Billions Lost in Tax-Refund Scam

March 30, 2012

Federal authorities are struggling to crack down on what they describe as a widespread scheme that has already likely defrauded the Internal Revenue Service of billions of dollars using the stolen identities of Puerto Rican citizens.

The perpetrators of the scheme, authorities say, swipe the Social Security numbers of Puerto Rican citizens, who don't have to pay federal income tax—and are less likely to be on the IRS radar—and use their information to file fake returns. In some cases, they enlist U.S. mail carriers to intercept the refund checks that are disbursed.

The plot, which includes participants from around the U.S. and Latin America, has been around for at least five years. Prosecutors have obtained multiple convictions but none involving those believed to be among the top players in the operation, according to several people briefed on investigations into the fraud.

"What we have uncovered may very well be the tip of the iceberg," said
Manhattan U.S. Attorney Preet Bharara, whose office was among the first to investigate the group. "It's a massive fraud."

Between October 2010 and June 2011, the IRS received phony tax returns based on stolen Puerto Rican identities that would have led to the disbursement of $5.6 billion to alleged fraudsters, two of these people said. It is unclear how much money the IRS ultimately sent but one person familiar with the matter said an estimated $2 billion in checks was distributed.

Robert Anthony Warren, a Bronx mail carrier, was sentenced in November to 36 months in prison for a related fraud. Having difficulty paying his rent, he agreed in 2007 to an offer from another mail carrier to accept $100 for each tax-refund check he intercepted, according to sentencing documents. Between 2007 and 2008, fraudulent tax-refund checks totaling millions of dollars came through Mr. Warren's route. He was paid more than $25,000 for his participation, the documents show. Mr. Warren couldn't be reached for comment.

At least two other mail carriers have been sentenced for similar crimes tied to stolen identities from Puerto Rico.

Two people familiar with the investigation say the Puerto Rican tax scam was masterminded by a group in the Dominican Republic. Federal authorities caught on to it around 2007 and arrested people connected with the network, but have been unable to bring down people at the top level of the group, these people say.

"The scheme has metastasized and spread," from its epicenter in New York City and Boston, said Serrin Turner, an assistant U.S. Attorney in Manhattan in a sentencing memorandum filed as part of Mr. Warren's case. Mr. Turner said prosecutors in Massachusetts, Pennsylvania, North Carolina, Connecticut, Florida, Rhode Island, New Jersey, and California have been investigating similar schemes.

Some of the convictions illustrate the multiple levels involved in the
plan. In September, five men were sentenced to between 40 and 98 months in prison for cashing checks tied to fraudulent Puerto Rican tax returns. The men cashed them at money-service outlets in Lincolnton and Gastonia, N.C., according to prosecutors. The men were ordered to pay $12 million in restitution.

And Kelvin Crucey, who owned a tax-preparation business in New York, in February of 2011 was sentenced to 27 months in prison for preparing fraudulent returns based on stolen Puerto Rican identities. Mr. Crucey also helped to cash the refund checks. He was ordered to pay $249,000 in restitution. Mr. Crucey worked until 2010 as a senior vice president for the Upper Manhattan Empowerment Zone, a taxpayer-funded organization set up to revitalize distressed communities, and was a certified fraud examiner, prosecutors said. Mr. Crucey
couldn't be reached for comment.

The IRS has made a big push in recent years to combat tax frauds facilitated by identity theft and says it stopped about $14 billion worth of fraudulent checks from going out last year, some of which includes refund requests using stolen Puerto Rican identities. The agency's goal is to stop every bad refund said spokesman Terry Lemons, but that has to be balanced with its desire to get refunds to taxpayers in a timely manner. "We cannot manually inspect more than 100 million tax refunds every year to make sure they're correct," he said.

The alleged scammers use the stolen Social Security numbers to file fake documents from companies purporting to withhold tax, then fake returns that are structured to ensure the filer is owed a refund.

The refund checks are mailed to the addresses on the forged documents even though the addressees don't live at those locations, which is why some postal workers have been recruited, according to people briefed on the investigations.

