Beware of Income Tax Identity Theft Scams

Scam artists across the country are stealing billions of dollars in tax refunds through a shameless form of fraud that takes advantage of the Internal Revenue Service’s (IRS) fast online returns.  Thanks to laptops and free Wi-Fi connections, these thieves steal identities and use the names of genuine taxpayers to file fraudulent online returns.  They’ve stolen billions to buy luxury cars, jewelry and plastic surgery, according to police.  “It’s like the federal government is putting crack cocaine in candy machines,” said Detective Craig Catlin of the North Miami Beach, FL, Police Department.  “It’s that easy.”

The thieves obtain Social Security numbers and other personal information from accomplices who work at hospitals, doctor’s offices, car dealerships or any place the personal information is stored.  Next, they file an online tax return using the real taxpayer’s name and a fabricated income.  Usually, the scam artists obtain a debit card so the IRS can issue the refund, although some thieves have also received actual Treasury checks.  The thieves are well aware that the IRS does not authenticate the employer W-2s sent with the return until after the refund is sent.

“We can’t go…two days in a row without making a traffic stop, and there’s going to be tax return fraud in the car,” Catlin said.  “We could stop an 18-year-old kid who’s got five (debit) cards.  The average is $5,000 per card.  So they’ll have $25,000, which is really cash, even though it’s on debit cards.  We have other cases that range up to $100 million where subjects have opened up corporations and bank accounts and business accounts,” Catlin said.  “And they’re receiving millions of dollars from the IRS that are all fraudulent.”

Additionally, this particular crime is exploding because software like Turbo Tax make filing taxes fast and easy. Scammers buy black-market lists of names and Social Security numbers of living people, and scour Internet family support sites to steal the identities of the dead.  In the last three years, tax refund fraud has soared 700 percent — with $2 billion in tax dollars paid out to thieves last year alone.

How much does the IRS pay people who are not real taxpayers?  “It’s a number that I can’t get my head around,” said Tom Boyle of the U.S. Postal Inspection Service.  “We know one company that you can file through.  There was over $300 million filed alone.” Boyle said, “and there’s 20 of those companies.”  According to the IRS, they caught 87 percent of fraudulent returns filed in 2011, and have taken action to implement new ways of handling tax returns, as well as compliance filters that identify fraud.

“The IRS is confronted with the same challenges as every major financial institution in preventing and detecting identity theft,” according to Deputy Commissioner Steven Miller.  “We cannot stop all identity theft.  However, we are better than we were, and we will get better still.”  Last year, the IRS prevented $14 billion in fraudulent refunds, Miller said.  This year, the agency has added hundreds of employees to its anti-fraud efforts.  Legitimate refunds are delayed when the IRS spends additional time reviewing returns before issuing refunds, said Nina Olson, the national taxpayer advocate.  When the IRS speeds up returns, fraudulent refunds fall through the cracks.  “There is no way around these trade-offs,” said Olson, who runs an independent office inside the IRS.

Senator Bill Nelson (D-FL) said criminals have turned to tax fraud, impacting honest taxpayers.  “Their lives are being turned upside down by identity theft and then tax fraud,” said Nelson, who is chairman of the Senate Finance Economic Growth and Fiscal Responsibility Subcommittee.  “They have their tax refund stolen, and then they are delayed until the IRS sorts out the mess.”