Monday, January 31, 2022

The IRS is Not Ready for Ready Return And Won’t Be Without Drastic Changes to the Income Tax Law 

I know that in many instances headlines are not written by the author of the story to which the headline is attached. Sometimes the story author writes the headline. I don’t know what the practice is for Yahoo stories, such as this one, in which the headline proclaims, “The IRS already has all your income tax data – so why do Americans still have to file their taxes?” My reaction to the headline was along the lines of "You've got to be kidding me." The story is another defense of the Ready Return concept, in which the federal government prepares the tax return for taxpayers, who may or may not accept the consequences with or without reviewing the IRS work. I have explained, in many commentaries, why the Ready Return concept does not work with tax systems such as the federal income tax, in contrast to other types of taxes such as real property taxes. For those interested, my commentaries on the flaws of Ready Return include Hi, I'm from the Government and I'm Here to Help You ..... Do Your Tax Return, ReadyReturn Not a Ready Answer, Ready It Was Not: The Demise of California’s Government-Prepared Tax Return Experiment, As Halloween Looms, Making Sure Dead Tax Ideas Stay Dead, Oh, No! This Tax Idea Isn’t Ready for Its Coffin, Getting Ready for More Tax Errors of the Ominous Kind, Federal Ready Return: Theoretically Attractive, Pragmatically Unworkable, First Ready Return, Next Ready Vote?, 14-part series, Simplifying theTax Return Process, Surely This Does Not Boost Confidence In The ReadyReturn Proposal, Imagine ReadyReturn Afflicted with This Sort of IRS Error, Debating the ReadyReturn Proposal, In Writing, and Yet Another Reason the IRS is Not Ready for ReadyReturn. I also published a 14-part series on the concept’s shortcomings, with an index, and engaged in a published debate, Perspectives on Two Proposals for Tax Filing Simplification, with Prof. Joseph Bankman, one of the most vigorous proponents for government-prepared tax returns.

Nonetheless, several points made by Professor Beverly Moran deserve further scrutiny. She offers several arguments that are enticing on the surface but lack sufficient foundation.

Moran argues that “Return-free filing is not difficult” because “[a]t least 30 countries permit return-free filing. However, the income tax systems in those countries are different. If the United States adopted a system similar to those, then perhaps Ready Return would have a better chance of being effective and efficient, but what comes along with those other systems are programs and policies repugnant to enough Americans to make the proposition politically dead on arrival.

Moran argues that “In a no-return system, the government reveals its knowledge of the taxpayer’s income before the taxpayer files,” pointing out that “95% of American taxpayers receive at least one of more than 30 types of information returns that let the government know their exact income.” Though it is true that 95 percent of American taxpayers receive at least one information return, it is not true that this lets the IRS know their exact income. All sorts of income escapes information returns. Letting taxpayers think that “the IRS is taking care of it” increases substantially the number of instances in which income not reported on an information return ends up not being reported. And with the IRS continually struggling to audit returns, the odds of that unreported income being detected would drop even more. Putting responsibility on taxpayers to prepare, or to observe and verify what is being prepared on, returns enhances the sense of civic responsibility so critical to preservation of democracy.

By focusing on income and information returns, Moran ignores the many taxpayers whose returns contain more than income information. Depending on the year, between 12 and 30 percent of taxpayers, a not insignificant number, itemize deductions. The IRS does not know what these taxpayers paid in medical expenses, or gave to charity. Teachers who do not itemize might nonetheless claim an above-the-line deduction for certain teaching-related expenditures, another item of which the IRS is unaware. If a taxpayer has a child during the taxable year, thus creating or increasing deductions and credits tied to children, the IRS has no knowledge of information that impacts the taxpayer’s return. Many of these taxpayers do not itemize but nonetheless qualify for credits. And in some instances a child no longer qualifies, often for reasons of which the IRS is unaware. The IRS won’t know if a taxpayer becomes eligible to claim the credit for the elderly and the disabled, or adopts a child, or pays for education justifying the American Opportunity and Lifetime Learning Credits, or purchases property eligible for the residential energy credit. These are just a few examples of why the IRS cannot prepare most taxpayers’ returns, and should not be presumed to be able to prepare any returns accurately, unless the next step in the Ready Return movement is to have every monetary transaction, family change, health care decision, and physical life change reported to the IRS. It is easy to imagine the slippery slope once a federal Ready Return is enacted, along the lines of the IRS and Ready Return advocates exclaiming, “This can’t be done unless we have access to taxpayers’ complete financial records.” And that would be a starter.

