Feds End Prisoners' Bogus Tax Refunds

A new agreement has finally been reached aiming to stop federal inmates from claiming millions of dollars in bogus tax refunds.

From the Associated Press:

Pressure from U.S. senators in New York, Ohio, Minnesota and Florida in January led to an agreement signed Wednesday between the Internal Revenue Service and the federal Bureau of Prisons to break down bureaucratic and regulatory barriers to end the practice. The memorandum of understanding struck between the two agencies overcomes legal obstacles that hindered their own efforts and paves the way for states to make similar agreements that apply to their prisons.

"The impasse needed to end, and today it's over," Sen. Charles Schumer of New York said Wednesday, adding that the agencies responded quickly. "This agreement means that prisoners will no longer be able to bilk taxpayers out of millions of dollars."

Sen. Amy Klobuchar of Minnesota said the agreement effectively cuts through unnecessary red tape to "stop felons from scamming the system."

"It's shocking that inmates are ripping off the taxpayers right under the government's nose," said Sen. Bill Nelson of Florida.

Sen. Sherrod Brown of Ohio said the case shows "government agencies need to work together to prevent tax fraud wherever it occurs, but especially when we're being bilked from behind bars."

The senators pushed the agencies to cooperate after a federal audit showed the practice continued, despite a 2008 law aimed at stopping it.

Read more here...

IRS Agent Accused of Stealing Tax Refunds

According to new reports, an IRS revenue officer has been charged by the U.S. Attorney's office for stealing unclaimed tax refunds. Fern Stephens allegedly took over $160,000 from the government agency over the past year. For an agency as unpopular as the IRS, this is not the best PR they’ve ever had.

If convicted of all counts of mail fraud, theft of government funds, and unlawful access of a government computer, Stephens faces a maximum sentence of 35 years in prison.

In one instance the U.S. Attorney's office accuses Stephens of duping $3,340 from a Manhattan-based bankrupt company by claiming that the principal of the business asked for the money by the IRS and then pocketing it herself.

Stephens also allegedly took advantage of her position in the IRS to put in fake tax refund requests and transfers in an IRS computer system so the money would go right back to her or relatives and friends.

Read more at NBC New York.com...

50,000 Inmates Claim Tax Refunds, Report No Wages

A report released today by a government investigator found that about 50,000 prison inmates claimed more than $130 million in tax refunds in 2010. These inmates did not provide any wage information to the IRS, but were still able to claim millions in refunds. Are these legitimate refunds, or fraud? The IRS won’t say yet, but you can be sure an investigation will be conducted.

The Associated Press reports:

The Treasury Inspector General for Tax Administration stops short of saying the refunds were fraudulently claimed. It does, however, say the Internal Revenue Service should investigate further.

The report is the latest in a series of audits looking at prison inmates claiming tax credits and other government payments. It notes that the IRS identified nearly 250,000 fraudulent tax returns during the 2010 filing season — a 50 percent increase over 2009 — preventing $1.48 billion in fraudulent refunds.

"While the IRS is identifying larger numbers of fraudulent returns, improvements must be made to its screening processes to ensure that returns filed by prisoners get adequate scrutiny," said J. Russell George, the Treasury inspector general for tax administration. "Expanded and expedited access to wage and withholding information would significantly increase the IRS's ability to verify information reported on a tax return when processed, and prevent fraud."

The IRS issued a statement saying the agency takes refund fraud seriously and aggressively fights it.

"The IRS is very successful at detecting and stopping incorrect refunds, including criminal refund fraud, and overall prevents 98 percent of questionable claims from being issued," the statement said.

Read more here

7 States that Still Owe their Citizens Refunds

Last week the Roni Deutch Tax Center – Tax Help Blog posted a great new article on the seven states that still owe their citizens refunds. The list includes Hawaii, New York, and North Carolina, among others. You can find a snippet of the article below, or read the full story here.

1. Iowa

Like many local governments, the state of Iowa has had their fair share of financial problems due to the recession. Fortunately, the largely agricultural state has managed to bounce back rather quickly compared to other struggling states. In order to get their budget in check, Iowa has used a number of tactics to cope with their financial problems, including a slight delay in the payment of tax refunds. The state’s revenue department is now assuring taxpayers that they have begun processing returns and will mail out refunds as soon as possible. If you are an Iowan taxpayer still awaiting the arrival of your tax refund, click here to check its status.

2. Rhode Island

Thousands of taxpayers in Rhode Island have been patiently waiting for their tax refund. When the residents were told their tax refund might not arrive until the end of the fiscal year, so many taxpayers became upset and the state legislators have introduced a bill that would move up the late-interest fee date—the taxpayers will now get compensated for the inconvenience.

3. Hawaii

Hawaii's economy was hit hard in the recession. The state’s unemployment rates are at the highest levels in over 30 years and personal bankruptcy rates have soared. Hawaii has long been considered one of the best vacation spots in the country, but tourism has slowed down since the recession began and the state government was forced to delay payment of state tax refunds due to a lack of revenue. Fortunately, the local economy is improving and the state government began sending out refunds at the end of May. Residents of Hawaii can visit this site to see the status of their refund.

Top 10 FAQs About IRS Refunds

Since so many Americans have already filled their returns and are waiting on their refund with the IRS, the Roni Deutch Tax Center Tax Help Blog posted a great entry explaining answers to the top 10 most common questions about IRS refunds. I have included a snippet of the post below, but you can find the full post at the Tax Help Blog.

