Thread: Tax Scam: IRS Pays Out Billions in Fraudulent Refunds

Tax Scam: IRS Pays Out Billions in Fraudulent Refunds

cnbc.com
Published: Thursday, 2 Aug 2012 | 11:14 AM ET

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The IRS is paying out billions of dollars in fraudulent tax refunds to identity thieves; a problem that the tax service’s inspector general told CNBC is a “growing problem” involving numbers that are increasing “exponentially.”

In a new report to be issued Thursday, the inspector general for the IRS says that tax thieves are stealing the identities of taxpayers and then filing bogus returns on their behalf and collecting fraudulent refunds as a result.

The inspector general estimates that the IRS could issue as much as $21 billion in fraudulent tax refunds over the next five years.

The scam is so rampant that thieves are apparently sending in false returns in bulk without even bothering to change the mailing address on the returns. The inspector general said it found one residential address in Lansing, Michigan that was the source of an astonishing 2,137 tax returns, and to which the IRS directed more than $3.3 million in potentially fraudulent refunds.



In another case, a single residential address in Chicago was the source of 765 tax returns, generating more than $900,000 in potentially fraudulent refunds, the report said.

“Once the money is out the door, it is almost impossible to get it back,” IRS inspector general J. Russell George told CNBC. “The bad guys know that the IRS is unable, given the limited number of its staff it has, to address every single allegation of tax fraud it has.”

The report said the identity theft scam is most prevalent in Florida, with two cities, Tampa and Miami, topping the list of potentially fraudulent claims. Tampa saw 88,724 potentially fraudulent returns filed, generating refunds of more than $468 million. And Miami saw 74,496 potentially fraudulent returns generating more than $280 million in possibly bogus returns.

"Once the money is out the door, it is almost impossible to get it back.”

The inspector general concluded that the IRS is simply not doing enough to stop identity theft fraud. “Unfortunately, the IRS is not using information that it currently has, nor information that could be available to them,” George said.

In its analysis, the inspector general’s office said it identified approximately 1.5 million tax returns with potentially fraudulent tax refunds that the IRS had missed during tax year 2010. The potential fraud for that one year totaled in excess of $5.2 billion. That led the report’s authors to estimate that the “IRS could issue approximately $21 billion in fraudulent tax refunds resulting from identity theft over the next five years.”

Among the report’s other findings, was that the “use of direct deposits, including debit cards, to claim fraudulent tax refunds increases the risk that the IRS will not detect identity theft. The IRS continues to allow multiple direct deposits to the same bank account.”

The inspector general recommended that the IRS make certain changes in the way it operates internally, and that it push for new legislation on Capitol Hill that would give it access to the National Directory of New Hires database to help weed out identity theft.

In a response to the critical report, IRS wage and investment division commissioner Peggy Bogandi wrote, “We are devoting significant resources to combat tax refund fraud using stolen identities and have already taken action with respect to issues identified in the report.” And because of actions the IRS has already put in place, she wrote, “we believe that the report’s projection of undetected fraudulent refunds over the next five years is significantly overstated.”

source: Tax Scam: IRS Pays Out Billions in Fraudulent Refunds - US Business News - CNBC

IRS May Have Lost Billions To Identity Theft, Treasury Says

By JOSH LEDERMAN 08/02/12 03:39 PM ET

WASHINGTON — The Internal Revenue Service may have delivered more than $5 billion in refund checks to identity thieves who filed fraudulent tax returns for 2011, Treasury Department investigators said Thursday. They estimate another $21 billion could make its way to ID thieves' pockets over the next five years.

The IRS is detecting far fewer fraudulent tax refund claims than actually occur, according to a government audit that warned the widespread problem could undermine public trust in the U.S. tax system. Although the IRS detected about 940,000 fraudulent returns for last year claiming $6.5 billion in refunds, there were potentially another 1.5 million undetected cases of thieves seeking refunds after assuming the identity of a dead person, child or someone else who normally wouldn't file a tax return.

In one example, investigators found a single address in Lansing, Mich., that was used to file 2,137 separate tax returns. The IRS issued more than $3.3 million in refunds to that address. Three addresses in Florida, the epicenter of the identity theft crisis, filed more than 500 returns totaling more than $1 million in refunds for each address.

In another troubling scenario, hundreds of refunds were deposited into the same bank account – a red flag for investigators searching for ID thieves who may be filing for refunds for multiple people. In one instance, the IRS deposited 590 refunds totaling more than $900,000 into one account.

"We found multiple reasons for the IRS's inability to detect billions of dollars in fraud," J. Russell George, the Treasury Department's inspector general for tax administration, in a statement. "At a time when every dollar counts, these results are extremely troubling."

Topping the list of concerns is the IRS's lack of timely access to third-party information it needs to verify returns and root out fraud.

Many Americans are struggling to pay their bills and the IRS takes pride in processing returns and issuing refunds promptly. But taxpayers can start filing their returns in mid-January, while employers and financial institutions don't have to submit withholding and income documents for taxpayers to the IRS until the end of March. That means the IRS often issues refunds long before it can confirm the veracity of what's listed on taxpayer returns.

Thieves are also exploiting vulnerabilities in the way the IRS delivers refunds, investigators found. Of the 1.5 million undetected cases of potential fraud, 1.2 million used direct deposits, including pre-loaded debit cards. Thieves often prefer those methods to a paper check, which require a physical address to receive the check and photo ID matching the taxpayer's name to cash it.

IRS officials said the growth of identity theft-related fraud is one of its biggest challenges. Already this year, the agency has stopped almost $12 billion in confirmed fraud, it says. And it says its criminal investigators are actively pursuing those who perpetrate fraud – including the previously undetected cases identified by the audit.


