The age of electronic filing.Electronic filing is on the rise. Over 13 million individual returns were filed electronically in 1993--an increase of 30% over 1992 (see "Why Electronic Tax Filing Is Hot," by James F. Petersen and Keith A. Washington, JofA, Oct.93, page 68). What accounts for the growth? The waiting period for refunds often shrinks from the usual 12 weeks to 3 weeks when returns are filed electronically. Also, taxpayers can borrow up to the amount of their refund (minus filing and loan fees) from many financial institutions if the Internal Revenue Service agrees to deposit the refund directly with the lender. Such loans are known as refund anticipation loans A (Tax) Refund Anticipation Loan (RAL) is a high interest rate short-term loan secured by a taxpayer’s expected tax refund. United States In the United States, the taxpayer commonly applies for the loan through a paid tax preparation firm. (RALs). Problems arise, however, when the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. discovers a taxpayer with a RAL 1. RAL - Rutherford Appleton Laboratory (UK). 2. RAL - An expert system. owes money to the federal government (for example, because of tax liabilities, Social Security overpayments and delinguent child support and education, housing farm or small business loan payments). In such cases, the IRS uses the refund to offset th taxpayer's debt--leaving little or no money to repay the loan. The IRS says such debts exceed $33 billion annually. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Internal Revenue news release IR-93-53, tax return preparers who offer electronic tax filing in 1994 will be noticed by the IRS if a customer owes money to the federal government. Such taxpayers will not be eligible to have their tax refunds Tax refund Money back from the government when too much tax has been paid or withheld from a salary. deposited directly into the respective bank accounts. The refunds, instead, will be applied against their debts. The IRS will not notify affected lending institutions Noun 1. lending institution - a financial institution that makes loans financial institution, financial organisation, financial organization - an institution (public or private) that collects funds (from the public or other institutions) and invests them in that direct deposits of refunds will not be made. Fraud schemes. Another problem with electronic filing is fraud. IRS studies found about 30% of all fraudulent electronic returns came from first-time filers. About 98% of these return claimed the earned income credit Earned Income Credit A tax credit for low-income workers, even if no income tax was withheld from the worker's pay. Notes: This credit varies with family size, income and the number of children. and 95% of the returns applied for a RAL. During the 1993 filing season, the IRS updated its questionable refund detection program, increased the number of criminal investigators trained to review potentially fraudulent returns and delayed dubious refunds to allow more time for investigation. Also, all electronically filed returns weere screened to verify names and Social Security numbers before processing. Electronic return preparers also helped to spot fraud. The major preparers added features to their computer programs to flag suspect wages and withholding. They also specially trained their employees to detect fraudulent returns and loan applications. For the 1994 tax season, the IRS will take the following steps to reduce electronic fraud: * Require first-time filers to get a paper refund. * Check IRS records before returns are accepted for processing in order to verify that W-2 forms W-2 Form The form that an employer must send to an employee and the IRS at the end of the year. The W-2 form reports an employee's annual wages and the amount of taxes withheld from his or her paycheck. include valid employer identification numbers Applicable to the United States, an Employer Identification Number or EIN (also known as Federal Employer Identification Number or (FEIN)) is the corporate equivalent to a Social Security Number, although it is issued to anyone, including individuals, who has to pay . * Validate the Social Security numbers of children who are identified on returns claiming the earned income credit. * Increase scrutiny of preparers and transmitters who are allowed to participate in the electronic filing program. * Require electronic return preparers to advise the IRS at the time returns are filed if taxpayers are asking for RALs. Observation: The IRS and the Justice Department agreed to prosecute To follow through; to commence and continue an action or judicial proceeding to its ultimate conclusion. To proceed against a defendant by charging that person with a crime and bringing him or her to trial. aggressively those accused of electronic filing fraud. While there were more attempts to file fraudulent electronic returns during the past tax season, the IRS was more successful in catching the schemes than ever before. In 1993, fake returns claimed $30 million in refunds--but a vigilant IRS stopped 77% of the money from ever being issued. |
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