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Must store owners know when shoppers are committing tax fraud?

A Secret Service investigation in another state may leave retailers in Pittsburgh wondering what the federal government expects them to do as far as detecting possible tax fraud among their customers. The owner of a mall kiosk in another state has had nearly $380,000 seized by the federal government that investigators say was spent by customers who had illicitly obtained tax refunds that did not belong to them.

The owner is not charged with a crime. He owns and operates a mall kiosk that sells jewelry items. According to authorities, in September 2011 the store's business improved from around $17,000 per month to more than $374,000. Many of his customers paid with debit cards. The Secret Service claimed that funds on several of the debit cards were obtained through identity theft and tax fraud, specifically receiving tax refunds under fraudulent identities.

However, retail industry organizations say that it is virtually impossible for store owners or employees to legally check customers' accounts for signs of possible fraud. The store owner, who is fighting the government's seizure of $379,798 in assets, argues that his card processors did not require him to ask for ID when customers used a debit card to pay.

Federal prosecutors believe that the owner should have become suspicious when he had to change credit card processors several times after the companies stopped accepting debit cards. But the companies reportedly never told him why they made the change.

This government action raises several questions. It appears that investigators are suggesting that the kiosk owner had a responsibility to determine where his customers were getting their money from. Just how he was supposed to do that is not clear.

Source: The Tampa Tribune, "Feds: University Mall business boom was tax fraud," Elaine Silvestrini, June 17, 2013

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