Boston University School of Law

Refund Fraud? - Real-Time Solution!
Digital Security Borrowed From the VAT
(Brazil, Quebec, & Belgium)

Richard Thompson Ainsworth

66 Tax Notes International 533 (May 7, 2012)
Boston University School of Law Working Paper 12-15
(March 20, 2012)


This article provides support for a proposal to eliminate refund fraud in the U.S. by turning Forms W-2, and 1099 into self-certified/ self-authenticated tax documents.  The proposal suggests that a “digital signature” of these documents should be taken after they are completed.  The signature should then be made part of the final document. 

This proposal was initially advanced in Refund Fraud? Real-Time Solution!  The underlying premise of that article was that the US could dramatically reduce, if not eliminate, refund fraud if it borrowing digital security techniques from the VAT.  The article did not however, explain or expand upon these techniques from within the VATs where they were developed.  This article takes up the VAT side of that analysis. 

VAT frauds frequently manipulate documents for gain, and VAT jurisdictions have spent a considerable amount of time and energy devising effective and efficient methods for determining if a document is legitimate (or original).  The strong suggestion is that the IRS should look to the VAT to solve refund fraud, because even though the tax is different, the administrative problem is the same.  The refund fraud problem is essentially document verification problem.  The VAT is very good at document verification.  The IRS can learn from the VAT. 

This paper looks at three VAT jurisdictions, Brazil, Quebec and Belgium, and explains how they use technology to solve document authentication problems.  In each case a tax fraud is facilitated by false documentation, and the administrative response is to use technology to certify the documents and stop the fraud.  In Brazil the fraud arises in the context of internal cross-border B2B transactions.  In Quebec and Belgium the fraud is skimming profits from B2C cash and debit/credit card transactions. 

Richard T. Ainsworth, Refund Fraud? Real-Time Solution!  134 Tax Notes 1165 (February 27, 2012), 2012 TNT 38-9, Doc 2012-1776

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Richard Thompson Ainsworth Contact Information
LL.M. Tax Program
Boston University School of Law
765 Commonwealth Ave
Boston, MA 02215

Phone: (781) 773-1052

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