By
IPI president Tom Giovanetti - The Hill
Its likely that obtaining fraudulent payments from the federal government dwarfs all other categories of financial crime in the United States. Whether its obtaining Social Security disability payments under false pretenses massive organized Medicare fraud or making multiple false refund claims for the Earned Income Tax Credit (EITC) or other tax provisionsit has been common knowledge for years that such fraud is widespread and the relevant federal agencies have done little or nothing about it.
Its not as if such fraud is particularly hard to detect. According to the Treasury Inspector General for Tax Administration (TIGTA) in 2011 alone 54000 tax refunds totaling over $86 million were issued to 10 physical addresses. You read that right54000 tax refunds to only 10 addresses. A single address in Atlanta received 24000 tax refunds in 2011. Such fraud should have been identified about the time the third check was issued to the same address.
There are several reasons why such fraud has become pervasive. Clearly federal programs have become so massive and complex that they are no longer manageable. Yes its possible for government to make so many promises to so many people that government itself is no longer competent to manage it all.
But there are other factors as well. The federal government has never made fraud prevention a major focus. Instead too often the incentive is to keep the voters happy by making sure the checks go out quicklyand worry about fraud later maybe. Such a pay and chase approach was actually the official policy of Medicare until very recently and even after the Affordable Care Act threw $77 million at the problem and instituted a glitzy new state-of-the-art anti-fraud center Medicare fraud still climbed by $12 billion over 2010 levels.
Federal administrators have almost no incentive to prevent fraud within their programs. Indeed the bigger the program expenditures the more power and higher salaries accrue to the administrative class. If anything the incentive is to ignore fraud. A July 2012 TIGTA report noted that problems had been brought to IRS managements attention long ago via a September 2002 report but management has failed to take sufficient action to address those deficiencies.
The tax fraud problemestimated to be $5.8 billion last year aloneis likewise a result of too much complexity and inadequate incentives on the part of administrators. Responsibility falls squarely at the feet of the IRS to enforce existing law but ultimately to Congress as its within Congresss power to reform and simplify programs and restructure administrator incentives to identify and prosecute fraud.
Thats why its shameful to see Congress pass the buck and attempt to pin the blame for tax fraud on . . . tax preparation software. Thats rightaccording to some in Congress apparently TurboTax is to blame.
Tax preparation software is clearly a tool that benefits taxpayers as they attempt to comply with and avoid the pitfalls caused by this overly complicated tax code and the widespread adoption of such software is a direct rebuke to the complexity of the tax code. To blame software for tax fraud is to blame the plumber for the clogged drain.
Software is a tool not a licensed agent or tax preparer. Software like all technology is neutralthe legal responsibilities fall to the users of the software. Its the IRSs responsibility to develop adequate systems to screen for fraud and to identify patterns that indicate organized tax fraud and its Congress job to force the IRS to do it.
Give us a tax code that is simple enough for taxpayers to comply with and simple enough for the IRS to administer and youll dramatically reduce fraud. Force the IRS to focus on its core mission instead of acting as a political enforcer for the party occupying the White House and the IRS will suddenly find that its budget of $10.9 billion is in fact sufficient to perform that mission.
The Institute for Policy Innovation (IPI) is an independent nonprofit public policy organization based in Dallas. IPI president Tom Giovanetti is available for interview by contacting Erin Humiston at (972) 874-5139 or erin@ipi.org
