Don’t Hate the Player, Hate the Game

“The trouble ain't that there are too many fools, but that the lightning ain't distributed right.” Mark Twain.

I have to confess, every once and a while I get a shot of Schadenfreude: the pleasure derived from the misfortunes of others. Like the time the lady called me and said she was getting audited because she thought that if she claimed 10 children as dependents, she didn’t have pay any taxes. Or the time the guy told me that he wanted to file a federal complaint of tax fraud against a man to whom he had sold his kids’ social security numbers. Apparently, the guy who bought the kids’ numbers shafted the father out of the fraudulent refund he expected, so the father wanted to report the crook for fraud. This is the kind of nonsense the IRS pays me to referee every day, and all in the name of sucking the fiscal lifeblood out of the nation’s tax base.

The bloodsuckers I speak to every day would make the Cullen Clan from Twilight seem like a vegan village in comparison to the magnitude of my callers’ unquenchable thirst for consuming taxpayer resources. Like a sorority of succubi, they perpetually stalk IRS representatives, by phone and in person, demanding a plethora of dependency exemptions for a brood of children fathered from indeterminate loins. There is no shame in their game: they readily boast that because they are unemployed, they are free all day to tie up the IRS phone system asking inane and impertinent questions irrelevant to the IRS’ central mission: collecting revenue to fund the operations of the United States Government.

One of the first things you learn as an IRS employee in Tax law 101 is that a dependent exemption reduces taxable income, which accounts for the disproportionately high number of calls the IRS receives about this one area of tax law. Every day I get dragged into “baby mamma drama” by “parents” who are fighting over the tax benefits that Congress grants taxpayers through the tax laws. They scream and curse about cheating boyfriends, kickbacks from illegal deductions that were never provided to the unqualified “parent,” custody support agreements, and other such nonsense, which prevents me from helping real taxpayers with real questions about how to actually pay the taxes they owe. It seems like no matter how many different ways I try to explain who is qualified to claim a dependent and why, taxpayers seem determined to claim whoever they want, whenever they want, and for whatever reason they want.

To add insult to insanity, the IRS sends out Notice CP09: “You may be eligible for a refund of up to $5,891” to those taxpayers who never claimed the Earned Income Credit but MIGHT qualify for it. Notice the emphasis on the word might…not a single taxpayer I've talked to in the entire filing season that received the notice actually DID qualify for it, but the IRS sent out the notices anyway. Imagine that…at a time when tax dollars are so short that the federal government is furloughing air traffic controllers, causing he delay of thousands of PAYING airline passengers from arriving at their appointed destinations, the IRS has plenty of money to send out letters to point out the possibility of claiming a refundable earned income credit that comes out of the national treasury and the IRS is using YOUR money to do it. Naturally, everyone that receives this letter from the IRS calls me to ask if they qualify, which ties up the phone lines that much more.

The calls I answer are not limited to American citizens either. At least 10 % of my callers want to claim illegal immigrant children or parents or spouses as dependents using the ITIN that the IRS is only too glad to supply. This amounts to state-sponsored embezzlement, rendering the IRS as an unindicted co-conspirator and racketeer in the national conspiracy to rip off taxpayers, shifting the criminals’ tax burdens to law abiding citizen-taxpayers. In the humble opinion of one lowly government worker, granting criminals the RIGHT to lay claim to the fruits of the working masses’ labor is a crime of the highest national caliber. Our appeasement-minded national tax policies seem to mirror Nazi Germany’s administration of Auschwitz: keep the trains rolling and the passengers be damned!

Ironically, American women who cannot locate their “babies daddies” have no trouble locating my number when they want to take the dependency exemption for their children. These women are apparently oblivious to the fact that America hasn’t balanced her books in 20 years. As such, the very same dependency exemptions they claim for themselves, and deduct from their own returns, results in a fiscal imbalance of the nation’s ratio of revenue to expenditures, and is thus likewise deducted from the future earnings of their very own children in the form of taxes required to pay the interest on the IOU the parents themselves wrote out to countries like China that are bankrolling their tax breaks. Each and every time they call IRS and I give them the IRS stamp of approval to take a deduction from their earnings, an amount that the Congress allows for their dependency exemptions, this amount is added to the fiscal deficit, forcing taxpayers to borrow from foreign savers like the Chinese.

