Tax rebate fraud: Country in the best of hands

So let's say you have a brilliant idea…and here it is. You "find" the social security numbers of 250 dead people and file returns for them. So you send phony returns in, and wait for bogus refund checks to arrive.


Dumb idea, right? Wouldn't that fact that no withholding actually took place and that no W-2 were ever filed with the IRS actually stop your brilliant scam from working?


Not necessarily, as Ather Ali of Diamond Bar, Calif. found out:


According to the indictment, in 2002 and 2003 Ali filed at least 250 fraudulent returns, falsely stating that these deceased individuals earned wages from which income tax was withheld. These false returns claimed more than $2 million in income tax refunds. Although the IRS rejected the bulk of these refund claims, a number of refund checks were issued and delivered to addresses controlled by Ali and his co-conspirators, including various mailboxes opened by Ali. Most of these refund checks then were delivered overseas to be deposited in bank accounts in Armenia and Pakistan.


So even though the returns were totally bogus and no money was actually withheld, the IRS still sent out the refund checks!


If the truth be told, fraudulent refund checks are kind of a common occurrence. A few years back, I had a client come into my office trying to settle a $50,000 debt. I asked her how she got into that sort of trouble. She said that in 2001 she claimed a $35,000 tax credit for slavery reparations. Don't laugh. Everyone in her church was doing it. And don't laugh —  as wouldn't you know it — the IRS actually sent her a check for $35,000!  She cashed it and blew threw the money rather quickly. Years later, of course the IRS figured out the error and began their friendly collection activities.


Now, do I really fault the IRS for sending money to people who don't have it coming? Sure. But first let me praise the IRS.


The IRS actually wants to get refunds out as fast as possible. Considering the chore, it is a reasonable turnaround time. So in speed (or relative speed), mistakes will be made. Especially when the largest bureaucracy known to man is involved. So with such a large country, of course extreme cases will happen and of course, the extreme stories are the ones that are told and retold. So the real problem with the IRS?


I've said before and I'll say it again:


The IRS is the largest employer of FORTRAN*  programmers. Which would be fine. If FORTRAN was the only computer language needed. But FORTRAN wasn't really designed to be anything but a mainframe code. And you see, we kind of had the PC revolution a few years back, changing the entire architecture of computing.


Well, anyway, the IRS' computer systems are a huge jumble of bailing wire and duct tape. Every attempt at upgrading has failed spectacularly, as the IRS refuses to give up their old mainframes. Despite the fact that $18 billion has been spent, the bulk of data the IRS keeps is maintain in a system essentially as  modern as 1961.


Because of these structural deficiencies, the IRS can not communicate with itself effectively, let alone anyone on the outside. Hence refunds will be sent in error and it may take the IRS a long time to figure it what it did.


My suggestion to improve the accuracy and service of the IRS? Shut down it down until a modern (or quasi-modern) computing system can be 100% perfected. And if that takes until the end of time to do so, so be it.


About IRSMedic:

Attorney David G. Parent and his son, Attorney  Anthony E. Parent, founded IRSMedic to help individuals and businesses deal with tax problems. In fixing tax problems, they also learned how to avoid tax problems. The firm has expanded to domestic and international tax resolution, tax planning, and tax preparation. If you need assistance, call 888-7272-8796 or email info@irsmedic.com.