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Tuesday, April 23, 2013

Ainsworth: E-Verify Can Stop Tax Refund Fraud

Richard Thompson Ainsworth (Boston University), E-Verify Can Stop Refund Fraud:

Two issues in the current Washington debates need to be linked. E-Verify, the Internet-based database that allows employers to verify an employee’s work eligibility that is at the center of the immigration debate, is the ideal tool for stopping tax refund fraud. All that is needed is a digital signature of the E-Verify result, and the mandatory inscription of this signature on tax documents to make them self-authenticating.

The central features of this proposal have been made before. The technology it requires is tried and proven. The processes and procedure it advocates are in place and effectively deployed in foreign jurisdictions, notably in VAT jurisdictions enforcing against VAT fraud.

The heart of this linkage (the E-Verify/refund fraud linkage) is numerical. At least $5.2 billion in annual revenues are being lost through refund fraud – the cost for businesses to implement a fully mandated E-Verify system is $2.7 billion. If E-Verify solves refund fraud, there are funds available for a business credit with a considerable amount of money left over.

The $5.2 billion figure comes from the Treasury Inspector General for Tax Administration (TIGTA) who found that in Processing Year 2011, identity theft cost the US taxpayer in excess of $5.2 billion in undetected fraudulent tax refunds, and estimated $21 billion in losses over five years. The $2.7 billion figure comes from a Bloomberg Report for the same time period indicating that a fully mandated E-Verify system for all employers would cost $2.7 billion (almost all of it in training expenses related to system implementation and worker appeals).

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The author envisions a system where paper tax returns are submitted to IRS with paper W-2 forms attached. That would have worked twenty years ago. W-2s are not submitted by electronic filers.

It might be possible to print a numeric code on W-2 forms, but that overlooks the current system that requires W-2s to be distributed to employees by January 31 while the deadline for submission to the Social Security Administration (which then forwards the information to IRS) is not until February 28.

The easier solution is to allow taxpayers to create a password that can be used when submitting returns and sending correspondence to IRS.

Posted by: Bob | Apr 24, 2013 2:02:47 AM

IRS created this problem when it allowed you refund to be deposited to multiple bank accounts. One deposit, one bank account per return. No second deposit to that account. This used to be the policy, IRS changed it. STUPID.

Posted by: Ray | Apr 24, 2013 10:07:36 AM

Ray, please explain why one deposit, one account would fix this.

Posted by: AMTbuff | Apr 24, 2013 1:15:48 PM