As with any typical shell game, the Congress (the “outside man”) is pretending to work with taxpayers (the “mark” or “pigeon”) by empowering the IRS (the “inside man”) to give taxpayers tax breaks they are legally entitled to take when, in fact, Congress is conspiring with the IRS to cheat the mark (the taxpayers) out of tax dollars that, when deducted from the US treasury, are then sent to China in the form of an IOU that the taxpayer’s children (the ultimate victims of this pyramid scheme) will pay the Chinese in interest on the debt that their parents borrowed from them. It is the ultimate confidence scheme played out on a national poker table where Members of Congress have stacked the deck and American taxpayers are playing the game blindfolded and with marked cards.

As unpopular as I am when it comes to assessing tax debts, I am equally and conversely popular when it comes to issuing refunds. Everyone loves to get a refund…especially if it’s in someone else’s name. Millions of dollars in fraudulent refunds are issued every year due to the fact that millions of American taxpayers become victims of identity theft every year. The IRS inspector general’s office concluded in 2012 that the IRS failed to detect approximately 1.5 million tax returns that generated potentially fraudulent tax refunds during tax year 2010, totaling more than $5.2 billion in fraudulent refunds. The inspector general estimates that the IRS could issue as much as $21 billion in fraudulent tax refunds over the next five years. Identity theft is so easy to perpetrate on American taxpayers that thieves are sending in false returns in bulk without even bothering to change the mailing address on the returns. The inspector general said it found one residential address in Lansing, Michigan that was the source of an astonishing 2,137 tax returns, and to which the IRS directed more than $3.3 million in potentially fraudulent refunds. In another case, a single residential address in Chicago was the source of 765 tax returns, generating more than $900,000 in potentially fraudulent refunds. In his report, IRS inspector general J. Russell George stated, “Once the money is out the door, it is almost impossible to get it back…the bad guys know that the IRS is unable, given the limited number of its staff it has, to address every single allegation of tax fraud it has.”

Many taxpayers have no idea how pervasive the problem is until it happens to THEIR refund. The methodology of stealing someone’s identity to generate a fraudulent refund is fiendishly simple. According to the Postal Inspector, successful schemes involve identity thieves using the SSNs of deceased people and individuals who receive public assistance. The Federal Trade Commission began counting victims in 2003 and in 2012 more than 12 million Americans had their identities stolen. A November 2010 survey found that 12.5 % of the American population, some 38 million Americans, have been a victim of ID theft at some point in their lives, yet the IRS continues to issue refunds without verifying the legitimacy of returns prior to issuing the refunds.  As pervasive as the problem is, the Inspector General’s analysis does not include instances for which the IRS determined that a tax refund was fraudulent after the refund was issued or tax returns filed with an Individual Taxpayer Identification Number (ITIN). These individuals frequently use another individual’s Social Security Number to obtain employment, making it difficult to associate ITIN filers with third-party income and withholding documents. Conservative estimates place the amount of refunds issued to illegal immigrants who claimed refundable credits like the Additional Child Tax Credit in 2012 to be around $7 billion. This is money that legitimate taxpayers are paying out of their tax dollars to illegal immigrants who use ITIN’s to claim refundable credits, which is possible because our tax system is a “pay as you go” and faith-based system, rather than a real-time tax system in which wages are reported to IRS as they are earned. Identity theft has been a nationwide problem for years.

A real-time tax system would allow the IRS to verify many tax return elements at the time a tax return is filed. Of equal importance is that this type of tax system would allow the IRS to quickly identify fraudulent tax return filings based on false income reporting. The IRS Inspector General concluded that IRS’s vision of a real-time tax system is key to stopping the issuance of fraudulent tax refunds. TIGTA had reported as far back in 2010 that expanded access to the National Directory of New Hires (NDNH) is also needed to further improve the IRS’s ability to identify tax returns with false income documents at the time tax returns are processed. The NDNH is a database that contains information on all newly hired employees. The data include the six basic elements on Form W-4, Employee’s Withholding Certificate, for newly hired employees: employee’s name, address, and SSN, as well as the employer’s name, address, and Federal Employer Identification Number. As with everything else IRS does, an Act of Congress is required to fix this problem so IRS is still dealing with the same issues year in and year out. Apparently, the more things change in the skill sets of identity thieves, the more things stay the same at IRS.

The transcript that follows will give you some idea of how eloquent taxpayers can be when expressing their reason for calling IRS – using the agency as their own private national piggy bank:

IRS:    Thank you for calling the Internal Revenue Service. How may I direct your call?

TP:      I'm looking for the bigger one!
IRS:    Pardon me?
TP:      I got the smaller one. I'm looking for the bigger one!
IRS:    Um…are you referring to your refund, ma’am?
TP:      Yeah! I'm looking for the BIGGER one!
IRS:    Ok ma’am. I’ll connect you to our individual refund inquiry department. Please hold for the transfer.