Fraudulently claiming withholding for non-existent W-2

[Famspear]

I am working a new case where I represent the Chapter 7 bankruptcy trustee for a corporation that has received a notice from the CI division of the IRS, asking to confirm the year 2007 Form W-2 wages and withholding for a particular former employee (the company ceased operations in December 2007).

I called the IRS phone number on the notice (an Ogden phone number). The lady says she is working on trying to verify not only the W-2 data, but also that the individual actually worked for the company at all. Apparently what triggered the investigation is that the federal income tax withholding for one employee is high in relation to his gross wages. She says the IRS is watching people who just claim that they worked for a particular company when they did not (and who of course did not really have a W-2 at all), and who claim high enough withholding to be "able" to claim a (fraudulent) tax refund.

I forgot to ask her, but I guess this means that the IRS does not yet have the 2007 W-2 data on its system. I remember from a previous thread that the 2006 data came on line in late May 2007, but that in years prior it was not until about August or September. (Or else the IRS has the W-2 information from the Soc. Sec. Admin., but still wants a confirmation from the employer for whatever reason.)

I don't have an answer for her yet -- first, I must locate the payroll records (if any still exist), which is often difficult in these bankruptcy cases.

I asked her how many IRS people in Ogden she estimates are working the scams - tax scams of all kinds, not just this one. She says she thinks about 50 to 60 people, but she does not regularly work in this area.

[Famspear]

OK, I just got off the phone, and now someone at the IRS in New York says that the 2007 data for both W-2s and 1099s is now on the system, and has been so for a couple of weeks.

[Quixote]

She says the IRS is watching people who just claim that they worked for a particular company when they did not (and who of course did not really have a W-2 at all), and who claim high enough withholding to be "able" to claim a (fraudulent) tax refund.

That should pull CTC returns into the CI net, but apparently some of the watching depends on humans whose imperfection has let a few CTC returns slip through. Unfortunately, it has also delayed the refunds of some 2007 college graduates. (The withholding tables don't work well for an employee who had $0 income from January to May, resulting almost double the normal withholding.)