Frauds And Phonies Cost U.s. Business Billions

Many people thought that the advent of powerful computers

, centralized databases and civil service technologists would give authorities the edge in crime fighting. Sure, as if there are no unethical smart people. In fact, there are many smart, even brilliant people with questionable scruples, and the same digital tools available to the good guys are available to everyone else, too. Many people use these tools to steal and/or create new identities, either to assume them or use them to launder ill-gotten gains from their so-called real life.

In a growing number of situations, companies and individuals need to confirm identities, do background checks and learn about prospective business partners or investors, job applicants and others. In addition to contacting personal references, checking work histories, running credit checks and verifying educational records, it is often important to verify earnings. The best way to do this, of course, is to get the subject's tax returns, which is done quite regularly by mortgage lenders and is becoming more widely used because of its well-known (as well as unadvertised) strengths.

Connecting the dots

For those who know how to read between, under, over and around the lines, tax returns provide a wealth of material that can help lenders determine financial habits. Other patterns will disclose other habits, and all sorts of activity, from criminal to merely immoral, can be discerned by proper study of financial records and other evidence. Taxpayers have to authorize the release of their records, but they can direct the entire transcript or just certain elements from it (earnings, addresses, etc.) to a third party, like banks, other lenders, employers, etc.

Form 4506 is for a full transcript, and 4506-T is for the elements from a transcript. The latter is used more often, but there are limitations. The returns only go back three years, so if you need a four-year-old return for some reason, you need Form 4506 and the cost goes up $39. In fact, there are some companies that specialize in ordering transcripts from the IRS, and can cut through a lot of the trouble based on their ongoing relationship with the government agency. If you are doing many tax return requests, you might consider such a service. However you get the tax return info, though, there are certain things to remember.

Be thorough

It is surprising how many people have qualified for home loans, expensive cars and other large purchases with fraudulent income claims. Even when financial records including tax returns were ordered, they were either ignored or not understood fully. It is vital that parties to deals involving several hundred thousand dollars or more be thoroughly checked out, and that the information is both confirmed and then thoroughly studied. If the numbers that the applicants present to their lenders differ substantially from the ones provided to the government on tax returns, there is very little room for legitimate explanation. Either the applicant is not declaring income, or is falsifying the application, but either way the effect is a highly negative one.

Tax information is also very helpful in corroborating other claims that are not even directly related to income. If an applicant claims to own rental property, then the appropriate income and expenses would be noted on either Schedule C or other proper form. In the same way, other large holdings and assets, absent other corroboration, could be reflected in the tax return information.

The important thing is to think of the all the different parts of a background check (job references, credit check, personal references, tax information, etc.) as individual mosaic tiles in a bigger picture. Although there are occasionally some so-called gotcha moments when checking a tax return, it is much more often the case that all of the information considered together renders an accurate enough picture of the applicant for a financial decision.

Bottom line

It matters, a great deal, when people are caught lying on applications and submitting false financial, employment, educational or tax information. The applications may be for employment, or for some type of purchase, which means that there is the potential for considerable losses. People who falsify applications have every incentive to continue their unethical behavior when on the jog, in the house or driving the car that they go by nefarious means. With the proper use of information, including work histories and tax returns, the frauds and phonies that cost U.S. business billions today could be on the way to extinction starting tomorrow.

by: Mike Thomas.

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