Slow Learners at the IRS

If system specifications required that (1) the assailant is rewarded; (2) the public foots the cost of the crime; and (3) the victim gets punished twice, then no such scheme could be better engineered than the Internal Revenue Service's process of accepting false tax returns and issuing tax refunds to identity thieves.

The problem has been detailed before in American Thinker by this author, and discussed multiple times at congressional hearings.  The plunder of the public treasury is nefarious under any circumstances, but it can be especially dangerous when the identity thieves who take the money are prison inmates and the money feeds the economy (and therefore the social dynamic) inside the penitentiary walls.  In 2005, an anonymous prison inmate testified before the House Ways & Means Oversight Subcommittee that he received an estimated $3 million in refunds, that most of illegal tax refund money received by prisoners goes into the illegal drug market, and that he paid protection money to the Muslim organization in the prison in hopes of securing his own personal safety.

Perhaps the greatest leak in the Treasury's sieve that is exploited by stolen identity refund fraudsters is not only the use of stolen identities for the purported taxpayer filing the bogus tax return, but also the listing of stolen identities as the purported taxpayer's purported dependents on the tax return, and claiming the Earned Income Tax Credit as a refund.  Each fraudulent tax return, then, entails stolen identities of not only the purported taxpayer, but also purported dependents of such taxpayer.  More often than not, the purported dependents have no relationship with and do not even personally know the purported taxpayer.

As noted in this author's prior posting, the Social Security Administration's Form SS-5 Application for a Social Security Card requires the Social Security Number of the parents of an applicant who is under the age of 18.  Bogus returns where the purported dependents are not the children of the purported taxpayers could easily be flagged if the IRS were to use the data from the Form SS-5 to screen filed returns.  Such would, of course, require coordination between the IRS and the SSA, but the two agencies are already in communication with one another.  It is clearly appropriate that the IRS pull the laboring oar in such a cooperative effort.

On 25 November 2014, the Treasury Inspector General for Tax Administration made public its Report No.  2014-40-091, dated 25 September 2014, entitled "Prisoner Tax Refund Fraud: Delays Continue in Completing Agreements to Share Information with Prisons, and Reports to Congress are not Timely or Complete."

On Page 13 of the Report, TIGTA notes that "The IRS’s annual report only includes false and fraudulent tax returns filed using the SSN of a prisoner. The report does not include, as required, information related to the filing of false and fraudulent tax returns by prisoners."

English translation: the IRS still does not use information from the Form SS-5 database to screen tax returns for claimed dependents who are not the taxpayer's children.

In a prior American Thinker posting, this author noted a matter involving one Alan Scott, who was convicted in 1998 on charges stemming from stolen identity tax refund fraud.  Subsequent to that posting, it came to this author's attention that Richard L. Fogel, from the GAO (then the General Accounting Office, now known as the Government Accountability Office) testified before a congressional committee in 1979 about stolen identity refund fraud.

There is no denying that the problem has been known and defined for no less than the past 35 years.  Organizationally, the IRS people are slow learners.  And the Congress's failure to insist that the IRS get things right and coordinate with the Social Security Administration does not evidence any better scholastic achievement.  

Kenneth H. Ryesky is a lawyer who teaches business law and taxation at Queens College CUNY.  He formerly served as an attorney for the IRS.

If system specifications required that (1) the assailant is rewarded; (2) the public foots the cost of the crime; and (3) the victim gets punished twice, then no such scheme could be better engineered than the Internal Revenue Service's process of accepting false tax returns and issuing tax refunds to identity thieves.

The problem has been detailed before in American Thinker by this author, and discussed multiple times at congressional hearings.  The plunder of the public treasury is nefarious under any circumstances, but it can be especially dangerous when the identity thieves who take the money are prison inmates and the money feeds the economy (and therefore the social dynamic) inside the penitentiary walls.  In 2005, an anonymous prison inmate testified before the House Ways & Means Oversight Subcommittee that he received an estimated $3 million in refunds, that most of illegal tax refund money received by prisoners goes into the illegal drug market, and that he paid protection money to the Muslim organization in the prison in hopes of securing his own personal safety.

Perhaps the greatest leak in the Treasury's sieve that is exploited by stolen identity refund fraudsters is not only the use of stolen identities for the purported taxpayer filing the bogus tax return, but also the listing of stolen identities as the purported taxpayer's purported dependents on the tax return, and claiming the Earned Income Tax Credit as a refund.  Each fraudulent tax return, then, entails stolen identities of not only the purported taxpayer, but also purported dependents of such taxpayer.  More often than not, the purported dependents have no relationship with and do not even personally know the purported taxpayer.

As noted in this author's prior posting, the Social Security Administration's Form SS-5 Application for a Social Security Card requires the Social Security Number of the parents of an applicant who is under the age of 18.  Bogus returns where the purported dependents are not the children of the purported taxpayers could easily be flagged if the IRS were to use the data from the Form SS-5 to screen filed returns.  Such would, of course, require coordination between the IRS and the SSA, but the two agencies are already in communication with one another.  It is clearly appropriate that the IRS pull the laboring oar in such a cooperative effort.

On 25 November 2014, the Treasury Inspector General for Tax Administration made public its Report No.  2014-40-091, dated 25 September 2014, entitled "Prisoner Tax Refund Fraud: Delays Continue in Completing Agreements to Share Information with Prisons, and Reports to Congress are not Timely or Complete."

On Page 13 of the Report, TIGTA notes that "The IRS’s annual report only includes false and fraudulent tax returns filed using the SSN of a prisoner. The report does not include, as required, information related to the filing of false and fraudulent tax returns by prisoners."

English translation: the IRS still does not use information from the Form SS-5 database to screen tax returns for claimed dependents who are not the taxpayer's children.

In a prior American Thinker posting, this author noted a matter involving one Alan Scott, who was convicted in 1998 on charges stemming from stolen identity tax refund fraud.  Subsequent to that posting, it came to this author's attention that Richard L. Fogel, from the GAO (then the General Accounting Office, now known as the Government Accountability Office) testified before a congressional committee in 1979 about stolen identity refund fraud.

There is no denying that the problem has been known and defined for no less than the past 35 years.  Organizationally, the IRS people are slow learners.  And the Congress's failure to insist that the IRS get things right and coordinate with the Social Security Administration does not evidence any better scholastic achievement.  

Kenneth H. Ryesky is a lawyer who teaches business law and taxation at Queens College CUNY.  He formerly served as an attorney for the IRS.