Signature Cheating Diagnostics

This nugget showed up on one of my favorite blogs, Tax Update, but it’s actually the result of a study done at Harvard.  The study authors’ conclusion is that tax fraud can be reduced by having taxpayers sign at the top of the form, rather in the current traditional spot at the end of 1040.  I am not making this up.  The theory behind this is that by signing at the top of the form you are indicating that you will tell the truth, going forward.  If you sign at the end in the same frame of mind -- well you can see where the thinking goes here.

I’ll admit I don’t find this logic very compelling.  Still I’m in a line of work that has a direct correlation between cheating on your taxes and unemployment, so I’m not the typical tax payer.  In the study, the researchers tested the two types of forms.  They found that “top-of-the-form signers” did better than the “bottom-of-the-form signers” in terms of honesty. The cheating rate for the top-form group was 37% and it was 79 %(!) on the regular form.  This makes me wonder where they found people willing to participate in the study.  Call me naive, but 79% of filers cheating seems high to me.  Maybe the participant population had a high overlap with the same people who filed for new home buyer tax credits from prison.

Joe Kristan, who writes the Tax Update blog, noted that the academics may have missed a key issue here in terms of cutting tax fraud.  With about 70% of people e-filing their federal taxes, there’s not a lot of signing of tax returns actually happening any more.  While one could think that makes the study irrelevant, looking at it this way actually makes the results look compelling.  The cheating rate among study participants who didn’t sign their form was 64%.  Oops.

TIP = Tax Identity Protection

I recently did a post on avoiding identity theft when e-filing your tax return, but apparently I underestimated the risks associated with taxes and identity theft.  The General Accounting Office has issued a new report on the topic of Taxes and Identity Theft, and it’s not fun reading.  (OK I’ll admit it’s not a high potential topic for fun – but this is even worse than it seems.)  The report says it happens frequently and the IRS is ill prepared to deal with it.  That means, unwinding the case of mistaken identity will be particularly difficult with the IRS.  Yikes!

Apparently based on constituent complaints, Senator Bill Nelson from Florida (a place with lots of credit card fraud, at least when I lived there) held hearings on what the IRS is doing about the problem.  According to the government’s Taxpayer Advocate, they are trying.  The IRS now has a system that marks the returns associated with identity theft.  The idea is to let customer service reps know this is a special case.  Unfortunately, based on the testimony of the victims at the hearing, the improvements haven’t begun to solve their issues. Even the person brought in to talk about the positive side of the IRS work in this area told Congress the agency is “struggling to effectively manage identity theft cases.”  If that’s the rose colored glasses view, I’m getting nervous.

Police Chief Magazine has an article on protecting yourself from this problem. (After reading accounting journals one has to find some more exciting publications to peruse.)  Their advice is:

• Make sure you keep tax related documents in a safe place.  In particular they recommend guarding W-2s and 1099 forms.  Also, don’t leave these items in a brief case or car.
• Shred paperwork associated with your tax return that you don’t need. 
• Password protect tax related files on your computer. 
• Be careful when selecting someone to help you with tax preparation.  (Yes!)
• Use direct deposit for your refund checks. 

Last but not least, beware of IRS phsishing scams.  These tend to be successful because people get so anxious about being contacted by the IRS, they drop their guard.  The IRS does not initiate taxpayer communications through e-mail.  (It’s snail mail only. )  They also don’t conduct business via e-mail.

Last year alone the IRS identified 245,000 tax return related identity theft “incidents”.  It’s worth some hassle now, to avoid the problem.