IRS tax return fraud

I recently watched a news report describing just how easy it was to defraud the IRS by using other peoples identities to claim their refunds.

Other than being concerned for the victims who go through hell sorting out the mess, I started to think about why the IRS was so easy to cheat and did some research.

I found that the IRS had assigned 3,000 employees to work on the identity theft tax fraud issue! If each IRS employee makes $50,000 a year it is costing us (the taxpayers) $150 million a year and more, just to try to catch identity theft scamsters! Just yesterday the Wall Street Journal published an article about Puerto Rico alone costing us $7 billion in identity theft IRS refund scams.

According to another IRS web page, they allow refunds using these two main methods –

• Direct deposit your refund into one checking or savings account
• Receive your refund as a paper check in the mail

So my question is why do they not stop this fraud? I suspect that it’s because the money is created out of thin air, just electronic transfers or numbers on government checks and it’s not a priority. The IRS has so many problems that fraud is just the cost of doing business.

As I’m known for fixing problems, let me suggest two simple methods to stop most of this theft. Unfortunately it calls for, what I think is a distasteful requirement, but losing billions is not acceptable, especially when our government borrows over $40,000 a second to make ends meet.

One, make banks liable if they don’t know their customers. If the bank opens an account for a fraudster using fake documents, then the banks become liable for the IRS refund losses. The banks could temporarily block access to the EFT IRS refund deposited into an account, especially as a fraudster will only have minimal or no bank account activity except for receiving the money. The banks understand customer patterns, and if it would cost them millions, they would start to pay attention. They aren’t, so they don’t (unofficially) care. They will pretend to, but having to pay the IRS millions will get the banks’ attention.

Two, if a physical check is sent it can only be sent for collection at the nearest main post office and accompanied with the mailed IRS payment confirmation that’s sent to the person’s mailing address. Here is the unfortunate part of this process… the post office needs to photograph the recipients (holding refund check envelopes showing its QR code)  after documenting identity. A national IRS refund database will then do an instant secure Internet check to match the person to other refunds using facial recognition software.

This process can be almost instantaneous and the main post offices are already setup to take passport photographs, so the upgrade costs are minimal. Compared to the loss of billions of dollars of fraud, the added expense is a rounding error.

Yes, there is a right to privacy, but not a right to steal someone’s identity and their refund. If the public doesn’t like this, they can elect an EFT refund direct to their banks.

The problem is that public wants easily accessible money and the least amount of hassle so they (or some) will push back if anything gets between them and their refund checks.

The last thing that the crooks want is to have their photographs taken when connected to a fraudulent refund check. It’s a simple recipe for jail time, so they’ll move on to another way of making money perhaps selling illegal drugs again, a less risky business.