Annual IRS CI Report

The 2018 annual report from C.I. is available:

https://www.irs.gov/pub/irs-utl/2018_ir ... report.pdf

One tale from the annals that struck me as an example of a never-ending story is the one pasted below. I remember a tax seminar I went to some 35 years ago where a topic discussed was refund fraud and how much of it was conducted by prison inmates. "The more things change, the more..."

" According to court documents, Covington learned how to prepare and file fraudulent income tax returns from another inmate while he was serving time in a Tennessee state correctional facility. Covington illegally obtained personally identifiable information (PII), including Social Security numbers, from mostly other inmates. He used this information to either create false tax returns, which he mailed to his mother, or provided the information to his mother over the phone so she could prepare the forms and mail them to the IRS from her Knoxville residence. The IRS deposited some of the refunds into two bank accounts Covington created. He instructed his mother to withdraw the money from these accounts, keep some for herself, and purchase Green Dot cards for Covington with the remainder. In some cases, the IRS mailed checks directly to Covington’s mother, which she cashed and put the funds on a Green Dot card for Covington. Between tax years 2009—2015, Covington filed over 550 fraudulent returns using multiple addresses. The refunds totaled $905,213. The actual amount of loss was approximately $163,777."

refund fraud and how much of it was conducted by prison inmates.

Except the mom was not a prison inmate, was she? It appears none of it would have worked without her performing the actual filings and receipt of funds. This seems to be a case of good old fashioned dishonest American tax cheating by a regular citizen.

Nurture or Nature? My mom wouldn't have done that for me.

Also, while the report is released in late 2018, it seems to be recounting cases from many years ago where convictions are just now being obtained. From all reports, the IRS has greatly reduced refund fraud due to ID theft in the last few years, after many of the crimes documented here were committed.

From all reports, the IRS has greatly reduced refund fraud due to ID theft in the last few years, after many of the crimes documented here were committed.

From Accounting Today of 4/19/18:
"The interim report on the 2018 filing season, from the Treasury Inspector General for Tax Administration, found that as of Feb. 24, 2018, the IRS reported that it identified 9,557 tax returns with approximately $46 million claimed in fraudulent refunds and prevented $22.2 million (48.3 percent) in fraudulent refunds from being issued. In addition, the IRS said it prevented approximately 7,376 fraudulent electronically filed tax returns as of Feb. 28, 2018, and 1,442 paper-filed tax returns as of March 15, 2018, from being accepted into the processing system. The IRS also identified and confirmed 2,204 fraudulent tax returns involving identity theft as of Feb. 28, 2018, and identified 13,964 prisoner tax returns for screening as of Feb. 24, 2018.

The numbers of fraudulent returns identified and stopped declined somewhat from last year, although the total dollar amount of fraudulent refunds identified and stopped increased. The report attributed the decrease in the number of fraudulent tax refunds to the IRS’s efforts to expand processes to prevent fraudulent refunds from ever entering the tax-processing system."

Thank you for the supporting article about how the IRS is doing a much better job now than three years ago, in preventing the types of crime that were covered in the CI report.

In addition, the IRS said it prevented approximately 7,376 fraudulent electronically filed tax returns as of Feb. 28, 2018, and 1,442 paper-filed tax returns as of March 15, 2018, from being accepted into the processing system

And that includes legitimate returns flagged as fraudulent.

My client received a 2017 deficiency notice, the amount being the 2016 refund that should have been applied to 2017. When we responded to the notice we were informed the 2015 and 2016 returns were never filed. I have confirmation that these returns were in fact efiled and accepted so I pulled transcripts. No returns on record with instructions to call the Identity Theft Unit. We called. They claimed those returns were pulled for identity verification, the taxpayer was notified and did not respond. I know the client very well and had she received notices from the IRS she would have called me in a state of panic and for her to ignore such a notice two years in a row is not possible. She's been at the same address more than 10 years and has had no previous filing issues.

We've refiled the returns and have asked to hold off collection activities until the returns could be processed. Just today she received a CP81 for 2015. Dated the exact same day they received the refiled return!

I think my client was the victim of an overzealous IRS.