Wasting time on a Friday afternoon, I stumbled onto a page labeled “investigations highlights” on the web site of the Treasury Inspector General for Tax Administration (“TIGTA,” one of my favorite government acronyms). I usually look at the TIGTA’s publications for information and commentary on tax legislation, IRS operations, and such. The “investigations highlights” page, by contrast, contains descriptions of enforcement actions undertaken by the Department of the Treasury. Here are some things I learned just from the first few items on that page:
- Don’t file forms with the IRS (specifically, Forms 1099-OID) claiming that you paid U.S. government officials $50 million dollars each in gross income. The person who did this explained her reasoning to a U.S. Magistrate Judge by testifying that she believed that filing the false IRS Forms 1099-OID was a “way to, you know, get us out of the system, you know, type of thing and I realize now it’s ridiculous.” Doing this can result in a 37-month prison sentence.
- Don’t make up a fake letter from the IRS, using the signature and IRS seal from a letter you got from the IRS, to get a loan to pay your business expenses. A fake letter was used to reassure a lender that the IRS wasn’t going to seize the borrower’s accounts receivable, which were pledged to the lender as collateral for the loan. Doing this will lead to you being convicted of the crime of misuse of the Department of the Treasury’s symbols or emblems.
- Don’t try to cover up your theft of your accounting clients’ funds by sending them a fake letter from the IRS. This will only result in your conviction of another federal crime, misuse of the Department of the Treasury’s seal, names and symbols, in addition to wire fraud and money laundering.
- Don’t give an IRS agent $18,000 in cash and a bottle of tequila “for the purpose of having the [agent] close a pending tax audit” of your income tax return. The person who did this also “expected that the agent would issue a letter indicating that no changes were proposed to her income tax return as a result of the audit.” This person was sentenced to time served plus one year of home confinement.
On a subject that is maybe less entertaining but should be of greater concern to taxpayers, TIGTA recently conducted a study of tax refund fraud. The results are eye-opening, to say the least. The study focused on a simple scenario: false tax returns are filed using stolen identities for the purpose of obtaining fraudulent tax refunds. The TIGTA then looked at various ways that the IRS could identify this type of fraud.
The study found that the IRS has no control in place to limit the number of direct-deposit tax refunds going to a single account. As a result, an identity thief can file multiple fake tax returns claiming refunds, with all of the refunds being directed to the same bank account. The worst example? In 2010, one bank account received 590 direct deposits totaling $909,267.
Even more amazing, the IRS apparently can’t keep track of how many tax returns are filed using a single address. The study found that in 2010, five individual addresses, in various locations around the country, were given as the taxpayer’s address on a total of 4,864 tax returns. Those returns resulted in a total of over $8 million in refunds being issued. One address alone was listed on 2,137 returns that resulted in refunds totaling $3,316,051.
This doesn’t give me a whole lot of confidence in the IRS’ ability to enforce the law. It seems incredible that they couldn’t catch the fact that a single address was listed on 4,864 tax returns. But hey, at least they can catch the people who are dumb enough to use phony letters from the IRS to try to perpetrate, or cover up, fraudulent schemes.
WHILE WE’RE ON THE SUBJECT OF TAX ADMINISTRATION…
The IRS said this in 2010 about the growing number of professional tax preparers:
Use of paid preparers has grown steadily in recent decades. Today, a majority of U.S. taxpayers rely on a paid preparer to assist them in meeting their federal tax filing obligation … It is unclear exactly how many paid return preparers there are in the U.S. The IRS estimates the number to be between 900,000 and 1.2 million.
Gee, I wonder why the use of paid preparers has grown? Could the fact that the instructions for Form 1040 expanded from 52 pages in 1985 to 179 pages in 2010 have something to do with it?
QUOTE OF THE MONTH
“A wise man should have money in his head, but not in his heart.”
Irish essayist, novelist, & satirist (1667-1745)