Of course, Ready Return could work for an income tax system that is as simple as something like the real property tax. The real property tax has only two variables, namely value and rate, though complicating exemptions have crept into most real property tax systems. Supporters of Ready Return, who justify their position on the need to help taxpayers deal with an increasingly complicated federal income tax system, would gather more support if instead of offering the unworkable Ready Return band-aid, they pushed for the sort of simplification of the federal income tax that would make Ready Return work as simply as do real property tax systems. But that would require jettisoning all of the provisions that are in the income tax law because Congress trusts the IRS more than it trusts the appropriate agency to implement its policy decisions. I daresay many, if not most or even all, Ready Return advocates would balk at stripping the federal income tax law for individuals down to a system of all income being reported and subjected to a set of rates, with no deductions or credits, leaving aside of course the taxation of businesses including sole proprietorships.

Worse, Ready Return would make it easier for those who keep complicating the Internal Revenue Code to set aside worries about the impact of a new deduction or credit on taxpayers because “Ready Return will shelter them from the impact on tax return preparation.” It would also encourage more legislators to saddle the Internal Revenue Code with provisions that belong elsewhere or even nowhere. Imagine huge chunks of American health care, child care, employment, education, and other policies being left to the whims of Ready Return. Of course, as I’ve pointed out in my other commentaries, taxpayers would still need to invest time and money in auditing the IRS-prepared return. Having been both a writer and and editor for almost all of my professional life and beyond my professional life, I subscribe to the proposition that it is easier (and more fun) to do the writing than to work through what someone else has written.

Thursday, January 20, 2022

When Establishing A Business Relationship, Be Consistent, as the Alternative Can Be Unpleasant Litigation 

It’s been about a year since I last wrote about a television court show. The ones I watched during that period either had nothing related to tax or were repeats. Actually, most were repeats, and were among the cases discussed in commentaries such as Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, Judge Judy Almost Eliminates the National Debt, Judge Judy Tells Litigant to Contact the IRS, People’s Court: So Who Did the Tax Cheating?, “I’ll Pay You (Back) When I Get My Tax Refund”, Be Careful When Paying Another Person’s Tax Preparation Fee, Gross Income from Dating?, Preparing Someone’s Tax Return Without Permission, When Someone Else Claims You as a Dependent on Their Tax Return and You Disagree, Does Refusal to Provide a Receipt Suggest Tax Fraud Underway?, When Tax Scammers Sue Each Other, One of the Reasons Tax Law Is Complicated, An Easy Tax Issue for Judge Judy, Another Easy Tax Issue for Judge Judy, Yet Another Easy Tax Issue for Judge Judy, Be Careful When Selecting and Dealing with a Tax Return Preparer, Fighting Over a Tax Refund, Another Tax Return Preparer Meets Judge Judy, Judge Judy Identifies Breach of a Tax Return Contract, When Tax Return Preparation Just Isn’t Enough, Fighting Over Tax Dependents When There Is No Evidence, If It’s Not Your Tax Refund, You Cannot Keep the Money, Contracts With Respect to Tax Refunds Should Be In Writing, Admitting to Tax Fraud When Litigating Something Else, When the Tax Software Goes Awry. How Not to Handle a Tax Refund, Car Purchase Case Delivers Surprise Tax Stunt, Wider Consequences of a Cash Only Tax Technique, Was Tax Avoidance the Reason for This Bizarre Transaction?, Was It Tax Fraud?, Need Money to Pay Taxes? How Not To Get It, When Needing Tax Advice, Don’t Just “Google It”, Re-examining Damages When Tax Software Goes Awry, How Is Tax Relevant in This Contract Case?, Does Failure to Pay Real Property Taxes Make the Owner a Squatter?, Beware of the Partner’s Tax Lien, Trying to Make Sense of a “Conspiracy to Commit Tax Fraud”, Tax Payment Failure Exposes Auto Registration and Identity Fraud, and A Taxing WhatAboutIsm Attempt.

