It’s the time of the year when exasperated taxpayers and preparers are tempted to say, “bugger all this, I’m going to go for the gusto and cheat on my taxes!” That’s when it’s useful to look in on an old friend of the Tax Update to see how well that’s going.
Let’s look in on Rashia Wilson, who proclaimed herself (on Facebook!) the “Queen of IRS Tax Fraud.” Her reign was cut short by federal identity theft tax refund charges, resulting in a 21-year sentence. And with federal sentences, you have to serve at least 90% of the time.
Ms. Wilson naturally was unhappy with this judicial lèse-majesté, so she appealed, citing procedural irregularities. The trial judge was ordered to reconsider. On further review, the call on the field stands. 21 years. Robert Wood has more.
Iowa has tax ID fraud too. While South Florida may be the kingdom of tax refund fraud, it has colonies everywhere. Even in Iowa: Cedar Rapids woman charged with filing false tax returns (KWWL.com):
The United States Department of Justice says 33-year-old Gwendolyn Murray is charged with twelve counts of filing false claims for tax refunds, seven counts of theft of government property, and two counts of aggravated identity theft. The indictment containing the charges was unsealed on Tuesday.
It is alleged that Murray filed 12 fraudulent tax returns in 2012 and 2013 using other people’s names. She received refunds on seven of those tax returns. The court also alleges that Murray stole the identities of two people.
It’s good to prosecute ID thieves, but it’s far better to keep them from thieving. It’s eye-opening that 7 of the 12 alleged attempts allegedly succeeded. Criminals aren’t known for their impulse control or their ability to anticipate long-term consequences. If they see somebody get a bunch of cash just from keying in some numbers on a computer, they’re going to want some of that bling themselves, and they aren’t going to ponder the likelihood of a prison sentence first. The IRS is pretty much leaving the door unlocked and the cash register open.
Megan McArdle says the culture of “getting a big refund” is part of the problem in Fewer Tax Refunds, Fewer Scams:
If all returns were submitted at the same time, and refunds were held until they could be cross-checked against the IRS’s copies of W-2s and 1099s, then this sort of fraud wouldn’t work very well; the IRS would know it had two returns and could start the process of figuring out which one was fraudulent before it mailed the check. But we love our early refunds, and people often count on getting that check as early as possible.
She offers wise advice:
However, there’s one thing you personally can do to fight tax fraud, and that’s make sure that you don’t give the government more money than you have to. You should never get excited about a tax refund; all it means is that you gave the government a substantial interest-free loan by withholding too much tax throughout the year. You should aim for your refund to be as small as possible — ideally, zero.
A system that sends $21 billion annually to fraudsters — and that number is rising rapidly — can’t continue forever. Part of this will be a technological fix. My wife can’t buy a dress at Nordstrom in Chicago without triggering phone calls from two credit card companies. Meanwhile, the IRS happily wires wads of cash to Rashia. One would hope the IRS could learn something from Visa and Discover.
But the IRS is bad at technology, so part of the fix will have to be slower (and ideally, smaller) refunds. This could include lower penalty thresholds for underpayments so that taxpayers will be more willing to risk owing a bit on April 15 — perhaps combined with withholding tables that leave taxpayers owing a bit, rather than getting refunds.
What else can you do to protect yourself?
- Be careful with your tax information. Never divulge your bank account or credit card info to strangers over the phone.
- Assume any unexpected call from a tax agency is a scam.
- Don’t send copies of 1099s and W-2s as e-mail attachments to your preparer, and don’t email a pdf of your 1040 to a loan officer. That leaves your information exposed.
- When you transmit confidential information, use strong encryption, or better yet upload it via a secure file transfer site, like the FileDrop system we use at Roth & Company.
Peter Reilly, IRS Grossly Unqualified To Make Determinations About Software Related Exempt Applications. The IRS is grossly unqualified for any number of things that Congress gives it to do. Just a very few that come immediately to mind:
– Determining what is “qualified research” for the research credit.
– Determining the energy properties of “green fuels” for the biofuel subsidies.
– Running the nation’s healthcare insurance finance system.
– Policing political speech by tax-exempt organizations.
An outfit that can’t keep two-bit grifters from cashing in billions in tax refunds annually shouldn’t be looking for new things to do.
Jack Townsend, More on Light Sentencing for Offshore Account Tax Crimes.
Russ Fox provides a valuable service with Online Gambling Addresses Updated for 2015. Taxpayers with offshore online gambling accounts are required to report them on the “FBAR” report of foreign financial accounts (Form 114). The FBAR requires a street address for the account, and these can be hard to find for gambling websites.
William Perez offers advice on how to Communicate Effectively with Your Tax Preparer. We aren’t always the best company this time of year. Come prepared, be efficient, and you can leave our office before we do something bizarre. Other than what we do for a living, of course.
Jason Dinesen, Marriage in the Tax Code, Part 3: Big Changes in 1917
Jim Maule, The IRS and the Taxpayer: Both Wrong. “The taxpayer argued that because the distribution from the IRA was less than the his investment in the IRA, it should be treated as a return of investment. The IRS argued that the entire distribution should be included in the taxpayer’s gross income. The Tax Court concluded that both the taxpayer and the IRS were wrong.”
Kyle Pomerleau, The Rubio-Lee Plan Would be Good for Everyone, Especially Low Income Earners (Tax Policy Blog):
If you take all the pieces of the Rubio-Lee tax plan together, it actually produces the largest increase in after-tax income for the lowest income earners, not the highest.
According to our analysis, the bottom decile of taxpayers will see an increase in after-tax income of 44.2 percent, a percentage increase in income nearly four times larger than the top 1 percent’s increase in after-tax income. But the plan doesn’t just increase the after-tax income of the top and the bottom. All taxpayers will see higher after-tax incomes due to this plan.
The Rubio-Lee plan, with its elimination of the double corporate tax and its business rate reductions, is the most promising tax reform plan to surface in a long time. But its opponents can never see wisdom in anything that benefits “the rich,” even when it benefits everyone else.
Renu Zaretsky, Expensive Plans, ACA Developments, and Exercises in Futility. Today’s TaxVox roundup has links to folks hating on Rubio-Lee, Spanish film tax credits, and more.
Patrick Smith, Supreme Court’s Direct Marketing Case May Have Great Significance in Anti-Injunction Act Cases (Procedurally Taxing)
Cara Griffith, The Use of Big Data in Auditing (Tax Analysts Blog). “For state auditors, big data (like other types of data) could be used to better evaluate and select taxpayers for audit.”
TaxProf, The IRS Scandal, 666
Why would he want a job with less power? Former IRS Commissioner Mark Everson To Run For President. Yes, Of The United States (Tony Nitti)
Culture Corner. A Tax Shelter Board Game Is a Thing That Exists (Caleb Newquist, Going Concern).