California Lawmaker Asks IRS to Help the State’s Massive Unemployment Fraud Victims

With tax season looming, Rep. Josh Harder warns the state’s ongoing unemployment department problems will soon leave a wave of Californians with surprise tax bills.

Shown is the entrance to the east block of death row at San Quentin State Prison Tuesday, Aug. 16, 2016, in San Quentin, Calif. (AP Photo/Eric Risberg)

(CN) — Fed up with the state’s inability to probe and manage the aftermath of a multi-billion-dollar unemployment fraud fiasco, a California congressman is turning to the IRS to protect his constituents.

Representative Josh Harder is warning that a wave of unsuspecting Californians will soon find out they were caught in the massive identity fraud ring that rocked the state during the early stages of the pandemic via a tax bill from the federal government. On Thursday, the second-term congressman urged the IRS to devise a plan to quickly help the still unknown number of victims. 

“The California Employment Development Department is an absolute catastrophe — and the IRS isn’t known for its customer service, but we can’t have thousands of Californians getting a tax bill for benefits they didn’t get,” Harder said in a statement.

In a letter to IRS Commissioner Charles Rettig, Harder pressed the federal government to take a proactive approach and quickly develop a streamlined system for identity fraud victims to clear wrongful tax bills. Noting that tax season is on the horizon, he says the IRS should be working with the unemployment departments of California and others to get ahead of the problem.

California’s department in particular has failed miserably under the strain of the pandemic.

The problems began shortly after the state’s initial lockdown order was issued by Governor Gavin Newsom as millions of freshly unemployed workers filed for first-time benefits. A massive backlog of pending claims followed, leaving hundreds of thousands without income for months.

Criticism flew at the department from every angle, including during emergency legislative sessions last summer.

“I am embarrassed,” said state Assemblymember Tom Lackey last July. “I don’t think government has ever looked more broken than it has right now.”

While Newsom appointed a task force and new leadership to rescue the department, a new, more embarrassing crisis emerged in the fall.

Acting on tips from employees within California jails and prisons, investigators uncovered a massive unemployment fraud scheme being perpetuated by inmates.

According to local and federal prosecutors, at least 35,000 California inmates filed for unemployment from March through August.  

Benefits were not only sent to death row inmates, but applicants such as “Poopy Britches” and “Dianne Feinstein.” 

“Quite frankly, the inmates are mocking us,” said one district attorney.

The next month, police busted a ring in Beverly Hills during which 44 people were arrested and more than $2.5 million in unemployment benefits in the form of pre-loaded debit cards were seized. Police said many of the people arrested were from out of state and traveled to California to collect the fraudulent cards and used them to rent luxury cars, lease short-term rentals and buy high-end items.

The full extent of the fraud is still undetermined, but investigators say it’s likely the state paid out over $8 billion in fraudulent claims since last March. In an attempt to get a handle on the fraud, the department was forced for a stretch to suspend payments to any new applicants.

The department’s struggles have not only left deserving Californians without an income, but stained Newsom and the state’s pandemic response.

Nearly a year after the first statewide lockdown and despite promises from Newsom that it would be cleared by the end of the month, the department’s backlog has swelled in recent weeks to over 800,000 cases.

Harder, whose Central Valley district has been beset by high unemployment, has been hounding the department for answers dating back to May. Now the unhappy Democratic lawmaker is asking the ever-unpopular IRS to pick up California’s slack.

“A lot of people don’t even know their identity was stolen — and won’t find out until they get a tax bill. We need the IRS to be ready to clean up EDD’s mess — and I’m working to make sure they are,” Harder said.  

Meanwhile the department sent out notice Thursday that the 7.8 million Californians that received unemployment benefits should expect tax forms this month.

The department is directing fraud victims to visit its website to figure out how to dispute wrongful claims, and added it will be sending out five times the usual number of 1099G tax forms due to the increase of 2020 claims. It also says it has increased staffing to handle disputes and answer questions, and wants anyone receiving tax info addressed to someone else to send the mail back to the department.

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