This time, in episode 242 of Judge Judy’s twentieth season first aired in 2016, the plaintiff entered into an arrangement with the defendant, under which the plaintiff would purchase a truck and the defendant would drive the truck. The plaintiff explained that he paid for the truck but put title in the defendant’s name because when the plaintiff tried to purchase the truck, the dealer would not title it in the plaintiff’s name because the plaintiff did not have a commercial driver’s license. Judge Judy observed that the plaintiff was wrong when he tried to purchase the truck without having the required license. The plaintiff describe the relationship as a partnership. He then testified that he lent money to the defendant, and when the defendant was unable to pay the loan, the defendant agreed to have the plaintiff withhold amounts from each of the paychecks from the plaintiff to the defendant. Later in his testimony, the plaintiff referred to the defendant as an independent contractor. Judge Judy asked the plaintiff to explain the discrepancy. The plaintiff replied, “He was my partner but when it came time to issue 1099s to him he was an independent contractor.” Judge Judy laughed and said, “That’s the second thing you did wrong,” referring to the constantly changing description of the relationship and the inconsistency between issuing paychecks but also Forms 1099. Judge Judy then explained the difference between partners and independent contractors. She didn’t point out that an employment is different from those two types of relationships.

The plaintiff stumbled while trying to explain why he was suing for payment of a loan allegedly satisfied by withholding amounts from the defendant’s paychecks. He tried to claim that there was a second loan, but his testimony was so confusing and inconsistent with documentary evidence, including a cashed check, that Judge Judy dismissed his case. Neither party was a lawyer, and it appeared that neither party had consulted a lawyer when setting up their business arrangement.

The lesson is simple. Decide how the business will be structured, execute documents consistent with that decision, and act in accordance with the decision. Trying to be both a partnership and an independent contractor arrangement while engaged in a business relationship, trying to have an entity be simultaneously a partnership and an S corporation for the same purpose, and trying to treat another party as both an employee and independent contractor with respect to the same transaction are all examples of inconsistencies that eventually lead to confusion and disadvantageous outcomes.

Wednesday, January 12, 2022

Biennial Tax Filing: An Idea As Impractical as ReadyReturn 

Reader Morris brought my attention to a proposal advanced by an economics professor at the University of South Carolina and one of his students. The idea can be expressed simply, and though its advocates claim it will generate simplification of the federal income tax filing and audit system, it is another theory that fails in the face of practical reality.

The idea? “Biennial filing and collection of taxes.” This idea is not new nor original to the professor and his student. Jay Soled proposed a two-year tax accounting period back in 1997, in “A Proposal to Lengthen the Tax Accounting Period,” 14 Am Journal of Tax Policy 35. That same year,, the idea was incorporated into a Senate Bill 261, which was primarily a proposal to shift Congressional budgeting from an annual to a biennial process of budgeting and making appropriations. The proposed legislation failed.

The professor and his student argue, on The Indicator from Planet Money, that their idea would create “a system in which Americans would pay our taxes not once a year, but once every two years.” My immediate reaction was a simple one. “They think Americans pay taxes once a year?” Americans pay taxes throughout the year. They pay taxes each time an employer withholds and remits income taxes to the Treasury on their behalf. They pay estimated income taxes as often as every quarter. The idea that taxes are paid only once a year, when a return is filed, is inconsistent with the reality of the federal income tax payment system.

But let’s turn to the proposal. There are all sorts of problems at the practical level.

The proponents argue that their idea “would minimize taxpayer and paperwork burdens, free up IRS funding, and result in a de facto doubling of the audit rate.” They argue that shifting to biennial filing would cut in half the number of returns that the IRS must process. They waffle on whether all taxpayers would file in the same year or if taxpayers would be divided into two groups. But unless half the returns were filed one year and half filed another year, the proposal would require the IRS either to keep its filing system and associated employees operating and working every year, or to go through a process of letting employees go and then two years later finding far more new employees who need to be trained than if employees had stayed on board. Biennial returns would contain twice as much information and would require IRS computers to double the amount of matching that would need to be done. Would employers, charities, banks, and other institutions that report information want to re-tool their system so that Forms W-2, Forms 1099, and contribution statements go out in even years for some employees, investors, and donors, and odd years for others? If the proposal puts half of taxpayers in two-year periods ending in odd years and the other half in two-year periods ending in even years, what happens when an odd-year person marries an even-year person and they want to file a joint return? Will taxpayers need to fill out a new form, “Application to Change from Even-Year to Odd-Year or Odd-Year to Even-Year Filing Period?” If they do so, would there be a one-year filing or a three-year filing to re-align the filing periods? What does that do the the cumulative effect of progressive rate applied to bunched income or halved income? Of course there would be more, not less, complexity.

