Comptroller Peter Franchot hobbled seven Liberty Tax offices in the Baltimore area today, saying the locations had submitted 1,100 suspicious income tax filings.
Storefront tax preparation services—many of which offer high-cost "instant refunds"—have been a locus of tax fraud for years. Common schemes involved inflated income claims and claiming other people's children as dependents. The IRS and various state tax authorities have tried to curb the chain-store franchises with regulations, but may be seeing success by harnessing data.
"Ninety percent of Maryland tax returns are filed electronically," Franchot says by phone. "It's tremendously effective in getting refunds to people quickly, but there's a tension, obviously, between speedy refunds and detecting fraudulent refunds. The technology is to the point where these returns can be pulled out of the stream until a live person can look at it."
Six of the seven locations flagged for investigation are in Baltimore City. They are: 2400 E. Monument St., 1742 W. North Ave., 2401 Liberty Heights Ave., 1808 Pennsylvania Ave., 3308 Greenmount Ave., and 503 W. Lexington St. The seventh storefront is at 7730 Wise Ave., Dundalk.
The locations are not out of business, Franchot's office says, but "we aren't processing their returns unless and until this is resolved."
Messages left at several of the locations were not returned. A young woman who picked up the phone at 3303 Greenmount says she is not authorized to talk about the issue. "They are aware of it," she says of her bosses, who also operate the North Avenue store.
Franchot's office said the suspicious characteristics detected on the tax returns prompting the determination included:
- Business income reported when taxpayers did not own a business.
- Refund amounts requested much higher than previous year tax returns.
- Inflated and/or undocumented business expenses.
- Dependents claimed when taxpayer did not provide required 50 percent support or care.
- Inflated wages and withholding information.
"This is tip of the iceberg," Franchot says. "The hacking of financial information is allowing criminals to file en masse fraudulent returns."
Franchot says that when he took office nine years ago his investigators identified 670 fraudulent returns. Last year there were more than 20,000.
Franchot drafted and pushed a Taxpayer Protection Act in the state legislature this year, seeking tougher penalties for tax fraud and doubling the statute of limitations—from the current three years to six years—to allow for investigation of it.
If the bill is passed, Franchot would also be able to shut down tax preparers his office suspects of fraud while the investigation is ongoing.