TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, April 14, 2013

Vance: Why Your Tax Return Isn't Safe

Wall Street Journal op-ed:  Why Your Tax Return Isn't Safe, by Cyrus R. Vance, Jr. (Manhattan District Attorney):

The millions of Americans who are rushing this weekend to file their tax returns to the IRS will be relieved to have beaten the April 15 deadline on Monday. But thousands of them, along with thousands of other taxpayers who have already filed, will be stunned when they learn in the coming weeks and months that their returns have been rejected.

Why would the IRS reject them? Because these taxpayers will turn out to have been the victims of identity-theft tax fraud. The increasingly common scam costs taxpayers $5 billion a year.

Here's how this type of identity theft works: The scammer steals an individual's name and Social Security number and uses that information to file a phony tax return. Soon after, he receives a refund from the IRS, which has little reason to question, at least initially, an authentic-lookingreturn. When the actual taxpayer files a return claiming a refund, the return is rejected.

With the increasing popularity of e-filing returns online, the theft has been made easier than ever. According to the IRS, identity-theft tax cases have jumped 650% since 2008, with the IRS working on nearly 650,000 identity theft cases during 2012.

One of the most frustrating aspects of these crimes for many local prosecutors—and I am one of them—is that even though we know the ripoffs are taking place, and we have the resources and expertise to investigate and prosecute, our hands are tied. Current federal law prevents the IRS from turning over the very evidence of the crime—the fraudulent returns—that state and local prosecutors need to bring the scammers to justice....

In a recent report to Congress, the IRS's taxpayer advocate noted that the agency is "falling further and further behind" in blocking fraudulent claims. The feds can't do it alone. Local prosecutors' other federal partners regularly share documents and information with our office. The IRS should be no different.

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I have a password at my bank.

I have passwords for my credit cards.

I have a password to read the NY Times.

I have passwords to buy stuff on eBay and Amazon.

Why can't I have a password to file returns and otherwise communicate with IRS? (I do have a password to make payroll tax payments through the EFTPS system.)

Because they are still living in the 1970s, and wringing their hands about what to do about security in the Digital Era?

In any case, this is just another story about IRS problems that fails to mention how 43 states are dealing with the same issue.

Posted by: Bob | Apr 14, 2013 6:04:01 AM

Correction. 43 states are trying to deal with the issue. Cross-state identity theft for income tax refunds is rampant and is hindered by the traditional declination of one state to aid in the enforcement of another state's revenue laws. For example, North Carolina will not assist in investigating fraudulent Pa. income tax refund claims from "taxpayers" in North Carolina. The IRS would have much greater cross-state success in investigating these crimes with the DOJ prosecuting, than individual states. Nice try Mr. Vance.

Posted by: Publius Novus | Apr 14, 2013 3:40:37 PM

Laws can be changed. Why can't the right steps be taken to change the rules. Can't a victim authorize the release of his or her records to further the prosecutorial process? If I were a victim, I would waive my right to privacy and allow the IRS to share that with local prosecutors. It seems to be an easy fix from my vantage point.

Posted by: William Saunders | Apr 19, 2013 11:04:53 AM