A New Type of Tax Fraud

When a Tax Notes Today tax news update arrived this morning in my email inbox, I had to stop and read again the title of one of the items in the digest. Why? Because it read, "Tax Crime Roundup: Attorney Admits to Paying IRS With Sham Checks." What?

So I found the Tax Notes article and from there worked my way to the Department Department of Justice news release. According to the news release, the attorney in question had signed and submitted 14 fake certified checks to the IRS in November 2024 and January 2025, in the total amount of $294,454.52. the attorney also submitted payment vouchers directing that amount to income tax liabilities for the years 2013 through 2022 other than 2019 and 2021. The checks used a routing number associated with the Federal Reserve Bank and a bank account number that was the attorney's social security number. My guess is that those checks bounced, quickly and high.

The attorney also used a fake cashier's check in the amount of $129,710.51 to purchase a new electric utility truck in October 2024 from a company. The routing and bank account numbers on the check were those of the company from which the truck was being purchased. It's unclear whether someone at the company noticed this when taking the check or the bank caught it when the company deposited the check. Either way, the company quickly learned that the check was fraudulent and repossessed the truck. The attorney then filed a lawsuit in November 2024 seeking the immediate return of the truck, along with costs and attorneys' fees. The complaint falsely claimed that the company unlawfully took the truck and had no rights in the truck. The attorney also submitted a fraudulent Form 1099-A showing that the company had borrowed $129,710.51 from a trust managed by the attorney. In December 2024, the attorney served a notice of default and praecipe for a default judgment against the company, again seeking possession of the truck and damages from the company.

After the Department of Justice National Fraud Enforcement Division brought charges, the attorney pled guilty to one count of tax evasion and one count of mail fraud. The attorney is yet to be sentenced, and faces a maximum possible term of 25 years' imprisonment.

Perhaps the attorney is not the first person to use fake checks to pay taxes. But it's new to me. It's the first time I've learned of this sort of behavior. Sometimes people write checks to the IRS that bounce because of insufficient funds, but the check itself does not use fake routing and account numbers.

What happened? This wasn't a case of a momentary lapse in judgment. It was a carefully planned sequence of events. It wasn't carelessness. It wasn't mistake. Worse, it was bold and outrageous. To attempt the purchase of a vehicle with a fraudulent check written on the seller's account, and then to sue for return of the vehicle after the seller repossesses it after discovering the fraud is beyond bold and outrageous. It is shockingly horrendous. My guess is that the attorney was in financial distress for any one or more of various possible reasons. The fact that there were outstanding income tax liabilities from as far back as 2013 suggests a financial problem. When I first read the press release I wondered why an attorney would purchase an electric utility vehicle, but now I'm thinking perhaps the attorney planned to resell it to acquire money. I also wonder why the attorney didn't realize that the fake routing and bank account numbers he used on the fake checks would be discovered almost instantly once those checks were processed or deposited by the recipients.

The attorney is licensed to practice in Pennsylvania. I looked at his entry with the Disciplinary Board of the Supreme Court of Pennsylvania and there is nothing listed under Pending Proceedings. And though he is a graduate of the first law school at which I taught, he attended long after I moved on to Villanova.

Among the practice areas described in his online biography is criminal defense. All in all, a very sad and distressing situation.

Can the Broken Federal Tax Revenue Process Be Fixed?

For almost as long as I've been writing on MauledAgain, I have pointed out the foolishness of cutting IRS funding. To cite just three examples, consider Another Way to Cut Taxes: Hamstring the IRS, So Cutting IRS Funding Won’t Decrease Revenues? Yeah, OK., and Cutting Off the Tax Revenue Nose to Spite a Political Face. I'm not alone. Others have been making the same point for a much longer time. Recently, in $15 Trillion on the Table in 2029: Ordinary Taxes to Meet an Extraordinary Fiscal Moment, Kimberly Clausing and Natasha Sarin address the growing federal budget deficit and offer solutions, including an $80 billion investment in IRS capacity that would raise roughly $1.3 trillion in revenue "in revenue already owed under current law."

Why does it matter that IRS funding and the number of its employees is significantly reduced? When IRS funding and employees are cut, the number of audits that can be performed is reduced. The amount of assistance provided to taxpayers is reduced. People have figured out that this means the chances of being caught when underreporting tax liabilities, whether through understating income or overstating deductions and credits are reduced. Though some taxpayers and tax return preparers who understate tax liabilities are caught, for each one who is there are many more who win the "audit lottery." Even though some tax return preparers who go so far as to commit fraud are identified and convicted, there are others who take the risk knowing that the odds of being caught are less than 100 percent.

Why is this a problem? Reduced IRS resources reduces federal government revenue. In turn that increases the deficit. Deficit increases provide cover for politicians who want to cut federal programs, even to the point now of wanting to cut Medicare and Social Security payments.

Why do politicians want to cut federal programs? Though there are some programs they dislike for ideological reasons, there are many other programs that they want to shift to the private sector. After all, it is the private sector that funds their campaigns and wants to take over and then own and operate federal programs. The private sector sees these programs as enterprises that can be turned into profit centers. For example, they see monetary rewards in charging people for weather forecasts and so long as the federal government provides that information it takes a large potential customer base away from the private sector.

Why does the private sector want to increase its profits? It wants to continue the trend that has shifted increasing amounts of income and wealth into the top 0.1 percent and top 0.5 percent, which increases income inequality. The private sector claims that increasing the income and wealth of the super-rich benefits everyone else but by now many people are waking up and realizing that supply-side economics and trickle-down theories are jus that, theories that worked for the advocates of those approaches to public finance but that as a matter of practical reality left everyone else worse off.

Unless the political climate changes, any proposal to increase IRS funding will go nowhere. Without an increase in IRS funding, the nation faces either the catastrophic consequences of federal deficits that are too high or cuts in programs that will make the economic plight of most Americans even worse. Or both. That's what happens when the federal tax revenue process is broken and doesn't get fixed.