claiming EIC to the states. The states could then cross check if the child is on welfare and who is telling them the child lives with.

Won't solve all EIC fraud, but would put a dent in it.

Now that is another great simplified & doable method. Will probably hear that it's work for them, cost $300b to 1T to do it, hire more people and update the systems (though the data is already available)

The answer might be what one of the presidential candidates wants to do - raise the top bracket to 90%! That might be still too low. Why not a 98% tax bracket for everyone and give the people 2% allowance money.

Then the politicians can spend more money and tell us they are going to stimulate the economy.

[tpnl]

EIC fraud

The government doesn't want to stop EIC fraud. Those people go out and spend that money (even the ones receiving it fraudulently) and boost the economy in February and March.

The government could fix it by having the IRS release the children SSN and the person claiming EIC to the states. The states could then cross check if the child is on welfare and who is telling them the child lives with.

Won't solve all EIC fraud, but would put a dent in it.

[taxmom34]

yea, agree. and I believe very few , if any will be able to do so.

[kathyc2]

The only thing the politicians can agree on is the tax code should be updated/simplified. But try to actually do it and they cannot agree on which direction to go.

That may be what they say, but it's not what they do. If they really want simplification all they need to do is pass a law that all members of Congress need to prepare their own tax returns!

[Uncle Sam]

"forced every taxpayer to use a paid preparer"

I believe you left out one MATERIAL difference -
How about a LICENSED paid preparer?

[taxea]

Great suggestion. How did you verify the stats?

Hope and wonder if the IRS is aware of this and if so, why not implement what you suggest?

yes the IRS is aware and this is the reason why some states took a second look at returns filed though Turbo Tax.

[David1980]

I saw the 60 minute piece and was amazed at how many fraudulent returns these guys were submitting every day . the guy averaged 40% of refunds he submitted. I think that the best way to at least stop some of this is to get rid of the EIC credits, send these monies back to the welfare department of each state and let local government figure out who gets how much. they are more likely to be able to see the fraud. the EIC credit is so large that crooks are not worried about getting caught.
another area is for IRS to not allow monies to be deposited to someone else's bank account. if your name is not on the account you get a check in the mail.
just my two cents, thank you.

Yes, I agree. Eliminate refundable tax credits (administer welfare differently) would be great for reducing identity theft fraud. That would of course require an act of congress which is not likely, unfortunately. The only thing the politicians can agree on is the tax code should be updated/simplified. But try to actually do it and they cannot agree on which direction to go.

Matching up withholding before issuing a refund would help as well. There's complications there of course.

Improving the system to require the name on an account match would help. I think right now the IRS sends the name with the deposit but it's up to the bank to reject or not reject the deposit.

Taxpayer PIN is a good one too that was mentioned here. While a doctor or school might have my SSN they wouldn't have my tax filing PIN. So it would offer an additional level of protection and certainly the big insurance companies have been getting hacked left and right this year.

Strict penalties for sure. Would it require congress to act? I'm not sure where criminal penalties are determined.

Requiring PTIN? I just don't see that as really helping anything. Obviously if we forced every taxpayer to use a paid preparer it would be fantastic for us business wise - eliminate the DIY filers. But from a practical matter it's simple to get a PTIN. It would be like installing a lock on your home's front door that requires a key. Any key - not a specific key. All someone would have to do to open that lock is to get a key from anywhere and they'd be in. Same with requiring a PTIN. Use the PTIN off the return your preparer did for you last year for example.

[TAXNJ]

Great

The majority of these ID theft returns were done through free DIY online or other DIY tax software,,,they don't require a ptin for filing....my post suggested this type of filing should be eliminated.

Great suggestion. How did you verify the stats?

Hope and wonder if the IRS is aware of this and if so, why not implement what you suggest?