Tax Fraud @ State Level

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Tax Fraud _at_State Level
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What We Know

• Refund Fraud is Exploding
• Every State is being Hit (so is the IRS)
• Fraud is Easy
• Fraud Schemes are Ever Changing
• States Need to Change Priorities

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Refund Fraud is Exploding

• E-File On-Line Banking ID Theft Pre-Paid
  Debit Cards TAMPA, FLA.
• TAMPA TRIBUNE Sept 2, 2011
• Tampa is at the tip of a national trend
• Postal Inspectors seized an estimated 100
  million in fraudulent tax refunds
• The total fraud in the Tampa area alone could
  approach 1 billion.

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Refund Fraud is Exploding

• E-FILE PREPAID DEBIT CARDS
• Has Increased Identity Theft
• On-line Banking allows for Complete Anonymity
• Has Created a 24/7 Window for Perpetrators
• Fraud Starts 1st day and extends beyond Filing
  Deadline
• Speed Volume of Fraud Returns Overwhelming

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Every State is being Hit

• 2010 YTD MA Inactivated EIC claims
• 14,539 RETURNS
• 7,956,274.00
• Total EIC Claims Inactivated all years
• 70,398 Returns
• 35,122,280.00

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Every State is being Hit

• MA 2010 Withholding Inactivated
• YTD 5,208 Returns 4,527,255.00
• Total Withholding Inactivated all years
• 42,272 Returns 30,397,173.00
• 1 E- file scheme _at_ Columbus Bank
• Stopped apx. 1000 returns 1M (/-)
• What We Missed
• ?

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Fraud is Easy

• Free Tax Prep Sites
• Genealogy Sites that provide
• Names
• Dates of Birth
• Dates of Death
• SSN Numbers
• Automated Refund Phone Line

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Fraud Schemes are Ever Changing

• Tax Preparer Fraud
• Wholesale solicitation of elderly living in
  subsidized housing to file for refundable credit
• Submission of False and Fraudulent returns
• Submitting returns of former clients and routing
  returns to bank accounts controlled by preparer
• Submitting same return under ITIN SSN
• Submitting Prior Year returns

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Fraud Schemes are Ever Changing

• Return enhancement,
• Incorrect Filing Status
• Multiple Returns using the same SSN for
  dependants
• Overstated Income to max out EITC
• Overstated Schedule C expenses
• Claiming Credits that theyre not entitled to
• Creating false supporting documentation on Audit

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States Need to Change Priorities

• No Longer a Secondary Filing Season Issue
• Continuous Revision of Fraud Rules
• Coordinated Effort Within DOR
• Prosecute Perpetrators

11
THANK YOU

• Questions ???
• Joseph J. McDermott
• Deputy Commissioner, Audit Division
• Massachusetts Department of Revenue
• 200 Arlington Street,
• Chelsea, MA 02150
• [phone]