Would taxpayer burdens and paperwork be minimized? Of course not. In addition to the additional complexities described in the preceding paragraph with respect to biennial filing, taxpayers would need to collect and retain, and then go through, twice as much information for each biennial filing. The idea that an employer would issue one Form W-2 for a two-year period of employment not only runs into the “some employees are even year and the others are odd year filers” issue previously mentioned, but as a practical matter increasing numbers of individuals are changing jobs more frequently, and thus face the prospect of additional Forms W-2. The same can be said for investors and Forms 1099. Individuals who donate to charities almost certainly would be retaining and going through twice as many tax-compliant thank you notifications from the charities. To deal with these sorts of issues, the proponents suggest that each biennial return would contain two columns, one for each year. This is the equivalent of filing two returns. It does nothing to reduce taxpayer information acquisition and retention.

The idea that cutting the number of returns that are filed would double the audit rate ignores the fact that each audit would need to cover twice as many taxpayer transactions, twice as many documents, and analysis of taxpayer activities over a period twice as long as associated with an annually filed return. It also means reaching back one additional year in time to find information. If there is some bit of economy of scale savings it is minimal. The proponents claim that the time needed to audit a two-year return would not be double the time needed to audit a one-year return, but they offer no empirical studies to support that claim. In fact, with their proposed two-year return being nothing more than two returns on one piece of paper, so to speak, it isn’t very different from what happens now when multiple returns are audited at the same time.

The proposal would not free up IRS funding, presumably for use in other IRS functions such as taxpayer assistance and increased operators on the phone lines. Even aside from transitional costs, the IRS would still need the same number of auditors, or more. It would need to increase training expenditures because there would be more employee turnover if all returns were filed in the same year.

There is another problem inherent in the proposal. The more often a task is undertaken, the easier it is to remember how to do the task and the more likely it is to remember to do the task. Consider the difference between doing something every day, such as checking email, and doing something four times a year, such as going online to pay estimated taxes. It is easier to remember “every April 15,” than to remember “every other April 15,” and it is easier to do something once each year than once every two years. Imagine the fun in a family in which the two parents luckily are both even-year filers and the two children are odd-year filers. The practical effect of doing the returns, or visiting a tax return preparer each year, but for different members of the household, creates far more confusion and complexity rather than any sort of simplification or cost savings.

There’s another twist. Most employees choose to have more taxes withheld from their pay because they want to avoid owing additional amounts in April and, in some cases, because they like the psychological effect of a refund. Most taxpayers filing estimated taxes do the same thing. But instead of getting a refund every April, they will need to wait an additional year because the refund would be issued every other year.

What happens if the federal biennial filing idea is enacted but states don’t go along? Taxpayers would need to put together a pro forma federal return for their “off year” in order to figure out their state income tax situation. In a state like Pennsylvania, there would be no reduction of required time and effort to file a state income tax return. However this problem would be worked out, it would generate more, not less, complexity.

The proponents then shift into a defense of ReadyReturn, making the same easily rebutted arguments that other proponents of that idea have made.* They do so not only to support that idea, but to predict opposition to their biennial filing proposal from the same folks who oppose ReadyReturn. That is probably a safe prediction, though it would not be surprising if persons not opposed to ReadyReturn found reasons to object to the biennial filing idea. The proponents suggest that companies opposing ReadyReturn because it would cut revenue would react in the same manner to their biennial filing proposal. I disagree. For one thing, even with ReadyReturn taxpayers would need to purchase tax preparation software or hire a professional to review the pre-prepared return that more than likely will have errors. And, as suggested by the example of the household with individuals on both the odd and even year filing, tax preparation software would need to be purchased each year even if a biennial system were to be adopted, and there would not be a 50 percent reduction in sales of, and revenue from, tax preparation software sales. And, of course, unless states went along with the biennial filing idea, taxpayers would still need to deal with filing every year and would need to purchase tax preparation software.

