Tax fraud was in the news a lot this tax season. Many taxpayers kept asking why the bad guys were able to steal so much money so quickly. Part of the answer may be complicated, involving sophisticated hacking schemes. But part of the answer isn’t so complicated: our tax system practically invites fraud because of the lag time between when employers are required to issue their employees forms W-2 and when those same employers must provide the information to Internal Revenue Service (IRS).
Under the current system, employers are required to issue forms W-2 to employees by the end of January. However, employers don’t have to provide that wage information to IRS until the end of March. That leaves a window of about a month for the bad guys to steal information and file a return claiming a bogus refund.
And it gets more complicated: the IRS may not be verify your wage information because there is pressure on IRS from Congress to issue refund checks within six weeks (most are issued in about 10 business days if returns are e-filed and refunds issued via direct deposit). Since tax season opens in January – often before forms W-2 are even required to be issued – it’s not unlikely that a criminal could file a return with your information and have the refund in hand before the IRS even knows what happened.
The current IRS Commissioner, John Koskinen, has suggested that delaying the payment of refund checks until they can be matched up with forms W-2 filed by employers would eliminate a lot of the tax fraud that’s out there. That is, of course, at odds with what many taxpayers say they want since many want their refunds as early as possible – often 10 days following the opening of tax season.
As an example, tax season opened on January 20 this year. A refund issued within 10 days would have hit bank accounts even before forms W-2 were required to be issued to taxpayers. Of course, that’s well before the IRS has the information.
So today’s Fix The Tax Code Friday question is:
Would you be willing to wait a few more weeks for your refund to allow for forms matching if it slowed down the incidents of tax fraud?
