An open letter on tax fraud from Bill Cobb, president and CEO of H&R Block
I am writing this letter to bring attention to a growing issue that affects millions of Americans every year: tax fraud.
No taxpayer is immune to this growing problem. Last year even Attorney General Eric Holder fell victim to fraud resulting from tax identity theft. And as consumers increasingly see their data coming under attack across all industries – whether it’s health care or big box retailers – the impact only grows. The Internal Revenue Service (IRS) estimated that fraudulent tax returns cost the U.S. government more than $5.2 billion in 2013. This all amounts to billions of dollars out of taxpayers’ pockets, and out of the federal budget that supports our nation. And that’s not to mention the inconvenience consumers have to go through to recover their identity and their tax refund.
So what do we do about this? As the world’s largest consumer tax services provider, we file one in every seven U.S. tax returns – both for those people who choose in-person assistance or through our increasingly popular do-it-yourself (DIY) products. This experience means we know taxes and how they affect your life better than anyone else. And after 60 years as the industry leader we know how important it is to keep ahead of these issues. We’ve been studying the issue of tax fraud for quite some time, and we have listened to consumers. In fact, last year we brought together tax policy and consumer advocate thought-leaders at a forum in Washington, D.C. to study this very problem and to announce the findings of our survey of consumer awareness and attitudes toward tax fraud and prevention. The findings were clear and powerful:
- Taxpayers are willing to do more to help combat fraud. 93 percent said they are willing to take at least one action to help prevent fraud.
- Consumers overwhelmingly support requiring the same tax forms and documentation be used whether filing by DIY tax preparation software/websites or by using a paid preparer. In fact 94 percent of respondents support this.
- Consumers also recognize everyone has a role in solving this problem. Respondents agreed that it is incumbent on the IRS, Congress, professional tax preparers and the makers of DIY tax preparation software and taxpayers themselves to address fraudulent tax filings.
Right now there are two immediate ways we can minimize the potential for fraud in the system and I am calling on the IRS and my colleagues, the heads of the tax preparation industry, to come together and help create solutions to this problem.
First, there must be minimum federal standards for all paid tax preparers. Currently, there are no uniform federal standards applicable to all paid preparers, and only four states have such standards. Tax return preparers are the professionals that families rely on at the biggest financial moment in their year. Requiring them to meet minimum training standards is not about simply creating another category of professionals – it’s about empowering and protecting the 60 percent of consumers who get help with their taxes every year.
Second, we need to address the incidents of Earned Income Tax Credit improper payments in the system. Whether through intentional fraud or unintentional error due to the inherent complexities of the credit, these improper payments are a $16-$19 billion problem according to the Treasury Department. One obvious issue is the inconsistent approach to eligibility requirements when using DIY methods versus claiming the credit through in-person assisted preparation. While late last year Congress directed Treasury to implement consistent requirements across all tax preparation methods, Treasury and the IRS have yet to put a clear implementation plan in place. This is a relatively simple fix to help reduce fraud and protect consumers, and I call on Treasury and the IRS to implement it in time for the 2016 tax season.
These are two issues at the policy level, for which we have helped lead the conversation, but we have led on other issues as well, such as helping to prevent fraud through use of DIY tax software and online. DIY tax software and online methods are increasingly being exploited by fraudsters, but we are at the forefront with early adoption of two-factor account access and requiring that a federal tax return be accepted by the IRS before filing a state return. And earlier this year, we introduced Tax Identity ShieldSM, a unique industry-leading product specifically designed to help prevent tax identity theft fraud.
Simple steps like these, together with needed policy changes, will help stem the growing tide of tax identity theft and fraud. We must come together as an industry, with government, to make the system safer for consumers and stop the billions of fraudulent refunds that are issued every year.