Thanks to Orin Hatch (R-Utah), the Chair of the Senate Finance Committee, there may be action on Tax Refund Fraud committed through Identity Theft. In a hearing on this issue on Thursday March 12, 2015, the Hill reported that Tim Camus, deputy inspector general for investigations at the Treasury, in his testimony, indicated that legislation was needed to speed up third party submissions of information needed to verify tax payer returns and their requests for refunds. Another option, in our mind at United We Stand, is increasing the time before refunds are due from the IRS to the tax payer to 90 days from 45 days. Both would be helpful. John Valentine, Chairman of the Utah State Tax Commission, also testified and recommended new legislation ‘to strengthen information sharing between the IRS and the states…and to require third-party filing services to tighten their front end security’ to substantially decrease fraudulent tax returns. We hope the Senate and the House will take action on these recommendations quickly and thereby decrease Tax Refund Fraud substantially.
Harry Pukay-Martin
In a recent Bloomberg Editorial in a February 15, 2015 Columbus Dispatch Editorial Page, two others seem to have discovered the $20 to $30 billion fraud scheme. Unfortunately, one set is the identity thieves who now have pushed the fraud not only to the federal level but to the state levels as well. If you buy an identity, you might as well get the most out of it given Turbo Taxes’ sophisticated software which includes all the state tax forms and many local forms within a state. I wonder if the local city and county income tax authorities are aware of the problem and have detected the fraud at their level yet? The other group to discover the fraud are the main stream media. Finally… With this editorial written by Bloomberg and reprinted in the Columbus Dispatch, word is seeping out to the public about this massive fraud scheme. The IRS has been battling these schemes for 4 years or more and are providing taxpayers effected with new identifiers (pins) so they can file their legitimate returns. They also are coordinating with state and local police. The fact that Congress is ‘gutting’ the IRS budget and has been doing so since 2010 must stop. The IRS needs the funds to address these issues as well as perform its normal duties in collecting the monies owed to the Federal government. Congress must also allow refunds to be paid later than 45 days from the filing date of the return and require that employers and others file their information sooner and electronically. Most businesses use payroll services or have sophisticated in house programs already. They are required to get their W-2s to their employees in 30 days. This is not a great leap. When will the President and Congress take the necessary steps to combat this fraud. We hope soon.
Harry Pukay-Martin
The US Treasury Inspector General’s Report on the IRS’s Automated Collection System, issued September 18, 2014, demonstrates that the IRS budget cuts are beginning to bite and decrease US Federal Government tax receipts. The report is entitled ‘Declining Resources have Contributed to Unfavorable Trends in Several Key Automated Collection System Business Results.’ First for some background. The Automated Collection System (ACS) is responsible for answering incoming taxpayers calls and working the delinquent taxpayer files; i.e., they are responsible for securing unfiled tax returns and collecting unpaid taxes by communicating with the taxpaying public. Because of budget cuts, the staffing levels in this division have been reduced by 39%. In addition, due to identity theft and its effect on tax refund requests, another 400 workers have been diverted. This has caused the inventory of delinquent tax filings to increase by $4 billion since 2010 and the collections in this area to be reduced by $400 million. It also is responsible for write offs increasing by $350 million. Finally, enforcement actions have been reduced also. The losses to the Federal Treasury are at least $1 billion annually and could be as much as $4 billion in this one area alone. These losses are accelerating as the IRS gets further and further behind.
It is time for the IRS to get out of politics and for the President and the Congress to properly fund the IRS so it can collect the monies owed the federal government. We who pay our fair share of taxes faithfully deserve to know that all taxpayers are doing the same or are being compelled to do so.
Harry Pukay-Martin
The new rules for the House of Representatives restrict the reallocation of monies between the Social Security Disability Fund (which will go bankrupt early next year) and the Social Security Retirement Fund. By taking this step, the Congress is forcing itself and the President to address the bankruptcy of Social Security Disability Program no later than 2016 rather than kick the can down the road to 2033 when the entire Social Security Program goes bankrupt. By moving monies from the Social Security Retirement Program to the Disability Program, a solution advocated by many to avoid the political problems aroused by addressing this bankruptcy directly and solving the issue for another generation or two, we would continue to put our head in the sand and deny fiscal reality.
It is time to add resources to the Social Security Administration so we can defend these programs, the tax payers, and the folks who really need and deserve these programs. Every disabled worker on the program should be reviewed over 4 years. Many of these recipients are not disabled but judged to have back problems and depression. Many back problems can be treated with exercise, alternative therapies, and drugs. Many depressives can be treated with exercise, counseling, and drugs. Add lawyers to advocate for the programs and the tax payers at Hearings by the Administrative Law Judges so it is balanced and fair once more. Further, the program is being scammed by recipients, too ‘helpful’ doctors, aggressive lawyers, and at least 20 states such as Oregon and Washington who pay consultants $2,000 to $3,000 to convert Medicaid recipients to Social Security Disability recipients. Put in laws to stop this unethical and illegal behavior by these physicians, the states, the consultants, and the lawyers who are riding this gravy train. Impose heavy fines and put a few of them in jail.
