The Office of the Comptroller will have more power to investigate and enforce laws against tax fraud and identify theft if legislation introduced as part of Gov. Larry Hogan’s agenda succeeds in the General Assembly.
The Taxpayer Protection Act, announced Thursday, adds tax fraud to the list of enforcement responsibilities assigned to the agency’s Field Enforcement Division and provides legal authority to issue injunctions against preparers who are under investigation for fraud to protect consumers.
Comptroller Peter Franchot supported a similar law during last year’s session but the bill did not pass. Franchot, speaking at the University of Baltimore on Thursday, thanked Hogan for including the act as part of his administration’s legislative package.
Franchot, as well as state and federal tax officials, were gathered for the Taxpayer Security Summit, which focused on collaborative efforts to combat tax fraud in Maryland.
In 2015, the state stopped $35 million in fraudulent tax refunds, according to Andrew Schaufele, director of the Bureau of Revenue Estimates. While numbers for 2016 are still being tallied, a similar amount is expected.
There is a focus this year on improving investigations, Schaufele said, as fraud is disguised better.
“We’re getting better but they’re getting better also,” he said. “It is a bit of a cat and mouse game.”
The proposed act would also extend the statute of limitations for tax crimes to six years from the current three to allow sufficient time for investigation and add responsibilities and penalties for tax preparers.
Partnerships between state and federal agencies as well as the public and private sectors are key in catching and preventing fraud, according to Maryland U.S. Attorney Rod J. Rosenstein, in what may be one of his last appearances in the role before he reportedly joins the U.S. Department of Justice as deputy attorney general.
Rosenstein said Franchot approached him about a year ago regarding a partnership to more effectively target fraudsters.
“The fundamental challenge is that our tax system is basically an honor system,” he said. The IRS and state tax collectors have to prioritize getting honest taxpayers their refunds quickly while still allowing time to flag fraud, he added.
Tax fraud hurts the economy, victims and can fund organized crime, according to Rosenstein, and catching and preventing fraud needs to be a priority.
“We are working to hold people accountable for these schemes but there’s still more to be done,” he said.
In two recent cases, defendants were convicted of filing dozens of fraudulent returns, Rosenstein said. In one case, the IRS caught $208 million claimed in fraudulent refunds but not before $16 million was sent out. In the other, $6 million was caught of $8 million claimed.
“I worry about the cases we don’t catch,” he said.
Melvin Hardy, director of the National Public Liaison Division of the IRS, said the federal government is using filters to stop millions of fraudsters who are starting to move toward defrauding tax preparers and their clients.
“It is a challenge and we’re relying on our partnerships to improve out systems,” he said.
Schaufele said in tough budgetary times, it’s smart to put money toward catching fraud, and using technology can raise the cost of committing tax fraud. Rosentstein agreed that analytics are the solution to staying in front of potential fraudsters and stopping them from victimizing more taxpayers.