As tax day looms for American taxpayers on Monday, one state comptroller is struggling to figure out what to do with thousands of fraudulent tax returns submitted by identity thieves.
“I have 50,000 fraudulent returns sitting on my desk. I have no subpoena power. I have no investigatory powers as far as those fraudulent returns,” Maryland Comptroller Peter Franchot told WBAL Radio last week.
Maryland is not the only state tackling fraudulent returns.
“It’s happening to every state around the country,” he said.
The comptroller used the state’s fraud detection software to sort out fraudulent tax returns and has discovered every year that the problem of thieves stealing the identity of lawful taxpayers in order to get the victims’ tax return money has grown larger.
“They are consciously getting out in front of lawful taxpayers and getting their refunds by pretending they are the Maryland citizen. So when a citizen goes and applies for their refund, we have to tell them, ‘oh, someone else already got it,'” he told The Derek Hunter Show.
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Franchot believes some tax return thieves are gathering the information sold from numerous hacks into corporate databases and government agencies.
“Our software that we use is pretty sophisticated but the criminals are becoming more sophisticated than we are,” he said.
Despite the detection software, Franchot admits there is a possibility of some fraudulent returns slipping through the system.
“I would hate to admit that but some get through. At the federal level, there is a huge amount of fraudulent returns that get through,” the comptroller said.
Franchot pressured the Maryland General Assembly to get additional legal tools to prosecute tax frauds.
“We put in legislation that everyone said was ‘model legislation’ for the country. It passed the House of Delegates and never made it out of the Senate,” he said.
When the Maryland General Assembly concluded their session last week, the Maryland Senate refused to give the comptroller more power to investigate and prosecute tax thieves.
“The legislation wouldn’t have cost the taxpayers a red cent. It would have protected the state of Maryland from a tremendous amount of fraud and they [Maryland Senate] said no. As a result, I’m going to have to keep fighting with one hand behind my back,” he told WBAL.
The comptroller suspects politics may be at play for why the Democrat-controlled General Assembly may not have helped his office.
“What I heard was that they [the Democrat lawmakers] were sending a message to me that they don’t like the fact that I worked fairly well with [Republican] Governor Hogan or something like that. They had some grievance,” he said. “But they didn’t hurt me at all. They just hurt the taxpayers. It’s a real odd strategy if they are trying to send a message to me.”
Franchot plans to continue to fight to take on the tax frauds through working with the state attorney general to get indictments but he’s finding that the tax thieves have “gotten more brazen and more sophisticated.”
On the federal level last week, Senator Dan Coats of Indiana pressed IRS head John Koskinen at a committee hearing about whether the IRS had resolved the 200,000 new tax fraud cases of employment-related identity theft.
Coats noted the IRS forbids its employees from notifying victims that their information has been stolen.
It was revealed during the committee hearing that the IRS had a pilot program to address identity thieves fraudulently using taxpayer social security numbers but they closed the program.
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The IRS chief admitted to knowing that social security numbers are being used by “undocumented aliens” but raised the concern that their priority was “to collect taxes” and didn’t want people [undocumented aliens] to decide to not file their taxes.
“What happens in these situations is that someone is using their social security number to get a job, but they [undocumented aliens] are filing their tax return with their ITIN. So on those grounds, they are filing taxes and it’s in everyone’s interest to pay the taxes they owe but the question whether the social security number they are using to get the job has been stolen. It is not the normal identity theft situation,” the IRS chief said at the committee hearing.
Identity thieves using fraudulent tax forms has been on the rise.
In 2012, 1.2 million taxpayers were affected by identity fraud and in 2013, an additional 1.6 million were affected. Meanwhile, the IRS paid an estimated $5.2 billion in fraudulent identity theft tax refunds, according to the Treasury inspector general for tax administration.
Editor’s Note: Author Heather Hunter is married to Derek Hunter.