It is no wonder that the biennial idea did not get enacted back in 1997. Details matter. Practical reality overshadows theory. Even if it provided savings in money and time, the biennial filing proposal would require far more additional complexity than currently exists. Though the proponents of biennial filing created their idea in order to deal with existing complexity and IRS funding shortages, their proposal is misdirected. The solution to both of those problems sits with the Congress, a Congress seemingly incapable of working for the betterment of all Americans rather than their own partisan interests. The Congress needs to simplify the tax law, rather than using it and complicating it in order to appease their partisan money sources, and the Congress needs to fund the IRS adequately rather than playing to the self-centered crowd. The biennial filing proposal, like ReadyReturn, concedes defeat in the effort to get Congress to act responsibly and instead would shift onto taxpayers the burden of working through the mess created by the Congress. If as much time and effort were plowed into reforming Congress as is invested in proposals such as biennial filing and ReadyReturn, perhaps not only the tax mess but a lot of other messes would be cleaned up rather quickly and easily.

* For those interested, my commentaries on the flaws of Ready Return include Hi, I'm from the Government and I'm Here to Help You ..... Do Your Tax Return, ReadyReturn Not a Ready Answer, Ready It Was Not: The Demise of California’s Government-Prepared Tax Return Experiment, As Halloween Looms, Making Sure Dead Tax Ideas Stay Dead, Oh, No! This Tax Idea Isn’t Ready for Its Coffin, Getting Ready for More Tax Errors of the Ominous Kind, Federal Ready Return: Theoretically Attractive, Pragmatically Unworkable, First Ready Return, Next Ready Vote?, 14-part series, Simplifying theTax Return Process, Surely This Does Not Boost Confidence In The ReadyReturn Proposal, Imagine ReadyReturn Afflicted with This Sort of IRS Error, Debating the ReadyReturn Proposal, In Writing, and Yet Another Reason the IRS is Not Ready for ReadyReturn. I also published a 14-part series on the concept’s shortcomings, with an index, and engaged in a published debate, Perspectives on Two Proposals for Tax Filing Simplification, with Prof. Joseph Bankman, one of the most vigorous proponents for government-prepared tax returns.

Wednesday, January 05, 2022

The Slippery Slope of Tax Return Preparation Fraud 

Readers of MauledAgain know that I have written a series of commentaries on the antics of tax return preparers who commit fraud. Those commentaries include Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees), When Unscrupulous Tax Return Preparers Make It Easy for theblo IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?, Can Fraudulent Tax Return Preparation Become An Addiction?, Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention, Using a Tax Return Preparer? Take Steps to Verify What Is Filed on Your Behalf, When Dishonest Tax Return Preparers Are Married, There Was Nothing Magical About This Tax Return Preparation Business, Don’t Get Burned By a Tax Return Preparer, Tax Fraud School: When It’s Not Enough to Be a Fraudulent Tax Return Preparer, It’s Not Just Tax Return Preparers Assisting in the Preparation of Fraudulent Tax Returns, and Overused Fraudulent Tax Return Preparation Ploys.

Reader Morris directed me to a tax return preparation story with a new twist on fraudulent tax return preparation. That story led me, through several links, to the Ohio Inspector General’s report on the situation. I will try to condense the 66-page report to something suitable for a blog post.

The story began when the Ohio Department of Taxation (ODOT) notified the Inspector General that during routine monitoring of filed income tax returns it discovered what it suspected to be “improper activity.” ODOT identified 59 taxpayers claiming Schedule C1 deductions for false expenses. Five of the 59 were employees of the State of Ohio. ODOT also told the Inspector General that the 59 returns in question had been filed using information technology resources belonging to or registered to the State of Ohio Department of Administrative Services (ODAS). ODOT sent letters to the 59 taxpayers asking for supporting documentation for the claimed expenses. Responses to the letters confirmed that the expenses were false. One of the taxpayers, identified as “Employee 1,” explained that they had prepared the 59 returns in question. Employee 1 worked at the Ohio Department of Rehabilitation and Correction (ODRC), and provided ODOT with a list of the other 58 taxpayers and proof of payments received from them for tax preparation services. ODOT determined that Taxpayer 1 had been filing tax returns for multiple individuals for several years.