By addressing the problems of the Social Security Disability Program, perhaps the President and the Congress will have built up the trust to address the other entitlement programs of Social Security Retirement, Medicare, and Medicaid. That would be a true legacy for President Obama, Speaker Boehner, and Senate Majority Leader McConnell. It reminds me of the bold steps taken by Tip O’Neill and Reagan in the 1980’s.
Harry Pukay-Martin
The US Treasury Inspector General for Tax Administration issued a recent audit noting that the IRS was slow in responding to taxpayer complains about tax preparers. Given the results of the audit, I would suggest they are not slow but extremely delinquent in reviewing this area as over 4,000 complaints of 8,354 have not even been started. Further, the report goes on to say that even in those complaints that were started, the IRS was having trouble making sure that the complaints were handled appropriately. This is like a slow, small halfback in football, not what a football team needs or what the US taxpayers deserve. As tax preparers handle more than half of all returns and are responsible for much fraud especially related to identity theft and tax refunds, it is imperative that these issues be addressed immediately. When is the IRS going to get its act together and when is Congress going to give the IRS the funds it needs to address this important area.
Harry Pukay-Martin
The Economist (October 25, 2014) penned an article entitled ‘Structurally unsound’ with sub heading ‘America restores the weak lending standards that led to the housing crash’. In the last melt down of the housing market starting in 2007 that caused the great economic contraction in the US and the world, the politicians blamed the banks and the banks blamed the politicians. Specifically, the banks indicated that ‘the politicians enthusiasm for expanding home ownership, even if it meant small deposits and low credit standards, …had really fomented the disaster’. It appears both the politicians and the banks got the message. The politicians tightened up on home loan mortgages by requiring substantial down payments and much higher lending standards for the home mortgage applicants. The banks took a drubbing as they paid billions of dollars in fines related to those bad loans. However, less than 7 years later, the politicians have forgotten the disaster they created and have returned to form. President Obama appointed Mr. Melvin Watt, a career politician, as the Director of the Federal Housing Finance Authority in 2014. He favors home ownership for all whether such makes economic sense or is in the best interest of the persons being accommodated. Specifically he is advocating and planning to implement “mortgages with deposits as low as 3% through Fannie Mae and Freddie Mac, the two government backed housing giants the Housing Finance Agency regulates’. This is insane! We just spent billions of dollars bailing out these institutions and many billions more to ameliorate the great economic contraction that they caused. Didn’t we learn our lesson from 7 years ago? It seems not. It gets worse however. In order to induce the banks to make more loans under suspect circumstances, Mr. Watt has limited the ways the banks can be liable for loans sold to Fannie Mae and Freddie Mac. In addition, the federal regulators have weakened the standards that allow banks to securitize and sell mortgages. The banks no longer need to hold a 5% stake in these loans nor is their a 20% deposit requirement (it is now no deposit) and the borrower income limit was increased to 45% from 35%. This is more insanity. I was in Hong Kong in 2008 when these bonds were failing. The people were mad as hell and were suing the brokers and their employers that sold these securities as ‘ very safe’ investments ‘just like guaranteed bank CD’s, just with a little better interest rate’. The Korean bondholders who got burned rioted. This new set of policies that return us to another economic disaster cannot be allowed to stand. It is imperative that Congress take appropriate action given the arrogance and stupidity of another appointee of the President.
Harry Pukay-Martin
The IRS Criminal Investigation Division’s manpower is down by 1/3 since 1995. At that point, it had 3,358 special agents. Currently it has 2,130 or a 37% reduction in that time period. These are the folks who sent Al Capone to jail as all crime generally has tax evasion implications. Such is an easy way to put the bad guys away or fine large corporations mega bucks to change their behavior and their governance. The division is called upon by Federal prosecutors around the country to investigate cases involving financial and tax matters. It also reviews other financial misconduct including identity theft, tax fraud, and money laundering. Recent investigations have involved Credit Suisse and PNP Paribas which resulted in fines of $2.5 billion and $9 billion respectively. The whole budget of the IRS is currently $11.072 billion less than these two fines alone. This situation is intolerable and nonsensical. The Congress unfailingly should add back the $1.287 billion it has cut since FY2010 to the IRS FY2015 budget. It also needs to add $1 billion a year for 3 years thereafter so that the IRS can address its 6 main objectives during that time period: 1. to reduce the fraud around the earned income tax credit; 2. to increase the discipline in regard to tax return preparers; 3. to reduce the fraud from identity theft and fake income tax returns; 4. to meet the new requirements under the ACA; 5. to reduce the $450 billion tax gap; and 6. to insure that all citizens are paying their fair share of taxes by dramatically increasing tax audits.
