IRS issued $1B in bad refunds
Report: IRS issued $1B in bad refunds in 2007
The government sent out more than $1 billion in fraudulent refunds last year
WASHINGTON — The government sent out more than $1 billion in fraudulent refunds last year and offered this explanation Thursday for the bad checks in the mail: The Internal Revenue Service has too few resources to pursue every tax fraud case.
IRS investigators never even looked at an estimated $742 million in fraudulent refunds, according to a report by the Treasury Department office that monitors the agency. When they did identify an additional $264 million in bad refunds, it was too late to stop them from being issued.
The report noted that the IRS must divide its limited resources among numerous areas of compliance. “However, this is a significant revenue loss to the federal government and that must be addressed,” said J. Russell George, the Treasury’s inspector general for tax administration.
The number of improper refunds filed appears to be growing rapidly, the report said. “The problem is becoming unmanageable, and the IRS cannot afford to continue handling it in the same manner as in the past,” according to the report. It urged the tax agency to make the refund screening program — known as the Questionable Refund Program — a priority.
The IRS has estimated that the tax gap — the difference between taxes owed and taxes actually paid — at about $290 billion a year. Of that, about 57 percent comes from individuals understating incomes or overstating deductions and exemptions.
IRS spokesman Terry Lemons said the agency has made significant improvements over the past two years. “We stop the vast majority of fraudulent refunds and we prosecute people who try to cheat the system,” Lemons said.
George’s report recommended the IRS divert resources to go after such fraud cases. But Lemons said that could hurt other operations and mean fewer dollars from enforcement activities.
Lemons said the agency issued more than $470 billion in refunds in 2006 and 2007.
The report said the IRS fraud detection centers stopped more than $1.2 billion in fraudulent refunds in 2007, compared with $412 million in 2005, the last year the detection system fully functioned.
Because the system picks up only those refunds with higher dollar values, about 500,000 potentially fraudulent refunds did not enter the centers’ screening process. Had those refunds been included, the centers would have identified an additional $742 million in fraud, the report estimated.
In 2006, because of a technical problem in the fraud detection system, the IRS succeeded in identifying and stopping only $189 million in fraudulent refunds while paying out an estimated $894 million, the report said.
The Treasury’s inspector general, in a separate report Thursday, lauded the IRS for what it said was a “generally successful” 2008 filing season during which returns and refunds were processed in a timely fashion.
This report said the IRS did a good job in overcoming several obstacles, including changes involving the alternative minimum tax. The agency was also responsible for sending out checks to more than 130 million people as part of the economic aid plan signed into law in February.
I wonder how many fraudulent “prebate” checks would be sent out under a “FairTax” system, and how large of a black market would develop...
This is woefully low. There are so many people abusing the system to get the “Earned Income Credit” that it astounds me the Treasury has any maoney. These people don’t make enough to pay any income tax but manage to have one or more kids and live on $ 10K or less. They think it is free money, what a joke. They even give this to illegals who manage to have kids in this country. The really incredible thing the government is thinking of increasing this give away.
Not gonna get any better, only fair way it it implament a flat rate or a consumption tax but Thats just a dream irs is to big and big means power to who controls it so dont look for anything sensable
I found the comment on fraudulent “prebate” checks to be interesting... This seems like much less of an issue to me than the current system of fraudulent tax returns. Any fraudulent “prebate” checks would have to be either counterfeit checks, or an inside job to actually cut real checks. Regardless of where the fraudulent checks are coming from, this would be no different than someone pulling the same scheme with current income tax refund checks.
I haven’t heard of rampant income tax refund check forgery, though I would guess that this does exist to some degree. I would think this is somewhat mitigated by direct deposit which should help mitigate the number of “prebate” checks that would be floating around out there.
I think the primary source of income tax fraud is with the actual filing of the tax return. This is where people understate income or overstate deductions to game the systems and increase their refunds. This is the part that would be all but eliminated under the FairTax system. The only thing to report would be number of LEGAL residents at a particular address. This would be verified by SSN, and could be misreported also, but this would be much easier to catch than the various tax code violations reported on a 1040.
Well to stop all of this junk that congress approves how about we just repeal the 17 amendment to the Consititution.
If the IRS would start giving felonys to those who abuse the system like those who claim children that have never lived with them, I think it would lesson that part of the fraud. If they just get a slap on the hand and have to pay it back, that isn’t enough to stop them from doing it again.
