Wednesday, April 04, 2007

Is tax fraud being enabled by too many dishonest preparers?

In February, I wrote about fraudulent tax returns being filed using forged W-2s.

Another story recently surfaced from the SF Bay area, where Jackson Hewitt preparers were complaining this seasonal type of fraud is getting out of control.

Kate Williamson (Examiner) wrote:

If successful, the fraud allows tax cheats to receive thousands of dollars, either from the federal government or from companies making tax refund anticipation loans. It is sometimes coupled with identity theft, which can create problems for law-abiding citizens when they go to file their own taxes.
Kate Williamson article, here.

Interestingly enough, Jackson Hewitt preparers were quoted for this story and in another story - a lot of Jackson Hewitt franchises are being taken to task by the Justice Department for (allegedly) committing tax fraud, themselves.

The AP (courtesy of CNN) is reporting:

The franchises were either totally or partially owned by Farrukh Sohail, the Justice Department said, and involved "a pervasive and massive series of tax-fraud schemes," according to court filings.

Sohail and other defendants "created, directed, fostered, and maintained a business environment" at the Jackson Hewitt franchises "in which fraudulent tax return preparation is encouraged and flourishes," according to court documents.

Employees were encouraged to ignore telltale signs of fraudulent information and to file claims even when it was obvious customers were using fake W-2 forms or false

A sample of returns prepared by franchises connected to Sohail found 31 percent contained false information such as phony earned income tax credit claims, bogus deductions and fraudulent W-2 forms.
AP story, here.

Dishonest tax preparers and people using forged W-2 forms is nothing new. In the past couple of years, there were even stories about this being done by prisoners. W-2 blanks are easily purchased at office supply stores, or over the Internet.

This phenomenon is probably being enabled by large payouts for what is known as the earned income tax credit and a huge business in refund anticipation loans. Refund anticipation loans often carry a triple digit interest rate, when considering the term (normally less than a month).

The AP article states that the dishonest franchises cost the government $70 million and this represents about 2 percent of Jackson Hewitt's business.

Some believe, the huge business in refund anticipation loans, has been inspired by the large dollar refunds lower income people get based on the earned income tax credit.

Currently, our tax gap (yearly difference between what is taken in and paid out) is 354 billion, according to the AP article.

Maybe, we need a better way to verify that W-2s are legitimate?

We can all help the IRS if we suspect tax fraud by reporting it, here.

Someone is going to say, we spend too much time going after the poor (people filing for earned income tax credits). Before they do, I would like to point out that in the instance cited, the Justice Department seems to be going after an "enabler" (Jackson Hewitt).

With our resources coming up $354 billion short every year, we can't afford to keep looking the other way on issues, such as these. The result will be more taxes to pay for needed government services.

Another problem is that a lot of the criminals doing this are using other people's information (identity theft). A lot of people are filing their taxes - only to discover someone else has already gotten a refund using their name.

From what I hear, this can be pretty hard and (painful) to clean up, once it occurs.

Of course, this isn't the only type of tax fraud being committed. A great place to learn all about the various schemes is, which can be read by linking, here.

1 comment:

Anonymous said...

I work for Jackson Hewitt, aka Tax Corporation of America in the Los Angeles area and my supervisor prepared 3 returns for one family, living in the same house. Each claimed the EIC, the parents did, a 21 yr old daughter, using a younger sister, a 19 year old son, using a younger brother. All living at home. Of course I filed a fraud report to the IRS. This was the 3rd year it was happening, enough is enough. The IRS needs more documentation for these EIC claims, if you are not the parent. Or better yet, run a cross check on addresses, 3 EIC claims for the same address is ridiculus. Also, Jackson Hewitt program has a box to check for due diligence, but guess what? It didn't work in the beggining of the tax season, don't know if it was put their for show, or program error. Does anyone know of a Tax Fraud line to call and report fraudulent tax claims?

Tax Preparer