1. When will my refund arrive?

Depending on your unique situation it can take anywhere from ten days to ten weeks to receive your refund. The fastest way to get your refund (in as little as ten days) is to e-file your return and request the money is directly deposited into your bank account. On the other hand, if you file a paper return and request the IRS mail you a check then it can take up to ten weeks to arrive.

2. Do I need to direct deposit if I e-file?

No, and this is actually a fairly common misconception. When you e-file your return you do not have to have your check deposited into a bank account, you can select an option to have it mailed to you just as you can with a paper return.

3. Can I have my refund split into multiple accounts?

Yes. If you intend to select the direct deposit option on your tax return then you can split the refund between three different accounts. In addition to bank accounts you can have a portion of your refund deposited into a retirement account, or you could convert part of your tax refund into Series I Savings Bonds.

Fewer Taxpayers to Pay Off Debt with Refunds

Earlier this week the National Retail Federation (NRF) revealed that the number of Americans likely to pay off a debt with their tax refunds this year has gone down by about 4%. In 2009 it was estimated that 48% of Americans would use their tax refunds to pay off debts, but this year the number has dropped to only 44%. As this Biz Journal article explains, the main reason for the drop is that fewer US taxpayers are expecting to receive a refund this year.

According to those polled, fewer taxpayers are expecting a refund – 65.5 percent this year, compared to 68.4 percent last year.

“A little bit of ‘free money’ will go a long way for Americans this year,” said Tracy Mullin, president and CEO of the NRF. “Retailers planning special promotions over the next few months may find that shoppers are a bit more receptive to opening up their wallets than they have been for the past year.”

NRF said only 12.5 percent of those polled plan to treat themselves or their families with a major purchase with the refund, which is up from 11 percent last year. More than 40 percent plan to save it, nearly 29 percent will put it toward everyday expenses and 10 percent will use it for vacation.

Online filing is becoming more popular across the country, with more than 54 percent planning to file via Internet, compared to more than 50 in 2007.

Continue reading at Biz Journals.com…

IRS Seeks to Return $123.5 Million in Undeliverable Refunds to Taxpayers

In a recent press release, the IRS announced their efforts to deliver $123.5 million in tax refunds to taxpayers who have not received them because of mailing errors. They also reminded taxpayers that the best way to avoid this problem is to e-file your return and have your refund directly deposited into your bank account.

“We are eager to get this money into the hands of taxpayers, so don’t delay if you think you are missing a refund,” said IRS Commissioner Doug Shulman. “The sooner you update your address information, the quicker you can get your refund.”

All a taxpayer has to do is update his or her address once. The IRS will then send out all checks due. Undeliverable refund checks average $1,148 this year, compared to $990 last year. Some taxpayers are due more than one check.

Average undeliverable refunds rose by 16 percent this year, which is in line with the 16 percent rise in average refunds for all tax returns in the latest filing season. Several changes in tax law likely played a role in boosting refunds, including the First-Time Homebuyer’s Credit and the Recovery Rebate Credit, among others.

The vast majority of checks mailed out by the IRS each year reach their rightful owner. Only a very small percent are returned by the U.S. Postal Service as undeliverable.

Michigan May Owe GM $116M In Tax Refunds

From the Associated Press:

General Motors Corp. may get tax refunds totaling $116 million after a judge ruled for the automaker in its dispute with the state.

Ingham County Circuit Judge Rosemarie Aquilina on Friday declared unconstitutional a 2007 Michigan law that retroactively made GM pay use taxes on vehicles driven by employees for testing and marketing.

The automaker claimed it unnecessarily paid taxes on demonstration vehicles for more than a decade.

The Department of Treasury denied GM's request for refunds, pointing to the 2007 law.

The judge ruled GM is exempt from paying use taxes on vehicles used for demonstration purposes. She next will determine what GM is owed.

Aquilina faulted lawmakers for passing the bill without committee hearings to avoid public scrutiny.

CA may Issue IOUs for Tax Refunds

From ABCNews.com:

With the state budget crisis ongoing, the state's Controller says California may be forced to send out IOUs instead of refunds.

Hoping to get her state income tax refund as soon as possible, Akisha Marshall is getting a jump-start on her filing.

ABC7 asked her, "How much do you depend on your refund?"

"A lot. It's just like a job check," she said laughingly.

Last year 2.7 million people got their state refund in February totaling $2 billion. But, this single mom and other Californians may have to wait for their refund this year.

It is Day 61 of the state's budget stalemate and the state will run out of cash next month. It is at the point where the Controller will have to issue IOUs to pay the bills, including state tax refunds.

"An IOU is a registered warrant issued on behalf of the state's treasury that lets the individual receiving the IOU know that they will receive their funds at a later date," explained Jacob Roper with the State Controller's Office.

When asked, "How much later?" Roper replied, "We don't know."

State lawmakers just came back from a long holiday break to continue budget negotiations. Republicans still do not want to raise taxes and Democrats do not want deeper cuts to social programs.

Tax Rebates are Coming Soon!

The Tax Policy Blog posted this interesting article reminding everyone that tax rebates are coming soon. Over the past few days there has been a lot of talk about the country’s economy and emergency stimulus plans designed to increase American spending. However, as the Tax Policy Blog reminds us, billions of dollars in tax rebates are already scheduled to be sent out over the next few months. Last year "over $140 billion in individual income tax refunds were sent out from January 2007 through March 2007. Plus, another $78 billion was sent out from April through June."

Expensive Tax Mistakes To Avoid

CNN.com has added a helpful article with advice on some expensive tax mistakes to avoid when preparing your tax returns this year. Some of their advice includes: avoid paying taxes with a credit card, avoiding refund anticipation loans, setting up an installment agreement, and paying on time. You can read the full article by clicking here.