Posts Tagged ‘Operation Rainmaker’

Pursuing Tax Fraud by Relaxing Taxpayer Privacy Laws

September 12th, 2011 No comments

Last week, I wrote about Operation Rainmaker. Authorities in Florida arrested several individuals in connection with filing false income tax returns using stolen social security numbers of the living and deceased.

Unfortunately, authorities did not charge the perpetrators with tax fraud, because the taxpayer privacy laws won’t allow authorities to obtain information from the falsely filed returns.

Reported by Tampa Bay Online, Florida Senator Bill Nelson introduced legislation in Washington on Friday that may assist authorities with prosecuting individuals who file tax returns using someone else’s social security number for tax fraud. More specifically, the legislation “would require the Treasury Department to examine ways to allow the IRS to share information with local law enforcement while still protecting taxpayers from potential abuse.”

Perhaps Senator Nelson is a regular reader of Taxes in the Back. Yes, even I sometimes engage in wishful thinking.

Operation Rainmaker

September 5th, 2011 No comments

On Friday, authorities in Tampa, FL announced the arrest of several individuals in connection with a tax fraud scheme involving $130 million.

According to an article in the Seminole Heights Patch, task force members dubbed the investigation “Operation Rainmaker,” as authorities pursued “money that was raining down on the suspects.”

The scam involved identity theft. The perpetrators used stolen social security numbers of both the dead and living, prepared false income tax returns, and pocketed the refunds. When several true holders of social security numbers filed their returns and subsequently discovered returns were already on file, authorities knew something was amiss.

I’d like to note this story touches upon an issue I have previously discussed: In general, the IRS does not share tax information with any other person, including law enforcement authorities.

There are some exceptions, but none seemed to apply in this case.[1] Thus, efforts by authorities to crack down on the filers of the fraudulent returns were far more difficult than they needed to be. Even more, the perpetrators were not charged with tax fraud, but instead money laundering and identity theft.

It seems to me that the taxpayer privacy laws are too strict. Sure, we want taxpayers to fully disclose their income without facing any disincentives. Although the taxpayer privacy laws are indeed written to effectuate that notion, more exceptions can be implemented that not only maintain the encouragement of full disclosure but also assist authorities with more easily identifying tax scam artists.

[1] An argument could have been made that the following exception applied: Disclosure to Federal Officers or Employees for Administration of Federal Laws Not Related to Tax Administration. Certain elements must be established in order to trigger the exception. Applying this case to the elements leads me to believe the exception should apply. I do not know whether Operation Rainmaker authorities presented this argument.

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