MauledAgain

This morning I saw an article in the Philadelphia Inquirer about a woman being sentenced for committing FEMA fraud. After a bit of research, I found the Department of Justice news release, which explained the situation. After a major disaster declaration was declared for eastern Pennsylvania on account of the damage from Hurricane Ida, the woman used social media to advertise that she could help people apply for FEMA benefits. She prepared fraudulent documents and sent them to FEMA on behalf of almost 200 people. The documents included false leases, letters from landlords, utility bills, earning records, and home repair estimates. She used photos of damaged homes that she scraped from the internet. Among the almost 200 people were owners, renters, and homeless individuals. The woman kept half of the FEMA payout for herself. Her actions caused FEMA to pay $1,744,982.64 on the false claims.

The woman was indicted on one count of fraud related to a major disaster declaration, 24 counts of wire fraud, and seven counts of mail fraud. She pled guilty to all 32 charges. She was sentenced to five years in prison.

One of the thoughts that crossed my mind was that I had recently questioned the sentence in a tax fraud case. In How Much Prison Time Should Be Imposed on a Tax Return Preparer Convicted of Preparing and Filing Fraudulent Returns? I reacted to the imposition of an 18-month prison sentence on a tax return preparer who prepared and filed about 463 fraudulent returns, causing a tax loss to the U.S. Treasury of $1,575,250. So 463 false filings causing a $1,575,250 loss to the U.S. Treasury brings an 18-month prison sentence, but almost 200 false filings causing a $1,744,982.64 loss to the U.S. Treasury brings a five-year prison sentence. Does that make sense to you?

There appears to be an additional factor. The tax return preparer was ordered to pay $1,954,673.30 in restitution, reflecting the taxes not paid by the clients plus interest and penalties. There is no mention of restitution being ordered for the woman committing the FEMA fraud. Though she retained half of the $1,744, 982 for herself, there is no indication of her assets. Yet there also is no indication of the tax return preparer's assets. Is it a matter of the judge deciding whether restitution is possible? If the tax return preparer had not been ordered to pay restitution, would a longer prison sentence have been imposed? Perhaps someone more familiar with federal sentencing practices has insights. Yet prison is a totally different experience than paying restitution, and it would be disturbing if someone with the resources to pay restitution was ordered or agreed to do so in exchange for a reduced prison sentence. What strikes me is the discrepancy in the sentencing. Does it mean that somehow FEMA fraud is more reprehensible than tax fraud? If so, why?

As readers of MauledAgain know, I am an advocate of the mileage-based road fee, as a replacement for and not an addition to, liquid fuel taxes. I have written about this approach to funding highways, bridges, and tunnels since 2004, in posts such as Tax Meets Technology on the Road, Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Between Theory and Reality is the (Tax) Test, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, To Test The Mileage-Based Road Fee, There Needs to Be a Test, What Sort of Tax or Fee Will Hawaii Use to Fix Its Highways?, And Now It’s California Facing the Road Funding Tax Issues, If Users Don’t Pay, Who Should?, Taking Responsibility for Funding Highways, Should Tax Increases Reflect Populist Sentiment?, When It Comes to the Mileage-Based Road Fee, Try It, You’ll Like It, Mileage-Based Road Fees: A Positive Trend?, Understanding the Mileage-Based Road Fee, Tax Opposition: A Costly Road to Follow, Progress on the Mileage-Based Road Fee Front?, Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign, Is a User-Fee-Based System Incompatible With Progressive Income Taxation?. Will Private Ownership of Public Necessities Work?, Revenue Problems With A User Fee Solution Crying for Attention, Plans for Mileage-Based Road Fees Continue to Grow, Getting Technical With the Mileage-Based Road Fee, Once Again, Rebutting Arguments Against Mileage-Based Road Fees, Getting to the Mileage-Based Road Fee in Tiny Steps, Proposal for a Tyre Tax to Replace Fuel Taxes Needs to be Deflated, A Much Bigger Forward-Moving Step for the Mileage-Based Road Fee, Another Example of a Problem That the Mileage-Based Road Fee Can Solve, Some Observations on Recent Articles Addressing the Mileage-Based Road Fee, Mileage-Based Road Fee Meets Interstate Travel, If Not a Gasoline Tax, and Not a Mileage-Based Road Fee, Then What?>, Try It, You Might Like It (The Mileage-Based Road Fee, That Is) , The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”, The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”, Why Delay A Mileage-Based Road Fee Until Existing Fuel Tax Amounts Are Posted at Fuel Pumps?, Using General Funds to Finance Transportation Infrastructure Not a Viable Solution, In Praise of the Mileage-Base Road Fee, What Appears to Be Criticism of the Mileage-Based Road Fee Isn’t, Though It Is a Criticism of How Congress Functions, Ignorance and Propaganda, A New Twist to the Mileage-Based Road Fee, The Mileage-Based Road Fee: Simpler, Fairer, and More Efficient Than the Alternatives, Some Updates on the Mileage-Based Road Fee, How to Pay for Street Reconstruction, Stop the "Stop EV Freeloading Act" Because The Mileage-Based Road Fee Is a Much Better Way to Go, Why Is Road Repair and Maintenance Funding So Difficult for Public Officials to Figure Out?, Should (Will) Implementing the Mileage-Based Road Fee Cause Privatization of Highway Infrastructure?, The Freedom Caucus Doesn’t Understand that the Mileage-Based Road Fee is “PRO-Freedom,” Not the Opposite, A Mileage-Based Road Fee by Any Other Name?, Does the Mileage-Based Road Fee Work for Local Road Maintenance?, Washington State Mileage-Based Road Fee Proposal Changes: Is It Better?, The Mileage-Based Road Fee Is Much Better Than a Federal Fuel Tax Increase, Ride-Share Drivers and the Mileage-Based Road Fee, and An Unfair and Unwise Tax to Fund Roads.

