Category Archives: Tax Fraud

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Greed Has No Limit

I don’t know how it is that some whistleblower with a conscience got access to a Panamanian law firm’s files, but we’re all better off for it.  What the “Panama Papers” from the #MossackFonseca law firm show, in nauseating detail, is the extent to which the super rich will stoop to cheat on their taxes, with the able assistance of ethically-challenged law firms.


Yesterday’s Sunday New York Times ran a detailed piece, showing the mundane and absurd lengths to which the super wealthy and their handlers will go to hide their assets from taxing authorities.  It’s clearly sport to them.


It should not be seen as sport to the rest of us, who are left paying the bill.


How deeply cynical and entitled for these super-brats to think that the rules that society lives by don’t apply to them, and that it’s really o.k. to pay a relatively small fee to a Panamanian law firm to create their standard package of shell companies, phony beneficiaries, and hand-picked trustees to keep your assets forever out of sight.  Prison may be too good for them.  Bring back the stockades!  Public shaming is in order.


While tax compliance for the vast majority of Americans is not a matter of choice because taxes are withheld from paychecks, these oh-so-entitled folks find it offensive to pay for the infrastructure and hard-fought freedoms that made their fortunes possible in the first instance.


This is the kind of revelation that gives the Bernie Sanders supporters evidence of corruption so systemic that — they say — only a political revolution will suffice.  On the other end of the spectrum, Donald Trump refuses to show his tax returns.  Why?  Either because they will show he’s not as wealthy as he claims or because it will reveal aggressive use of loopholes that would offend most taxpayers who pay their fair share.  (Or are we just “losers,” too stupid to play the game?  Note from the real world:  American tax compliance is higher than many developed countries, and the countries that have low tax compliance are generally in big trouble, e.g., Greece.)


How about a simpler solution?    We enforce the laws.  We give the IRS the tools it needs to do its job.  We investigate the hell out of these high priority, big dollar, cases, and we put the money launderers in prison for stealing from society.  Forget about the small stuff for the time being.  Go after the big fish.  Put some teeth into the IRS whistleblower program and end this double standard.  Sure Fox News and the Wall Street Journal will cry foul about the heavy hand of government, blah, blah, blah.  But when you get right down to it, who’s really going to go to bat for these jerks who are stealing from the rest of us?

An Easy Fix For a Huge Tax Fraud Problem

Having now just finished the annual exercise of getting our taxes done, it’s a good time to think about the what-if’s of our tax system.  There are the really big ideas that may never get implemented, and then there are the ones that Congress really could easily take care of if they could just agree on the time of day.


Let’s start first with three really big problems to be dealt with:  1) we as a nation spend more than we take in, 2) we have a horribly complex tax code, and 3) we have a massive fraud problem that is getting worse each year.


On the deficit, let’s stay out of politics please, but it’s really not that complicated.  We had a big surplus a few years back; we blew it (we all know how but I’m not naming names), and now we’ve been working our way out of that hole for quite a long time, paying interest to the Chinese government who own our bonds, and to the twin vacuum cleaners of taxpayers’ money:  the military-industrial complex and the health care-industrial complex .  If one were to look at the way the federal budget looks, it is striking to contemplate how differently the chart would look if you had ordinary citizens making these decisions.  Put ten people in a room, all from diverse backgrounds and geographic regions, and require them to reach consensus on how best to spend a few trillion dollars.  What would emerge from that room wouldn’t look anything like what Congress produces each year.  (Can you say “Education, Infrastructure, or Green Energy.”)  So while I don’t on general principle have difficulty with the concept of paying taxes as my contribution to living in a mostly free and complex society, I have a lot of trouble with how the money is spent and with unevenly applied rules.  (I might start by eliminating Congressional salaries, and put them on a bonus system instead whereby they might get paid something each time they stop obstructing progress.  They train whales this way at Sea World — just reward the good behavior…)


On to more grounded thoughts.  We have a monstrously complex tax code, where special moneyed interests have secured extraordinary advantages for themselves.  Thus, Warren Buffet has pointed out that he pays a lower tax rate than his secretary, and hedge fund managers get to treat their income as capital gain, on the suspect theory that their income is really “carried interest.”  On top of the inequities, the sheer complexities of the code mean that whole industries have now arisen to help us taxpayers get our returns done, and our ducks in a line.  And each time Congress changes something, we have to call our accountants and lawyers to find out what this means and what we need to be doing to adjust… What if we had some version of a flat tax?  It would be so much more fair, and far simpler.  The amount of lost productivity because of the need to deal with tax complexities is truly staggering.  How many days have you wasted getting it all straight?  But, alas, all those people who now make their livelihood helping us navigate the complexities would object mightily.  People now have a vested interest in maintaining the complex status quo…


So here’s an easy one, that no one should have trouble swallowing:  how about we close the easiest and stupidest opportunities for fraud?  An example:  Each year, we taxpayers lose somewhere between $5 to$10 billion on phony tax returns filed by identity theft fraudsters.  At last count, there are over 650,000 phony returns filed each year.  And we could stop it with one quick fix.


Here’s how it works:  The identity thieves gain access to your name and social security number, and type up a phone W-2 form, showing that you’ve paid a lot of taxes.  They then submit an electronic return on your behalf, showing inaccurately that you are due a refund.  And they submit the paperwork authorizing the IRS to send the refund money to — ahem — your new bank account.  The IRS computers, inundated with returns and refund requests, pay the money out promptly, and the agency tries to chase the mistakes later, the twin sister of the “pay’n’chase” honor system used by Medicare and Medicaid.


The key to the scam, and the key to understanding how to beat it, is that the fraudsters file the phony return well before April 15th, ahead of the real taxpayer.  So the IRS can’t tell immediately that it’s a phony.  Then, usually on April 15th, the real taxpayer files and the IRS computer says “Huh, you already filed, dummy.  Call us and good luck getting this straightened out because we are under-funded and under-staffed.”  Meanwhile, the fast money has long since been pocketed and spent by the identity thefts, who are often sophisticated racketeers who know how to launder the money.


The easy fix:  eliminate early filing.  In one easy swoop, Congress could save $5-10 billion, and eliminate hundreds of thousands of taxpayer aggravations each year.  Problem solved.


Why not do this?  The ability to file early and claim a refund is considered a sacred right, and Congress has mandated that the IRS pay refund requests promptly.  Congress has effectively said to the agency:  get these refunds paid right away because people will be happier, and we don’t want to hear complaints about slow refunds.  Eliminating the right to file early would be temporarily unpopular, but people would get over it, particularly if the problem were explained clearly.  Would you rather get your $250 dollars back two months early, or encourage further multi-billion dollar losses of the people’s money?  I think most people would get it.


Come on Congress.  Stop the fraud leaks, or we’ll zero fund your salaries.