As April 15 th arrives

[David Farber <farber () central cis upenn edu>]

Date: Fri, 11 Feb 1994 20:14:53 -0500
From: Ed Ravin <eravin () panix com>
Subject: Electronic tax filing: MAKE.MONEY.FAST ???


An AP article in NY Newsday on 11 Feb 1994 describes a Congressional hearing
where prison inmates told lawmakers how they used electronic filing of tax
returns to defraud the Internal Revenue Service.


Here are some salient highlights:


* "I think the IRS is detecting maybe 25 percent of the fraud taking place
with electronic filing..."  -- Frazier B. Todd Jr., serving 2 1/2 years for
collecting more than US $500,000 over two years by issuing false W-2 forms
from fictitious companies in the names of people too poor to file income tax
returns.  Todd was able to obtain permission from the IRS to file
electronically via mail.  His frauds continued after he was caught, by
processing phony returns through legitimate tax preparation firms.
Registering the false companies with the IRS took only a phone call...


* A convicted tax preparer (doing 18 months) testified how he obtained US
$750,000 over three years in undeserved refunds on behalf of his clients, by
inflating deductions and other devices...


* IRS Commissioner Margaret Milner Richardson says the agency has put new
computer "filters" in place to spot fraudulent returns.  They've already
detected 200 schemes involving 3000 or so false claims (and the tax season is
only six weeks old).


* During the first 10 months of last year, the IRS detected 61,000 fraudulent
returns totaling US $110 million -- but a consultant's report says the true
cost could be more like billions of dollars.


* Representative JJ Pickle (D-Texas) threatens to recommend a freeze on
electronic filing if the problems can't be worked out.  Commissioner
Richardson claims that "electronic filing is the very thing that has allowed
us to detect fraud".


* The speed at which refunds are issued to electronic filers makes it
difficult for the IRS to stop questionable refunds.  A General Accounting
Office staffer suggests that "The IRS has often appeared more interested in
expanding electronic filing than in ensuring that it was fully understood and
adequately addressed the associated risks"...


[This is sounding all too much like William Gibson's novel _Neuromancer_,
where rogue computer jockeys could reap money out of the cyberspatial ether by
crashing into big computers and tampering with data...]


Ed Ravin   eravin () panix com    +1 914 448 4737