Tax Return Identity Theft

Submitted by Chris Moss CPA

Welcome to TaxView with Chris Moss CPA Tax Attorney

Tax return identity theft is on the rise. Criminals illegally obtain your name and Social Security number, create phony W-2s and related forms, and file a bogus tax return before you can file your legitimate return. Many of these crooks are organized criminals who have figured out that it is easier to rip you off by filing a bogus tax return than robbing a bank or hijacking a car. These 21st century thugs are ripping off the US Government as well. Uncle Sam is losing millions of dollars if not potentially billions a year in bogus tax refunds and you the taxpayer are out in the cold if you are one of the unlucky taxpayers who get their identity stolen.

The typical identity theft scheme is for the perpetrator to file an early tax return with your social security number and your name but a different address around February through March up to the first week in April. The bogus tax return always shows a refund and is almost always mailed in to the IRS and not electronically filed. The mailing address on the tax return could be a PO Box or an executive office suite or any rented house. Sometimes the address could be an abandoned or foreclosed property where there is an outside mailbox or a mail slot in the door with no occupants to get the mail.

Here is how the scheme works: The refund check comes to the designated address and the mail is picked up by the perpetrator. The check is then either forged and cashed or deposited into a legitimate account but with a fictitious owner. There could be hundreds if not thousands of these refunds for hundreds of taxpayers from the same address to which the perpetrator has stolen identities from. Currently the IRS has absolutely no mechanism to detect such mass refund requests originating from the same address.

In addition the crooks know this crime must be a high volume scam to success. Criminals realize that many of their bogus tax returns will be delayed or questioned by the IRS. So when for example a few hundred of the refunds are received of the thousands of returns filed, the perpetrators close shop and move on. By the time the government investigates the crooks have moved on, new locations have been secured and the illegal operators get ready for the next year’s filing season to start the whole operation again.

How serious is tax return identity theft? The inspector general of the IRS indicate that bogus tax filings are in the millions with billions of dollars potentially at stake. A new proposed bill “Stop Identity Theft Act of 2013” calls for the Attorney General to: (1) make use of all existing resources of the Department of Justice (DOJ), including task forces, to bring more perpetrators of tax return identity theft to justice; and (2) take into account the need to concentrate efforts in areas of the country where the crime is most frequently reported, to coordinate with state and local authorities to prosecute and prevent such crime, and to protect vulnerable groups from becoming victims or otherwise being used in the offense.

What do I do for my clients? I am constantly on line with IRS Electronic Account Resolution (EAR) throughout tax season for all my clients. When I make an inquiry with the EAR portal prior to the tax return being filed, I get a zero transcript indicated no tax return has been received. When the response is like this one I know there has been identify theft: Dear Tax Professional, Your office submitted a request for taxpayer information. We apologize for the inconvenience but we are not able to process your request at this time. Please have your client contact the Identity Protection Specialized Unit (IPSU) at 800-908-4490. Sincerely Yours Director, Electronic Products & Services Support

While I hope you never have to call the Identify Theft Department of the IRS, once you get a hold of them you realize the road ahead is not going to be easy. You are required to complete Form 14039 Identity Theft Affidavit and submit copies of various documents like a passport and drivers license proving you are who you say you are. All documents and original tax return have to be submitted in a paper version and mailed either snail mail or overnight delivery. Processing takes up to six months or longer.

What can you do right now for the 2014 tax filing season? First, file early in 2015. There is no better way to stop identity theft than to file early. Second, if you move, please notify the IRS of your new address. Call the government and make sure they have your new address on file before you file your tax return and explain that you are concerned about identify theft. Tell your CPA you are concerned about identify theft so your tax professional will check up on your account throughout the year. Never give your entire social security number to anyone on the phone. Vendors will be happy to have you call them back to verify who they are before you give them your social security number.

