Tax Refunds for Dead People and Access to the DMF

[Cpt Banjo]

Interesting yet infuriating read. It's unfathomable why the IRS can't check the SSN of a refund claimant to see if it matches that of a dead person before mailing a check. And don't get me started on the IRS's sending 655 refunds to the same address in Lithuania or over $1 million in 355 refund claims to the same Colorado address. Sheer incompetence.

http://www.newsweek.com/deathly-flaw-bu ... eal-224764

[Number Six]

Lack of computer upgrades created this disaster. Apparently the usual political actors who insisted on "starving the beast", ie, do not give the government the tools to do its job. So you have a self-fulfilling prophecy and they feel vindicated with this fraud.

[LaVidaRoja]

AMEN!

[Kestrel]

It's easy to fuss about this... until you stop to think that there may be perfectly legitimate reasons for a tax return to be filed using a dead person's social security number.

The undistributed estate will still be receiving interest, dividends and capital gains until it is probated and distributed to the heirs. And the tax return with the deceased person's final earned income may not be filed by the survivors until more than a year after it was due, particularly if the heirs have trouble assembling the necessary records.

[Cpt Banjo]

The undistributed estate will still be receiving interest, dividends and capital gains until it is probated and distributed to the heirs. And the tax return with the deceased person's final earned income may not be filed by the survivors until more than a year after it was due, particularly if the heirs have trouble assembling the necessary records.

True enough, but how many of the signatures on the bogus refund claims do you think were that of the decedent, as opposed to the personal representative of his estate? I get the impression that the bogus claims were purportedly from a living person, and they weren't designated as a decedent's final return.

But I agree with the previous posters that a lot of the blame resides with Congress for not properly funding computer upgrades. Unfortunately, the IRS's recent blunders with 501(c)(3) applications didn't help matters.

[The Observer]

But I agree with the previous posters that a lot of the blame resides with Congress for not properly funding computer upgrades

Unfortunately, the IRS squandered and mismanaged those funds when contracting and overseeing the various upgrades over the years, ending with with more problems than when they started. It is not surprising that Congress didn't want to keep throwing good money after bad until they could ensure the IRS could ensure that they were getting what they paid for.

As an example, a multi-million dollar contract was awared to Singer, Inc. (of sewing-machine fame) in the late 80's to design and implement an OCR application so that returns could be electronically scanned at the service centers and be recalled and used when adjustments, audits, etc needed to be done; the goal was to eliminate paper-processing and that all the changes could be accomplished electronically. After several years, the IRS had to accept the fact that the contract work was not achieving what was promised and was cancelled after millions of dollars spent.

[operabuff]

The problem of giving refunds to the dead is part of the larger issue of identity theft confronting the Service. There are two broad categories of id thiefs that that the Service deals with. First, the fraudsters - those who use stolen information to file fraudulent returns. Second, those who use other people's identifying information primarily for other purposes (undocumented aliens, for example). This second group may be filing perfectly legitimate returns - indeed, they'd like to be able to demonstrate compliance with the tax laws down the road. The two groups are probably of the same level of magnitude. And the second group is just as likely to be using SSN's assigned to dead people. It works better for them if their tax returns and other business doesn't get entangled with those of living people.

Clearly, the IRS doesn't want to give refunds to the first category, but the second category may well be entitled to refunds. Simply checking with the DMF doesn't help much to establish which is which. The DMF is not error free either.

In addition to the computer problems mentioned by Observer, there is a political issue. The IRS is under considerable pressure to issue refunds more quickly in this electronic age. I think I got mine within a week of filing last year. Putting more filters into the screening process will delay all refunds. Then the IRS has to work (possibly manually) those returns that fail the screening process. Many that failed a DMF screen would still be legitimate. The IRS has limited staff and has to figure out which are the most cost effective screens to prevent fraud. It probably also has some dollar level tolerance below which it won't expend much effort.

[Kestrel]

Second, those who use other people's identifying information primarily for other purposes (undocumented aliens, for example). This second group may be filing perfectly legitimate returns - indeed, they'd like to be able to demonstrate compliance with the tax laws down the road.