The cases of postal carriers taking bribes are rare instances that don't
reflect the vast majority of carriers, said Thomas Boyle, a spokesman for the Postal Inspection Service, a unit of the U.S. Postal Service. He said many carriers have actually have helped catch instances of the fraud by notifying authorities after seeing a large number of refund checks going to the same addresses or to people who don't live at those addresses.

Once the checks are collected, participants in the fraud take them to bank tellers or employees at money-service locations who often have taken bribes, according to court documents submitted in several cases. The checks often are worth between $5,000 and $7,000 each, investigators say, with stolen identities of children sometimes used to add dependents to the returns in order to inflate the refunds.

If a Puerto Rican citizen has never paid federal income tax, it looks to the IRS as if the person filing a return simply moved to the continental U.S. and began working. According to criminal investigators, a single Puerto Rican Social Security number goes for about $8 to $10 on the black market.

Billions Lost in Tax-Refund Scam -

Seven Charged In Conspiracy To Defraud U.S. Government

TAX REFUND CONSPIRATORS INDICTED IN U.S. DISTRICT COURT Seven Defendants Accused of Scheme Based in Gaston, Lincoln and Mecklenburg Counties CHARLOTTE – Seven individuals have been charged with conspiring to defraud the government by obtaining false and fraudulent income tax refunds, Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina, and Jeannine Hammett, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation Division, announced today.

On Tuesday, March 15, 2011, a federal grand jury sitting in Charlotte returned a onecount indictment against the following defendants:
• Arileyda Amparo, 30, of Lincolnton, not yet arrested
• Xiomara Amparo, 33, of Lincolnton, released on bond
• Jose de Jesus aka Jose Ramos, age unknown, of Vale, in custody,undocumented alien
• Dania Ramos, 35, of Lincolnton, released on bond
• Johan Vargas, 22, of Hickory, not yet arrested
• Nelson Jimenez, 50, of Lincolnton, released on bond
• Mildred DePena, 48, of Lincolnton, released on bond

All of the defendants are charged with one criminal count alleging conspiracy to defraud the government with respect to false claims–allegedly in this case, the filing of fraudulent tax returns seeking refunds utilizing stolen Puerto Rican identity information. The defendants Xiomara Amparo, Jose de Jesus, Dania Ramos, Nelson Jimenez, and Mildred DePena were arrested on February 23, 2011 pursuant to a federal criminal complaint issued on February 16, 2011.

According to the indictment, from in or about January 2010 and continuing to February 2011, the defendants agreed to defraud the U.S. Treasury Department by participating in a scheme to obtain false tax refunds. The defendants are alleged to have first obtained stolen identity information, including names and Social Security numbers of individuals in Puerto Rico, in whose names they would then allegedly prepare fraudulent federal tax returns. Part of the scheme was that the defendants carefully selected addresses within the Western District of North Carolina at locations where there were multiple mailboxes clustered together in a single location.

According to the charges contained in the indictment, the defendants then caused the Treasury Department to mail the false tax refund checks to these specially chosen addresses. The defendants, according to the indictment, would then use the Internet to check the delivery dates of the fraudulent refund checks, and follow through by pulling the checks out of the mail at the specially chosen clustered addresses.
The indictment alleges that the defendants cashed the refund checks, which they had pulled from mailboxes, at various money service businesses located in North Carolina and elsewhere, and then used the money for their own gain. According to the charges, the defendants sought fraudulent refunds totaling more than $3 million during 2010 and more than $2 million from January 2011 up until their arrests in mid-February.

Each defendant faces a maximum statutory penalty of up to ten years in prison, a $250,000 fine, or both.
Seven Charged In Conspiracy To Defraud U.S. Government | Wall Street Swindler

Identity Thieves Infiltrated Tax Office in Bronx, a Suit Says


Published: April 8, 2010


Postal Worker Found Guilty in Manhattan Federal Court of Multi-Million-Dollar Tax Refund and Theft of Mail Scheme
FBI — Postal Worker Found Guilty in Manhattan Federal Court of Multi-Million-Dollar Tax Refund and Theft of Mail Scheme