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U.S. attorneys are authorized to fight stolen identity refund fraud.

In an effort to better combat crimes involving stolen identities and tax refund fraud, the Justice Department has changed the procedures it uses to handle such cases. Under Tax Division Directive No. 144, released on Sept. 18, U.S. attorneys' offices will no longer need prior authorization prior authorization,
n See predetermination.

prior authorization Health insurance A cost containment measure that provides full payment of health benefits only if the hospitalization or medical treatment has been
 from the Justice Department's Tax Division to:

* Open tax-related grand jury investigations involving stolen identity refund fraud;

* Charge by criminal complaint persons who are engaged in these crimes; or

* Obtain seizure warrants for forfeiture The involuntary relinquishment of money or property without compensation as a consequence of a breach or nonperformance of some legal obligation or the commission of a crime. The loss of a corporate charter or franchise as a result of illegality, malfeasance, or Nonfeasance.  of criminally derived proceeds arising from these crimes.

In cases in which a U.S. attorney obtains a criminal complaint for stolen identity refund fraud, any subsequent charging decision must be made by the Tax Division, but the Tax Division has announced new expedited review procedures for such cases.

The types of cases within the delegation of authority The action by which a commander assigns part of his or her authority commensurate with the assigned task to a subordinate commander. While ultimate responsibility cannot be relinquished, delegation of authority carries with it the imposition of a measure of responsibility.  include but are not limited to:

* Cases in which personal identification information is stolen from an innocent person and used for a fraudulent refund claim benefiting someone other than that person.

* Cases involving large-volume false claims, in which a person sells his or her information unaware of how it will be used. This includes endorsing a Treasury check when the person does not know that the check relates to a fraudulent return.

* Cases in which a return preparer files a fraudulent refund claim using nonclient personal information that has been stolen or unlawfully used.

* Cases in which a culpable Blameworthy; involving the commission of a fault or the breach of a duty imposed by law.

Culpability generally implies that an act performed is wrong but does not involve any evil intent by the wrongdoer.
 person involved in one of the above-described schemes receives, endorses, negotiates, utters, transfers, or cashes a refund check; receives, possesses, or transfers fraudulent refunds in bank accounts or through debit cards; or withdraws refunds from ATMs using prepaid debit cards.

The delegation of authority is contingent on Adj. 1. contingent on - determined by conditions or circumstances that follow; "arms sales contingent on the approval of congress"
contingent upon, dependant on, dependant upon, dependent on, dependent upon, depending on, contingent
 the designation of an attorney in the U.S. attorney's office as a point of contact to be responsible for following the requirements in the directive. The delegation is limited to crimes that involve filing wholly fraudulent returns without the taxpayer's knowledge or consent. It does not involve crimes that require analysis of the tax laws, which are exclusively handled by the Tax Division.

The delegation also excepts cases in which:

1. A taxpayer files a fraudulent return using his own Social Security number and claims a false dependency exemption using someone else's Social Security number;

2. A return preparer claims a larger refund by altering a tax return without the taxpayer's knowledge or consent;

3. A return preparer and a taxpayer conspire con·spire  
v. con·spired, con·spir·ing, con·spires

v.intr.
1. To plan together secretly to commit an illegal or wrongful act or accomplish a legal purpose through illegal action.

2.
 to file a return with an inflated refund; or

4. A return preparer uses a client's (or potential client's) information without his knowledge, solely or in combination with another client's information, to obtain a fraudulent refund.

The directive will be effective from Oct. 1, 2012, to Oct. 1, 2014, unless otherwise extended.

On Oct. 10, federal officials in Miami announced indictments of 40 people in 20 cases for stolen identity tax refund fraud. The indictments were the result of investigations by a multiagency task force created as a result of the change in procedure under Tax Division Directive No. 144.

The indictments included one scheme in which three defendants were charged with filing more than 5,000 returns using Social Security numbers of deceased taxpayers to claim fraudulent refunds totaling approximately $14 million, of which more than $6 million allegedly was received and deposited in the defendants' bank accounts. Many of the other indictments involved information stolen from living taxpayers, including one in which two employees of a health care provider allegedly stole patients' personal information and sold it and one in which a husband and wife allegedly operated two tax preparation companies from which they filed false returns for unknowing taxpayers and deposited the fraudulent refunds in the other defendants' accounts. One defendant was charged with obtaining more than 26,000 stolen Social Security numbers and providing them to coconspirators to use in filing fraudulent tax returns.

Identity Theft Developments

The Justice Department's changes in procedures come at a time when the problem of identity theft and fraudulent returns is receiving much attention. In May, the House Ways and Means WAYS AND MEANS. In legislative assemblies there is usually appointed a committee whose duties are to inquire into, and propose to the house, the ways and means to be adopted to raise funds for the use of the government. This body is called the committee of ways and means.  Oversight and Social Security subcommittees held a hearing on tax fraud involving identity theft. On the same day, the Treasury Inspector General for Tax Administration (TIGTA TIGTA Treasury Inspector General for Tax Administration ) released a report saying the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws.  does not handle identity theft issues well (TIGTA Rep't No. 2012-40-050).

At the May hearing, National Taxpayer Advocate Nina Olson said the Taxpayer Advocate Service The Taxpayer Advocate Service is a program within the Internal Revenue Service, the United States' federal tax collection agency. References
  • Taxpayer Advocate Service
  • Taxpayer Advocate Service at-a-glance, from the IRS
 she heads has seen a surge in identity theft cases, with a 97% increase in FY 2011 over FY 2010. The trend appears to be continuing in 2012, she said, with a 43% increase in the first two quarters over the same period in 2011.

In an August report, TIGTA suggested that the IRS had missed 1.5 million tax returns with potentially identity-theft-related fraudulent tax refunds in excess of $5.2 billion for the 2011 filing season (TIGTA Rep't No. 2012-42-080). Also in August, the IRS Office of Chief Counsel explained in a memorandum to Small Business/Self-Employed Division attorneys what the IRS can do when a return is filed by an identity thief to generate a fraudulent refund and the IRS has issued a statutory notice of deficiency based on that fraudulent return.

Write for The Tax Adviser!

We welcome full-length articles and short, timely pieces that cover current happenings in the tax field. Please contact the editor to reserve a topic or email items for consideration: Alistair M. Nevius, 919-402-4052; anevius@aicpa.org. (Articles are subject to peer review after submission.)
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Publication:The Tax Adviser
Date:Dec 1, 2012
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