My thoughts on how to solve tax return identity theft? The IRS should not refund any money to anyone until the taxpayer’s identify is confirmed. This process would significantly delay you all from receiving your refunds. But when you compare the inconvenience of delayed refunds to the absolute nightmare of having your tax return hijacked by criminals I would choose the delay of having my identify confirmed. If you agree with this approach, let your elected officials hear from you about your concern with tax return identify theft. Together we can help the IRS fight back against tax return identity theft and help you all keep your tax returns secure from theft.

Look forward to seeing you all next month,
Kindest regards from Chris Moss CPA Tax Attorney

It’s not the Tax Code, It’s the Tax

August 12, 2013

by Chris Moss CPA

Back in 1986 Bob Packwood and Dan Rostenkowski were the tax reform dynamic duo proposing sweeping new tax reform legislation; fast forward over twenty five years to 2013 and we have Max Baucus and Dave Camp proposing sweeping new tax reform legislation.

But Tax Reform in of itself has proven allusive to all who have tried. In a span of just over twenty five years, Reagan, Bush, Clinton, Bush and Obama have signed over 17 major tax bills creating a tax code of such complexity that the majority of CPAs use sophisticated computer programs to finish up the complex mathematical calculations needed for most lines on even simple tax returns.

What if Congress were to think “out of the box”? Could the answer to tax reform be that we are reforming a tax that cannot be reformed? Could the “income tax” be obsolete for the 21st century and be scrapped in favor of a new type of tax?

Historically over the years personal income tax receipts have consistently kept pace with the Gross Domestic Product (GDP) with the exception of a few years during World War II. However, in 1943, the newly created W2 form issued by the IRS added 60 million new taxpayers to the personal tax system. According to the White House office of Management Budget, by 1944 just one year after creation of the W2, receipts from taxes as a percentage of GDP more than doubled from 3.6% to 9.4%. This also matched the spike in expenditures as a percent of GDP to pay for World War II.

The additional revenue produced by the mid 20th century W2 has unfortunately not fit well into the 21st century. As a result, as US expenditures slowly rise each year as a percent of GDP, personal income tax receipts have been in decline. In 2012 receipts from personal income tax amounted to a paltry 7% of GDP. As a result, as all of us know, the US Treasury has had to borrow money to make up the difference.

Why is this? No it’s not because we spend too much. There is a much easier answer that no one talks about. Most Americans legally pay no tax at all and the very wealthy have found numerous tax strategies to legally avoid paying tax as well. The fact is that very few Americans are paying income tax in the 21st century because the income tax base, like the polar ice caps, keeps shrinking. As the tax base keeps shrinking America will need to borrow more and more each year to stay afloat.

What is the solution to a national shrinking tax base? Many in Congress feel that we spend too much money and that if we cut spending our tax revenues would be sufficient to fund the expenditures of the nation. We all know that is simply not going to happen without a dramatic drop in our standard of living. Many Federal Agencies provide essential government service to us. Do we really want our American way of life to decline because we don’t have enough money to pay our bills? We cannot and should not have to tell our kids that their life will not be as good as ours. To that end, America must keep its financial engines running with adequate tax receipts. In order to do this I propose a simple solution that will allow for America to remain strong.

The solution is a gradually phased in 2015 national sales tax coupled with a flat gross receipts tax of say 5% on every American with no exemptions for anything. Everyone pays 5% of their gross receipts coupled with a 10% sales tax on everything purchased. This includes all big ticket items including homes. Everyone pays tax. No exemptions for the poor, rich or middle class. If we do this, tax receipts would increase dramatically to an estimated 16% of GDP. The increase in receipts would be a major windfall of revenue in 2015 and every year thereafter. Such increased revenue would put our nation back on track. The US Treasury could match receipts to expenditures and show that world that we are fiscally responsible nation without cutting our standard of living. Essential domestic and foreign programs including our military would have the funding needed to keep America strong.

In conclusion, the combination of a national sales tax and a simple flat gross receipts tax is a 21st century tax to solve 21st century economic problems. So listen up Congress, particularly the Honorable Baucus and Camp: It’s not the tax code, it’s the tax.