1.A scammer applies for a bunch of ITINs for fake non-existent potential filers, hundreds residing at one address.
2.Scammer then files fake returns using the ITINs and names, claiming returns on fake income. Maybe includes some fake SSNs of non-existent fake children for a child tax credit.
And this works?!? This can’t be so easy can it, the IRS has no record of whether a ITIN has paid any money in withholding, or whether SSN for children are real?
Well thoughts that came to mind was saying that you had paid tax to banks or because of shares or some other form of investment, but no that doesn’t work out because that would quickly trigger an audit. This person claimed nothing like that last year, and now ? $20,000 of tax paid on investments ?How does someone who wasn’t even claiming last year start to claim that ? WTF ?
I had a quick google, and found that the suggestion was to claim fake babies.
Low income earners get a tax bonus … more than a refund, they get back more than they paid…
And they suddenly start claiming because of divorce…
TFA does state that the IRS used to have processes that would catch this kind of fraud, but managers eliminated them because they were taking too long. Of course, you would think that in this day and age it would be automated and therefore take milliseconds, but who knows?
For political reasons, Congress has been reducing the IRS’s budget for enforcement for quite a few years. The process could be automated better, but the IRS doesn’t have the money to set it up and maintain it.
I could have sworn we had a thread on this when the report came out in 2012, but I can’t find one. Here is the report (pdf), albeit with some redactions. There were three main findings about the IRS:
It set up its workflow such that processors were discouraged from questioning applications.
It disbanded the investigative team that had identified several systemic frauds and did not follow up on that team’s findings.
It accepted a looser range of identity documents than are acceptable for SSNs and passports.
The report does not really discuss why these conditions were in place, and as is standard with such reports, the agency agreed to put new remedial procedures in place.
Wouldn’t this be the case of a rich kid who was previously a dependent and whose investments (which could have been a large gift, inheritance, etc. from someone else) suddenly became taxable when they filed their own return? This doesn’t seem so odd to me that it should automatically be flagged. In fact, with the 1% type people paying in the largest tax bills on an individual basis, I would think the IRS wouldn’t want to harass these people because they had a “bad year” and should be getting a refund.
If I was spending $20,000 in taxes on investments, and every time I took a loss in the market and got a refund the IRS congratulated me with an audit because they didn’t get their usual large tax bill from me, it wouldn’t be long until I took my (presumably large) assets and went to a country with more favorable tax laws and lived there.
You guys seem to think that the IRS automatically has documents to match against.
W-2 forms, for example, do not have to be provided to the employee until Jan 31st, but they don’t have to be mailed to the SSA until Feb 28th… and if you e-file, you can get an extension that means filing isn’t required until the end of April.
Payroll services may operate by providing W-2s to the employees right away and then holding off on the filing with the SSA until the last minute. We do this so that if employees report any errors, those can be fixed before filing the W-2s. (After all, it’s easier to correct the initial filing than to file an amendment separately).
And all of this assumes that the forms are filed on time. The number of non-compliant filers is probably low, but it’s not zero.
So you can see the problem. Taxpayers want refunds right now, before matching documents have been provided to the IRS. Scammers know this. The IRS has to choose the lesser of two evils and their choice has (generally) been to send you the money and then come after you later to collect it back if they determine there was an error. Really, it’s a case where nothing the IRS chooses is going to make people happy.
This can’t be so easy can it, the IRS has no record of whether a ITIN has paid any money in withholding, or whether SSN for children are real?