Posted on 04/26/2003 2:20:29 AM PDT by Cincinatus' Wife
Edited on 04/13/2004 2:09:40 AM PDT by Jim Robinson. [history]
The IRS will ask 45,000 people in this high-risk category to submit proof later this year that they are related to the child and that the child lived with them for more than half the year. A preliminary list of documents that can be used as proof include marriage certificates, medical or school records, or an affidavit from an employer, landlord, school official, child care provider, cleric, or other local official.
The IRS became a welfare payment system with the advent of Earned Income Credit(EIC). Unless you are involved in tax accounting, you have no concept of the amount of fraud that exists in the EIC system!
The penalty for this type of fraud is administrative denial of benefits, no fines or jail time (afterall, the folks involved do not have assets to begin with).
The "Scam" typically works like this... I have kids but didn't work so I don't qualify for EIC. Therefore I "Loan Out" my kids to you for tax purposes since you have worked but have no eligible kids FOR A PRICE (typically splitting the IRS refund check).
Believe me, there is a VERY ACTIVE market for kids to claim for EIC purposes!
Ask anyone who works for a "Tax in a box" firm such as H & R Block, Liberty Tax, Jackson-Hewitt and thousands of local tax preparation firms!
Individuals come in with names and social security numbers for kids and then cannot provide a date of birth or correctly spelled name (both required for most electronic tax filing computer programs). The returns often "bounce" (are rejected by IRS several times due to incorrect data match with Social Security Records OR the kids have been claimed by others already). Then..., some tax filers, rather than just quit while they are ahead, insist on "trying" other kids'names and social security numbers!
Some folks even "Invent" self employment income to qualify for the scam (these haven't worked at all but are drawing welfare benefits of some sort). "Workshops" advising "poor folks" on how to game the system are often held in poor communities in church basements and community centers!
"Inventing" self employment net income of around $10k and claiming two kids as a "head of household" can "net" you around $2,500 (even after "paying" more than $1,500 in "Self Employment Tax"... BIZARRE BUT TRUE!
The first time I heard of the latter scam was at an IRS Fraud Seminar... To the average taxpayer, the concept of "inventing" self employment income and "paying" self employment taxes sounds preposterous! But, to the scamster collecting several thousand of YOUR TAX DOLLARS (plus obtaining Social Security coverage in the process)..., it is but one way to profit at others expense!
Social workers and "Community Leaders" asked about how they could advise people on how to defraud IRS merely respond that "everybody cheats" and "they need the money"!
No one likes the IRS or the tax code but blindly allowing EIC tax fraud costs HUNDREDS OF MILLIONS EACH YEAR! Are you pleased to learn yet another way in which you are being ripped off! The next time you read about how terrible it id for the IRS to "go after" low income taxpayers claiming the EIC..., bear in mind that your tax money is bleeding away...
I can assure you that, if you are caught cheating IRS out of a few thousand dollars your penalty will be FAR MORE than being administratively denied the right to claim tax credits for a few years!
No, we need informed, registered voters.
Accountability.
Bump!!
To find out just how bad things had become, the IRS, during the 1994 filing season, picked a random sample of tax refund requests (focusing on refunds based upon the Earned Income Tax Credit, which is where the problem lay), and dispatched criminal investigators to test the validity of each claim. The results of the survey showed 38.8 percent of the EITC claims were either inflated or entirely unmerited, with 26.1 percent of the total EITC budget going into the wrong hands. Even with the most conservative definitions of fraud, 19 percent of the EITC claims were classified as outright fraud. The news was so bad that, for a moment, IRS officials were tempted to discredit their own study. But they resisted the temptation, faced up to the magnitude of the problem, and demanded the resources from Congress necessary to stem the flow.
When I ran a Google search on "EITC fraud" it returned 2,300 hits. It's obvious that there are several different major kinds of EITC fraud, that a great deal of it is organized, and that it went on for along time with no attempt at enforcement.
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