Franchot: Legislation needed to combat escalating tax fraud

State Comptroller Peter Franchot said Tuesday that "fraudsters" have become so adept at stealing tax refunds he needs new criminal investigative powers to thwart them.

Maryland's tax collector announced he will ask lawmakers to expand his authority so he can more efficiently chase down and punish people who file phony returns, a problem he said has dramatically escalated alongside identity theft.


"This is becoming so sophisticated that it's hard to keep up with the bad guys," Franchot said at an Annapolis news conference. "We're upping our game, but they're upping theirs. … We need some more weapons because the other side has gotten much better."

Franchot said that when he took office in 2007, his team uncovered about 300 fraudulent returns seeking $656,000 in refunds that belonged to someone else. In the first 10 months of 2015, they found more than 18,700 bogus returns seeking more than $38.3 million.

His office was not able to say how much the state has wrongly paid out because of fraudulent claims.

The comptroller said his staff has created algorithms that better detect fraud, but that agencies like his across the country are facing an unprecedented surge of swindlers, especially as large-scale data breaches become more common.

Earlier this year, the Internal Revenue Service signed an agreement with tax collectors in most states and leaders of tax preparation companies to share information about how identity-theft rings are being used to file false tax claims.

Republican Gov. Larry Hogan said through a spokesman that he did not have a position on Franchot's proposal to expand the investigatory power of the tax collector's office.

"The governor appreciates the comptroller's concern over this serious issue, and the administration will review his legislation very carefully," Hogan spokesman Doug Mayer said.

Staff for Senate President Thomas V. Mike Miller and House Speaker Michael E. Busch said the Democratic leaders had not been fully briefed on Franchot's request.

To help combat the problem, Franchot proposes giving the comptroller's office power to issue criminal subpoenas and search warrants, as well as to impose injunctions on suspect tax preparers while they are under investigation. Currently, the comptroller's investigators need the help of local state's attorneys to do that.

Franchot also suggests extending the statute of limitations on tax crimes from three to six years, which would give him more time to go after tax crooks.

He also suggests elevating several tax crimes from misdemeanors to felonies, arguing that people who operate multistate tax fraud would be less inclined to work in Maryland if it were a more serious crime.

The proposed legislation, which has not been filed, would withhold precise state employee salary information from public inspection. Franchot said criminals have tried to use salary data published in the news media to file fake returns since the precise information can more easily dupe algorithms designed to detect anomalies.

Jennifer Bevan-Dangel, executive director of Common Cause Maryland, said that she was surprised it was that easy to file a tax return, and said lawmakers should carefully consider whether withholding information about pay actually prevents fraud. It clearly would make it more difficult for the public to judge whether or not public employees were being overpaid.

"There is a balance," she said.


Franchot said part of the uptick in Maryland is a direct result of huge data breaches by hackers that ultimately allow people to get sensitive information they can use to file false returns.

The state has also seen an increase in the number of tax preparers tricking residents into filing returns that route their refunds elsewhere, as well as other types of fraud perpetrated by people based in other countries and states.

Franchot said that he is among the those personally at risk for such fraud because his wife is a federal retiree whose personal information was hacked in the breach at the Office of Personnel Management in June. Federal officials said that hack put 22 million people at risk.

Franchot added that some University of Maryland employees also are at risk because of a data breach there.