Fraud Associated With Electronic IRS Tax Returns

The IRS reported that the 2010 tax returns as being the most successful in terms of electronic filing. About 99 million taxpayers submitted their returns electronically, which accounted for 70% of taxpayers. The electronic tax returns have come a long way over the last 20 years. However, this impressive success of electronic tax returns has not come without major shortcomings. Over the past years, the IRS has discovered increasing fraud in the areas of identity theft and fraudulent electronic returns. Since with electronic returns, most of the processing and refunds release are done automatically, some fraudsters have successfully found loopholes in the system and have managed to file fake returns and claim fictitious refunds.

Case in Point – 5,108 Post-Mortem Identity Theft Scandal

In the recently concluded 2010 tax returns, some individuals made fraudulent returns for 5,108 individuals who had died between 2009 and 2010. The tax returns were all made from one Electronic Filing Identification Number. The preparer associated with this Identification Number was from Florida and he claimed that he had applied for the Electronic Filing Identification Number but had never used it or made any returns from it. Some bulk of the refunds were sent to another man in Florida with an account in BankAtlantic.

The tax returns that contained tax refunds totaling to $12.1 million were successfully processed and the tax refunds sent to various accounts as per the tax returns. On discovery of the fraud, the IRS attempted to recover the funds from the various accounts that they were distributed to. The government has filed a court case in the Southern District of Florida to recover $851,832 from 10 bank accounts in Bank of America and $760,035 from 3 accounts in JP Morgan Chase Bank that was seized by agents of the IRS in their bid to recover the fraudulent refunds released. According to the investigation reports, the refunds from the fraudulent returns were sent to 303 accounts in 9 different banks in America. The report did not disclose how much of the $12.1 million has been recovered so far, though much of the refunds have been recovered, especially from Bank of America and JP Morgan Chase.

The major question that remains unanswered is how one tax preparer with a single Electronic Filing Identification Number could make 5,108 fake tax returns of dead people with none of the fraud-detecting computerized screening e-filing programs identifying or blocking the returns. Apparently, the IRS has invested majorly on these advanced programs to detect fraud with electronic filing. Besides the program detection, another question being asked is why the IRS had not frozen the tax returns from the dead people noting that the Social Security Administration provides the IRS with a weekly list of people who have died so as to update its records. Even if tax returns are filed by the survivors of the dead, the least that could have been expected from the IRS is a more thorough scrutiny of the returns made for these dead people, as this was obviously a red flag area for fraud.

Other Cases

There have been many other fraud cases of different magnitudes and different nature associated with electronic return’s fraud. Cases of information theft and identity theft from the IRS online filing system and fraudulent registration, filing, and refunds claims have negatively impacted the electronic tax filing system. These cases have posed major doubts on the electronic tax returns and especially in its ability to identify and prosecute fraudulent returns. Therefore, even as the IRS and the general public at large celebrate the convenience associated with electronic returns, we cannot forget the troubles that can arise whenever man is replaced by machine.


Possible Penalties For Evading Taxes

A number of people are forever finding themselves in the unfortunate predicament of having to pay taxes when they are not earning enough money to do so. For others it is simply because they are stubborn and do not appreciate the need to pay taxes. Regardless of which disaster bound ship you are sailing on, it is very important to know about the possible consequences of not paying income tax when it is due. The internal Revenue Service attaches a wide range of penalties against individuals responsible for either full tax evasion or delays in the payment of tax.

The penalties associated with not filing for income tax always seem like they can be overcome very easily, but believe me, they are not. In fact the punishment that is leveled against you is far worse than the amount of money which is due. Imagine the impact of imprisonment, fines, civil penalties; how can all of these penalties be any better than simply paying the amount of money due?

The Failure-To-Pay penalty is perhaps the least severe of all possible forms of punishment. When you miss the April 15th deadline without requesting for an extension of the deadline you will in most cases be expected to pay this fine. Such a penalty is normally 5% of the total amount of money which was due and is supposed to be paid every month for a given period of time. However, in other rare instances the percentage expected of you every month may be as high as 25% of the amount due; but this is mainly reserved for extreme cases of tax evasion. In the latter instance you will end up paying more money than the income tax originally required of you, not so much of a smart idea right? Filing tax returns after a timeframe of 60 days leaves you responsible for paying a minimum of $135, or the due amount, whichever of the two is smaller.

A Tax lien is one penalty that can have adverse consequences on any pieces of property you may own. When a tax lien is filed against you as a sentence the IRS automatically obtains the right to claim your property as a form of security on the debt. Therefore any assets will be withheld against your personal interests for an undefined period, until of course you pay the existing tax debt. This is normally the case when you evaded taxes, received a notice to pay and still did not make any payments 10 days after receiving notice to pay. However, this is not a standard penalty for the aforementioned breach of IRS tax debt regulations.

The Substitute Return penalty is very much different from the rest of the other penalties mentioned here. When a substitute tax return is filed against you the tax exemptions you were generally expected to get for filing for tax on time are immediately withdrawn, until further notice. Under normal circumstances these exemptions were meant to reduce the amount of money due and make life a little easier for you; see how even the IRS has a good heart? So at the end of the day you will end up paying more money every year than usually expected of you.

The best way out of your possible financial predicament is to file for income tax anyway, regardless of whether you have enough money or not. The benefit of doing this is that certain adjustments can be made to your filing system, thereby making it flexible and lenient.