ODRC has a policy of requiring employees to obtain from their supervisors permission to conduct outside employment and to comply with statutory requirements and ODRC procedures while engaged in outside employment. It also has a policy prohibiting employees from performing services for outside employment during their ODRC hours, and from using state equipment, supplies, computer software, or computer systems, including e-mail, to perform outside employment tasks. It also has a policy prohibiting employees from using its systems to operate a business.

The Inspector General’s staff examined ODOT spreadsheets, which flagged 156 and 105 tax returns for 2018 and 2019, respectively, that ODOT suspected claimed false business expense deductions. All 261 flagged returns filed for those two years were suspected of being filed by Employee 1. The staff learned there were 11 other State of Ohio employees included in the list of taxpayers filing the 261 returns. The staff decided to focus on the returns filed by the 11 state employees. Three of those employees had both their 2018 and 2019 returns flagged, and the other 8 had returns flagged for only one of the years. The staff noted that all the returns had been filed using FreeTaxUSA.com tax preparation software. The staff issued subpoenas to the 11 state employees, requesting the copies of their 2018 and 2019 returns, supporting documentation for every deduction and credit, all communication with Employee 1, and evidence of payment to any tax return preparer.

The Inspector General’s staff interviewed the state employees and examined the correspondence between Employee 1 and the 11 state employees. They learned that many of those employees were unaware of the information that Employee 1 had reported on their tax returns to increase their refunds. One employee, after requesting a copy of the return, had learned that the return was incorrect, but was unable to get Employee 1 to cooperate in fixing the return. In fact, Employee 1 told the employee that the employee had been told what Employee 1 was going to do and agreed to it, but the employee at that time denied, to Employee 1, having so agreed. When Employee 1 did file an amended return, the employee disagreed with the explanation provided by Employee 1 on the amended return. The employee eventually used another tax return preparer to fix the mess. Similar accounts were obtained when interviewing many of the other employees.

The staff also determined that Employee 1 had used their ODRC email account to operate their tax preparation activities. Some of the returns were filed using State of Ohio computers. In some instances, the staff examined ODRC time records and determined that the tax preparation work and filing was done while Employee 1 was on duty for ODRC.

In addition to the returns for the 11 employees, the Inspector General’s staff examined returns prepared by Employee 1 for former state employees, and for 4 other individuals. They discovered the same pattern of false returns, use of state resources, and activities conducted while on duty for ODRC.

The Inspector General concluded that Employee 1 had filed false tax returns on behalf of clients, and used state resources to operate the tax return preparation business. The Inspector General recommended to ODRC that it review the conduct of the employees discussed in the report and determine if administrative action is necessary, determine whether the approval of secondary employment is warranted for the ODRC employees discussed in the report who claim to operate a business in addition to their ODRC employment, and consider requiring employees seeking secondary employment to submit a yearly application whereby management may review and document any changes in employment status. The Inspector General recommended to ODOT that it review the tax returns that were flagged for containing false business-related expenses and determine if penalties are necessary, and ensure that the necessary variance letters and/or adjustments to refunds are sent to taxpayers whose returns were flagged and who were or are unable to support the business-related expenses reported. Finally, the Inspector General decided to refer the report to the Cuyahoga County Prosecutor’s Office and the IRS for consideration, and to refer it to the Ohio Ethics Commission for consideration regarding Employee 1’s misuse of State of Ohio work time and resources in their tax preparation business.

So in the process of filing false income tax returns, Employee 1 also ran afoul of employment regulations. Whether those violations cause criminal charges in addition to those expected from the IRS and ODOT or simply generate civil repercussions such as employment termination is a conclusion I am unable to reach, because I am not an expert in Ohio employment law. But it is a good reminder that committing one crime often leads to the commission of other as well as bad decisions that might not be crimes. Though the term “slippery slope” is used in other contexts, it also can be used in this instance.

Newer Posts Older Posts

This page is powered by Blogger. Isn't yours?