I completely disagree with you on this. You can not file a legitimate return by breaking the law, by using identity theft, whether it is of a living person or a dead person.

Someone who comes into this country under false pretenses, obtains work using forged credentials, has tax withheld, and wants to claim a refund of that tax, is (and should be) SOL.

In truth, the problem is usually on the other end. An itinerant laborer who uses stolen credentials to obtain work usually claims enough exemptions on his W-4 to avoid having tax withheld. The victim of the identity theft has to prove that he DIDN'T work as an itinerant laborer in California while he was working as an electrician in Virginia, SHOULDN'T have the itinerant's wages added to his Adjusted Gross Income, and DOESN'T owe tax on the itinerant's wages.

[operabuff]

The IRS is not responsible for enforcing the immigration laws. Section 6103 prevents the IRS from sharing information with respect to non tax offenses, except under very limited circumstances. Among the reasons for this is that it is in the country's interest to have people come forward to report their income and pay tax without fear that they will subject themselves to arrest for non tax offenses. The Internal Revenue Code provides that if you overpaid tax, you get a refund, subject to certain statutory offset provisions. If you think the law should be different, write your local congressperson.

[Kestrel]

Operabuff, I am not talking about the enforcement of immigration laws. I am talking about identity theft.

An illegal immigrant uses YOUR social security number to get a job. Maybe he has tax withheld, and maybe he doesn't. But the IRS takes whatever he earned and adds it to YOUR taxable income, meaning YOU have to pay more taxes. Three months after your tax refund arrives you get a letter in the mail, with a bill, telling you that your return has been "corrected" to include income you "omitted." You have to spend the next 18 to 24 months trying to prove that you never earned that income.

Or maybe he uses the SSN which belonged to your deceased father. You are his executor, you are responsible for filing the tax returns on his estate, and now the identity thief's income increases that tax bill.

But what if it goes the other way - what if the illegal immigrant / identity thief actually files a tax return? The IRS only accepts one tax return for each SSN. So the illegal files a return using your SSN claiming a refund of tax based on his earnings, his tax return is processed and he receives his refund. 30 days later you try to file your own tax return, your return is automatically rejected, your refund request is denied, and once again you have to spend the next 18 to 24 months trying to prove that you never lived or worked in Arizona.

It works the same way if the illegal received a tax refund using your deceased father's SSN. You're trying to close his estate, but can't because you can't get the final tax return processed.

[operabuff]

Someone who comes into this country under false pretenses, obtains work using forged credentials, has tax withheld, and wants to claim a refund of that tax, is (and should be) SOL.

This is the sentence from your previous post I was responding to.

I am very well acquainted with the problems for the victims caused by identity theft tax returns. Those problems are less likely to occur with someone using a dead person's SSN, but not impossible as you correctly point out.

Still, for me, there is a distinction between someone filing a return with entirely fictional information intended to defraud the government of a tax refund and someone who uses false identifying information to accurately report taxes due and may be entitled to a refund.

[Kestrel]

Still, for me, there is a distinction between someone filing a return with entirely fictional information intended to defraud the government of a tax refund and someone who uses false identifying information to accurately report taxes due and may be entitled to a refund.

It sounds like you are saying the latter is more righteous. Sorry, it's not. When the false identifying information matches the SSN of a real person, living or dead, the illegal immigrant creates a complete nightmare for the victim or the victim's heirs.

It's easy for the government to disprove and disallow a refund claim based on entirely fictional information.

It's not so easy when a real SSN belonging to a real person is used. In that case the IRS's computer assumes that the person who really holds that SSN earned ALL of the income reported by the various employers. And the income earned by the illegal but attributed to the victim, when combined with what the victim really earned, kicks the victim into a higher tax bracket.

So if the illegal had too much tax withheld, too bad so sad for him. That overwithholding may keep his victim from being slapped with a tax bill.

[operabuff]

I think you and I are going to have to agree to disagree about the respective severity of the offenses involved.

As to the entirely fictional return, let me clarify that it also involves the use of someone's SSN. (Else it wouldn't fall into the identity theft category). But the W-2 is fictional as will be most other information supplied on the return.

Both have the potential to mess up the victim's account with the IRS. But one is not an attempt to defraud the government of a refund.