E-Filing Can Facilitate Tax Fraud
Although e-filing your IRS taxes is a convenient option, it can facilitate tax fraud. Fortunately, there are steps you can take to protect yourself and your loved ones.
The IRS promotes e-filing because it eliminates the need (and costs) for thousands of data entry personnel at the IRS service centers around the country (thus eliminating thousands of jobs nationwide). In addition, e-filing provides them with all the data included on a return, not just the crucial information they key in from paper-filed returns, enhancing their abilities to perform computer analysis and matching programs. But it also opened the door for clever crooks who quickly found weaknesses in the system.
One such weakness was that the IRS would begin accepting e-filed returns near the end of January, well over a month before the employer deadline for filing W-2s with the government. So here is what has been happened: the crooks would:
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Buy, steal or appropriate the IDs of two unrelated male and female taxpayers.
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Appropriate the employer identification number (EIN) of any company.
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Make up phony W-2s using the company’s EIN.
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Open a bank account using the stolen IDs of the two individuals.
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Make up a phony 1040 with a large refund.
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E-file the return right after e-file season opened.
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Use Direct Deposit to have the refund deposited into the bank account within 2 weeks or less.
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Clean out the bank account as soon as the refund arrived.
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Disappear without a trace.
In the meantime, you would try to e-file your client’s return and it would be rejected as already filed. You attempt to get a copy of the return but can’t because you don’t have the ID of the other unfortunate taxpayer who was used as the other spouse on the return. All the while the scammers were enjoying their ill-gotten gains with impunity.
Earlier W-2 Filing Deadline - To combat this type of fraud, which has cost the government many millions, if not billions, of dollars over the years, Congress, as part of the PATH Act of 2015, standardized the W-2 filing due date. So, for the last few years, both the employee and government copies of Forms W-2, W-3, 1099-MISC (prior to 2021 and when nonemployee compensation was reported) and Form 1099-NEC (starting with 2020 forms) are due by January 31, regardless of whether the forms are filed on paper or electronically. In addition, the IRS has eliminated automatic extensions for W-2s, but will allow an employer a 30-day non-automatic extension, likely to be granted only under extraordinary circumstances such as a natural disaster or fire. The request for extension is done on Form 8809, Application for Extension of Time to File Information Returns, and must be requested by the January 31 due date. (Reg. §1.6081-8T)
Delayed Refund Payments - Another change from the PATH Act that also has helped combat tax fraud is a law prohibiting the IRS from issuing refunds from returns claiming the earned income tax credit or the additional (refundable) child tax credit prior to the 15th day of the second month following the close of the year (February 15 for calendar year filers). (PATH Act Sec 201(a)).
Queen of IRS Tax Fraud
Rashia Wilson, a 27-year old mother of three from Wimauma, FL employed the con described above and over a 3-year period she and her boyfriend defrauded the IRS out of more than $30 million with bogus tax returns. She would have never been caught except for the fact that she taunted authorities on Facebook. She was sentenced to 21 years in prison for tax fraud.