Harry Pukay-Martin
John Koskinen the IRS Commissioner testified to Congress on May 7th , 2014. He had much to say about the IRS and its 2014 tax filing season but focused on tax return preparers and the earned income tax credit. In regard to the tax return preparers, it makes sense to give the IRS the legal authority to regulate them especially given some of their prominent roles in earned income tax credit fraud and income tax refund fraud. It will help ferret out the fraudulent, the incompetent, and those requiring additional education or other interventions. In regard to the earned income tax credit and its 22% to 26% error rate, one proposal is to scrap the earned income tax credit completely which we advocate. Another proposal is to add more data analytics surrounding the open questions about whether the individuals are married and how many dependents they have. That could help verify those open questions or subject the returns to more scrutiny. Some sensible reforms requiring action by Congress include expanding the ‘math error authority’ of the IRS to correct returns when there are not only computation errors in the return but also incorrect table look up errors and database related errors (for instance, W-2 amounts on the return that don’t match the W-2 amounts submitted by the company). Another suggested reform which would help not only to combat earned income tax credit fraud but also tax refund fraud is the required acceleration of information return filing dates. It makes no sense to issue refunds until the basis for those refunds, usually a W-2, is proofed against the employer copy. If Congress is unable to do that, all refunds should be held until the data is available. The IRS needs to protect the country from the fraudsters. As usual, the one bad apple is spoiling the barrel of apples for the rest of us.
However, let’s get more serious here. Besides the earned income tax credit issue and the tax return preparers, the IRS needs added resources to achieve 4 other major objectives in the next year. It needs to combat Income Tax Refund fraud (which if left unhandled will cost $20 billion each year), meet the requirements under the ACA, close significantly the $450 billion tax gap, and insure all citizens are paying their fair share of taxes by dramatically increasing tax audits. Instead of providing the $3 billion of additional resources and manpower to meet these objectives, the IRS budget has been slashed by $526 million or 5% in FY2014 alone. From FY2011, the IRS budget has been slashed by $1.287 billion or 10%. That budget is less than the FY2008 budget by $236 million. From a manpower perspective, the numbers of personnel are down almost 8,000 employees or 8% from FY2010. Our recommendation is that these $1.287 billion cuts be restored in FY2015 and $1 billion be added every year for 3 years. Progress on these 6 objectives should be reported to Congress each year in May.
Harry Pukay-Martin
The Treasury Inspector General for Tax Administration issued a report on April 22, 2014 showing the results of its review of the IRS Awards Program. The IRS provides awards both in terms of additional compensation (cash awards) and in terms of additional time off to its employees to recognize and encourage good performance. Though the IRS Awards Program complies with Federal regulations, it does not require that the employee have no substantiated conduct issues resulting in disciplinary action nor does it require that the employee have no substantiated Federal tax compliance problems. The IRS agrees with the recommendation to change this policy and will have a plan in place by June 30, 2014. Why did not common sense prevail in regard to this policy. This is another black eye for the IRS, the fourth we have counted. The Congress is still investigating the conservative non-profit organizations harassment by the IRS and is having trouble with the IRS producing emails about the incident. After the Las Vegas meeting and the lavish and unnecessary expenditures there, we hope the IRS has curtailed expenditures on outside meetings. We also hope that the IRS has found and punished the personnel responsible for abusing credit cards. The IRS needs to settle down and do its job of collecting the monies owed to the Federal government with its full efforts, budget, and attention.
Harry Pukay-Martin
The Treasury Inspector General for Tax Administration issued a report on May 23, 2014 on its audit of the IRS’s efforts to assess Trust Fund Recovery Penalties on Employers who were delinquent in submitting their withheld employment taxes. The Treasury found the IRS was not always timely or adequate in its actions. As background, employers are required to withhold taxes from their employees (income taxes, Social Security taxes, and Medicare taxes) and hold them in trust until they are remitted to the IRS. Currently, $14.1 billion is the level of delinquent employment taxes owed to the IRS and deemed collectible. Another $24.9 billion is deemed uncollectible and is inventoried by the IRS but not pursued. If a business does not send in its withheld taxes, the IRS has the ability to assess appropriate individuals within the business for these delinquent taxes under the Trust Fund Recovery Penalty (TFRP). The IRS actions to do this were the ones reviewed in the Treasury audit. There is need for improvement in this process and the IRS indicated it will take the recommended steps to improve with one exception. 8% of the time the TFRP could not be pursued because the ‘assessment statutes expired before the cases were assigned to revenue officers’. The IRS felt it was a matter of manpower and the Treasury agreed by stating that ‘since the limited resources cannot be resolved with the current budget constraints, we are not making a recommendation to address this issue at this time’. Here is another example of monies left uncollected because the President and the Congress are fighting over the budget and the direction of the IRS. The President and Congress need to increase funding to the IRS in the FY2015 budget and have them focus on collecting the monies owed to the US government. Given that the IRS generates $7 to $17 in added revenues for every $1 added to their budget, only foolish acting people would not add dollars to the IRS budget. Unfortunately, we have a lot of politically motivated folks in Washington D.C. taking these foolish actions. Stop this nonsense and fully fund the IRS.
Harry Pukay-Martin