The Fair Tax will lessen fraud. We pay the IRS 350 billion a year and they still fail to collect 250 billion! And let’s see, we pay 300 billion a year tax compliance costs. Hmmm. So 650 billion dollars invested annually just to collect taxes, add the 250 billion lost, that’s 900 billion dollars total, wasted and lost.
And lets not forget the over 10 trillion U.S. dollars in offshore tax havens - the U.S. economy doesn’t get the benefit of that. And guess what? Our federal government wants to seize more of our tax dollars to chase down those trillions! Ah, yes, the income tax....such a well honed machine. Not!
Fair Tax: no 300 billion wasted on compliance, no 350 billion spent on the IRS, 250 billion uncollected issue eliminated, trillions in offshore accounts return to U.S. without penalty, where it can infuse the US economy! And, instead of the tax code flushing jobs out of the country, jobs rush back home, without penalty! Let’s not forget that you’ll take home pay will go up by 30 to 50%.
This is a no brainer. The Fair Tax is the most researched tax plan in history and even the experts that are detractors even admit that FairTax is far more advantageous than leviathan thing of a tax code we’ve got now.
I’m not sure where you get that take home pay would go up by 30-50%, seems unlikely. Also, any such increase would be offset by the taxes paid. It’s not a windfall gain of take home pay - prices go up by about whatever amount you take home.. the plan is intended to be revenue neutral, so it has to illicit approximately the same burden on the citizens.
Welcome Nancy,
I’ve followed your participation on Fairtax Nation and am glad you checked in over here. You may learn a lot from our discussions, both pro and con on the Fairtax.
As for your post, we do not give $350 billion to the IRS to collect federal revenue. The budget for the IRS is around $10 billion. Big difference!
For the majority of middle class and below citizens, their take home pay might increase by 20%, not 30-50%. 7.65% for FICA savings and 13.5% for income taxes which is the average effective tax rate for those in the 15% tax bracket.
I wonder if you have any sources for your claim that there is $10 trillion in US owned assets offshore? The only study I can find indicated that, while there is $10 trillion parked offshore, only $1.6 trillion is owned by North Americans, and there are 23 sovereign countries in NA. The best estimate for US owned offshore assets is less than $1 trillion. And, those assets aren’t about to come rushing home. Back in 2004, Congress approved a tax amnesty plan to encourage repatriation of offshore funds, and I assume anyone who wanted to did so. Where is the tax amnesty you wrote about in HR25. There is no such amnesty as far as I know. This whole offshore asset thing is a gigantic Fairtax myth as near as I can tell.
I admire your enthusiasm and hope you will continue to participate on Fairtaxblog.
Any thoughts around other nations parking their assets to our shores if we enact the FairTax? Tax free investment in the U.S. economic superpower probably doesn’t sound too bad to foreigners (so long as our federal government doesn’t implode our monetary and economic system). We may be the place for them to park their offshore dollar, euro, yen, mark, etc.
Morphh,
Yes, I have some thoughts which are based on Section 905 of HR25:
“`SEC. 905. WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN CORPORATIONS.
`(a) In General- All persons, in whatever capacity acting (including lessees or mortgagors or real or personal property, fiduciaries, employers, and all officers and employees of the United States) having control, receipt, custody, disposal, or payment of any income to the extent such income constitutes gross income from sources within the United States of any nonresident alien individual, foreign partnership, or foreign corporation shall deduct and withhold from that income a tax equal to 23 percent thereof.
`(b) Exception- No tax shall be required to be deducted from interest on portfolio debt investments.
`(c) Treaty Countries- In the case of payments to nonresident alien individuals, foreign partnerships, or foreign corporations that have a residence in (or the nationality of a country) that has entered into a tax treaty with the United States, then the rate of withholding tax prescribed by the treaty shall govern.’.”
My question is: Where did you get the idea that foreign investments in the US would be tax free? We have discussed this issue before, but I can’t remember the outcome. I do recall Dr Walby writing that this wasn’t really a tax, but was something else??? Would any foreigner move their assets into the US under the present economic circumstances, and in light of the language in HR25? I don’t think so!
This whole issue is still a Boortz/Linder myth until proven otherwise!
Forgot about that section... good point. Not sure how much sense that makes. Was such income calculated in the FairTax rate studies? Is that computed in the National Income and Product Account figures?