Now comes news, brought to my attention by reader Morris, that Iceland has enacted a kilometer-based road fee. Using today’s exchange rate, the 6.95 Icelandic krona fee is approximately five and a half cents in U.S. dollars for passenger vehicles and SUVs up to three and half tons. Higher fees apply to heavier vehicles.

Iceland is not the first country to impose a vehicle fee based on distance travelled that applies to all vehicles in the entire country. There are almost a dozen countries in Europe that have enacted or are in the process of enacting distance-based fees on heavy trucks and other vehicles. New Zealand imposes a similar fee on heavy vehicles and vehicles using diesel fuel. Certain areas in Norway and several states in the United States impose similar fees. Singapore’s road pricing fee functions as both a distance-based and congestion-reducing fee.

So assuming there aren’t other countries with distance-based fees, Iceland appears to be the first country to impose such a fee on all vehicles that use public roads regardless of power source, or weight. It is likely that it won’t remain the only country to do so.

The international scope of this method of funding highways, bridges, and tunnels suggests that the term “mileage-based road fee” should be changed to “distance-travelled road fee” because Iceland does not measure distance in miles. It uses, as does most of the world, kilometers. Interestingly, Iceland’s law has a provision for vehicles driven in Iceland that measure distance in miles. Of course, it’s an easy to do the arithmetic conversion, so it’s no big deal.

As another tax filing season will soon begin, it’s instructive to see how individual taxpayers in this country prepare their federal income tax returns. According to the Treasury Department’s Report on the Replacement of Direct File, the breakdown is as follows:

51 percent – paid preparers
42 percent – commercial software
3 percent – filed on paper
2 percent – Free File
1 percent – VITA (Volunteer Income Tax Assistance Program)
1 percent – TCE (Tax Counseling for the Elderly)
0.2 percent – FFFF (Free File Fillable Forms)
0.2 percent – Direct File

When I was a child observing my father sitting at the kitchen table filling out tax returns, I was unaware that there were people who paid other people to do what clearly was, at least from my father’s commentary, an unpleasant task. He filed my tax returns for me when I was very young – I started working at age 8, story for another time – but I insisted on doing my own returns as I entered my teen years. Unlike my father, I found the process interesting and intellectually challenging. I hesitate to conclude it was because I liked puzzles, because my father also liked puzzles but apparently did not consider tax return preparation to be anywhere near the delightful experience of doing crossword puzzles which he did every day.

Of course, in those days everything was done on paper and generally delivered through the U.S. Postal Service. By the time I started working at an accounting firm when I was in college, and given the task of preparing and reviewing tax returns, I learned that some of the returns were prepared by filling out forms that were delivered to a company called Computax, which then sent back returns that had been printed out on one of those early printers that created characters clearly identifiable as computer generated. That was a long time ago.

To this day there still are people who sit down, do their tax returns using paper and pencil, and file their tax returns on paper. The IRS is attempting to encourage those individuals to shift to electronic filing. That does not necessarily mean these folks would stop using pencil and paper to figure out what to put on the return. I knew someone who would use commercial preparation software to prepare their returns but who insisted on printing out the return and mailing it to the IRS. The reason? Distrust of digital technology when it came to sending information. I tried to explain that when the paper return reached the IRS, someone then keyboarded (and eventually scanned) the information on the return into IRS computers, and that sending the return electronically would bypass that process and eliminate the chance of any keyboarding or scanning errors. My efforts were futile.

So when did the use of paid preparers become much more common? Back in the 1950s and 1960s, perhaps 20 percent of taxpayers, at most, used paid preparers. The tax law was not as complicated back then. According to the Tax Policy Center, by 1981 41 percent of individual taxpayers were using paid preparers, and that percentage increased to almost 56 percent by 2002. The Tax Policy Center reports that the percentage of taxpayers using paid preparers fell from about 60 percent in 2008 to just under 52 percent in 2018. Surely that is a consequence of the rapid growth in the use of commercial tax preparation software.

If one considers commercial tax return preparation software to be a type of paid preparer, perhaps evolving into some sort of digital robot preparer, then the percentage of taxpayers using paid assistance rises to more than 90 percent. That, of course, is an indictment of the complexity of the federal (and most state) income tax systems.

It won’t be long before artificial “intelligence” provides systems that completely take over the tax return filing process. These systems will want access to a person’s entire financial situation, including bank accounts, credit card transactions, digital payment accounts, medical expense payments, etc. What will these systems do with this information aside from filing tax returns? There is no question there are people and corporations who want to get their hands on this data even though many corporations already have much of this information. Will the returns filed by these systems be correct? My guess is many returns will be correct but some will not, not dissimilar to what we see when humans use paid preparers or commercial preparation software to file returns, and not dissimilar to how artificial “intelligence” generally performs. I’ll leave to another day the experiences I’ve had “testing” various AI platforms. Suffice it to say the outcomes were far from encouraging and frankly, frightening. There’s a word many taxpayers use when discussing taxation, and it surely was a word used by students about to enter the basic income tax law course when I was teaching.

So as we enter another tax filing season, one that promises to be, shall we say, interesting, taxpayers need to decide how they will get their returns filed. Most, I think, will stay the course and do what they did last year. Some may find it easier and cheaper to shift from using paid preparers to using commercial software. A few may finally say goodbye to sending their returns to the IRS on paper. What will you be doing?