Comptroller Peter Franchot's tax fraud bill will face a hearing on Wednesday in a Senate committee. (Michael Dresser/Baltimore Sun video)
Senate President Thomas V. Mike Miller is questioning the need to give Comptroller Peter Franchot enhanced powers to investigate tax fraud in part on the grounds that the late, great Louis Goldstein, who held Mr. Franchot's job for nearly 40 years, got along just fine without them. True enough. Goldstein, who died in 1998, probably didn't need much of a budget for cell phones either, nor did he spend much time thinking about the tax and regulatory issues associated with e-cigarettes.
Mr. Franchot needs these new powers because he's dealing with a threat that Goldstein could not have imagined. Mr. Franchot says his staff identified 314 fraudulent returns in 2007, his first year in office, and more than 13,000 last year, which was actually down from 19,000 the year before. And this isn't just a Maryland issue. Intuit, the maker of Turbo Tax, reported last year that states had seen an exponential growth in the number of fraudulent income tax returns filed — as much as a 3,700 percent increase in some places.
There are a few basic ways that criminals file false returns. Some get enough identifying information about an individual to create a fake return, which they file before the real person has gotten around to it. Others attempt to log into an online tax preparation site with usernames and passwords stolen through an unrelated data breach, then take over a person's account and file a return. Sometimes fraudulent tax preparers file fake returns in their clients' names, either with or without their knowledge and collusion. Because returns are now processed and refunds issued more or less immediately, the scammer can bilk the government (and in some cases, the taxpayer, too) and disappear with nary an electronic trace before anyone is the wiser.
That simply could not have happened in the paper-based system of Goldstein's day. In the last year of his tenure, Maryland processed a little over 200,000 electronic returns; last year, the figure was 2.5 million. Electronic filing and processing and direct-deposited returns are tremendous conveniences for taxpayers, and they make the comptroller's office much more efficient. But they also open the door for malfeasance on a whole new scale.
The IRS has gotten better at spotting fake returns, which may be part of the reason for the rise in attempted state income tax fraud. Comptrollers (or their equivalents) from states across the nation have worked with each other and major tax preparers to institute new protocols and data sharing agreements to help detect fraud, but at least in Maryland, actual prosecution for the crime is rare.
Attorney General Brian Frosh and Mr. Franchot announced four tax fraud indictments in January, targeting people they say each filed multiple false income tax returns, generating a total of $153,700 in fraudulent refunds. But that represents less than 1 percent of the fraud Mr. Franchot's office spotted last year — and who knows how much more went undetected?
The Maryland comptroller's Field Enforcement Bureau has police powers — for example, the ability to seek arrest and search warrants — when it comes to enforcing alcohol, tobacco, motor carrier and motor fuel taxes but not income, sales or admissions and amusement taxes. If the comptroller's office wants to pursue cases against fraudulent tax return filers, it has to enlist the aid of the attorney general's office or a local state's attorney. Those offices generally lack the expertise the comptroller's staff has in such matters, and they have competing priorities for their resources. These are often complex cases involving multiple jurisdictions, and time is of the essence, given a three-year statute of limitations (another problem the legislation seeks to address).
Comptroller Franchot tried last year to persuade the legislature to grant him this enforcement authority, and the House of Delegates passed the bill unanimously, but it died on the last day of the General Assembly session after the Senate stripped out key provisions. This year, Gov. Larry Hogan is backing it, and so is Attorney General Brian Frosh — a rare collaboration between Maryland's three independently elected, state-wide constitutional officers.
We wholeheartedly agree with Senator Miller that Mr. Franchot has a penchant for straying from his job description into matters that have little or nothing to do with his office, like whether public schools should start after Labor Day. But in this case, the comptroller is asking for authority that would enhance his ability to do something that very much is his job — and something that is very much in the interests of all legitimate Maryland taxpayers who must bear more of the burden to pay for schools, roads, health care and all the other essential services state government provides. Blocking this bill doesn't hurt Mr. Franchot; it hurts every single one of us.