"If the IRS determines a refund has been issued improperly, we will attempt to recoup the funds," said IRS spokeswoman Michelle Eldridge.

The IRS agreed with the inspector general that Congress should expand the agency's access to resources that could help it fight theft, including the National Directory of New Hires, a database created to help states enforce child support orders. The IRS specifically asked Congress for that authority in its 2013 budget request.

But IRS officials disputed the notion that $21 billion in fraudulent returns could be issued over the next five years, arguing that the estimate didn't take into account the IRS's stepped-up compliance and prevention efforts.

"We're going to continue to monitor the IRS in this area until we see some improvement," Michael McKenney, the acting deputy inspector general for audit, told The Associated Press.

Investigators went back through a sample of the 1.5 billion undetected cases to see why the IRS never flagged them as fraudulent. In 49 of 60 returns, investigators said, the return didn't score high enough on the IRS's fraud filter to merit a closer review. In eight of the 11 cases where the IRS did perform an additional review, it never verified the income and withholding on the return.

The audit was prompted by a request from Florida Sen. Bill Nelson, whose home state contains the top two cities where fraudulent tax returns originate: Tampa and Miami. Last week Nelson, a Democrat, joined with Republican Sen. Tom Coburn of Oklahoma to introduce legislation designed to curb identity theft in the tax system.

"It's an ongoing problem," Nelson said in a statement. "We've got to find a fix."
Nelson's bill would improve protections for Social Security numbers that thieves need to file returns, and would expand an existing program that gives previous victims of ID theft a personal identification number to deter repeat offenses against the same taxpayer. Another bipartisan bill passed by the House on Wednesday would bolster prosecutions and strengthen criminal penalties on ID thieves.

The IRS said it is already putting a number of new measures in place, including new ID theft screening filters that will hold on to refunds until the IRS can verify a taxpayer's identity. That filter had thwarted about $1.3 billion in potentially fraudulent refunds through April, the audit said. Another system flags returns filed with Social Security numbers of those who have died.

For those who fall victim to identity thieves, the recovery process can be less than smooth. A separate report by the inspector general in May found that the IRS wasn't providing good customer service and proper assistance to victims of ID theft, increasing the burden for those whose identities are stolen. The Federal Trade Commission has listed identity theft as the No. 1 consumer complaint for the past 12 years.

IRS May Have Lost Billions To Identity Theft, Treasury Says

Background.....

4/24/2012

Refund Tax Fraud, iPhone, Feed Identity

Janet Novack Forbes Staff


Mug shot of Joseph Burden, who allegedly stole identities from his employer, ProVest.


Last Thursday night, an undercover deputy from the Hillsborough County, Fla. Sherriff’s office, acting on a tip, made a street buy. What makes this noteworthy is he didn’t buy drugs. Instead, he purchased 33 stolen names, birth dates and Social Security numbers. The Sheriff’s office says the seller, Joseph Burden, 29, was found to have 221 names in his book bag and admitted he’d taken them from his employer, Tampa-based ProVest. In an e-mailed statement, ProVest President James Ward says the arrested employee has been placed on leave and that “ProVest takes data security and privacy seriously; numerous precautions are and have been in place to safely guard consumer data.” ProVest ironically, specializes in fraud detection, skip tracing and loss mitigation.

Don’t smirk. Your company could be next.

A wave of refund tax fraud is fueling demandfor stolen IDs. A year ago I wrote about how one set of Florida-based scamsters had tricked the Internal Revenue Service out of $12.1 million worth of refunds using the stolen names and Social Security numbers of 5,108 dead people–likely taken from the Social Security Death Index. But that, as they say, is yesterday’s news. The IRS told Congress during recent hearings that it has set up a new computer screen to flag fraud relating to the tax returns of recently deceased taxpayers and Internet genealogy sites like Rootsweb.com have limited free access to the death index. So it appears there’s some progress, at least, on that front.

Meanwhile, the fraudsters are collecting lists of living identity theft victims, either by planting employees in jobs with access to personal data or corrupting employees who already have such jobs. Former federal prosecutor Latour “L.T.” Lafferty, head of the white collar and corporate compliance practice at Florida’s Fowler White Boggs, reports that he has been hired in the past year by two local employers to investigate employee theft of information. In one case, he found, an employee had used her smart phone to take pictures of records. (The iPhone takes such good pictures that you can actually take a picture of your W-2 with it, and have the information entered into Intuit’s TurboTax app.) “The old identity theft,’’ Laferty observes, “was `may we send you a fake email and find out if you’re dumb enough to give me a Social Security number’ or going through your trash.’’ The new trend, he says, is for employees to steal names and numbers in bulk and then use TurboTax or other software to file large numbers of refund claims. (If they get in a bogus 1040 before the real, live taxpayer, or smartly pick the identity of an American who doesn’t have to file, they may be able to get thousands of dollars back.)

In testimony last month before a Senate Finance subcommittee, Tampa Police Department Detective Sal Augeri said that after the information about deceased people had run dry, area thieves turned to individuals who worked in local assisted living facilities and then to other businesses, medical offices and schools. Companies with rich personal data on clients, including banks and health care providers, are the most vulnerable, Lafferty says. But other Tampa area businesses have been hit too. A report on the trend in the Tampa Tribune,notes that local police last year arrested Rachel Amones, an employee from Tampa Signal, an authorized dealer for ADT Security Systems (which is in the process of being spun off from Tyco International) for stealing 3,000 names to be used in tax fraud. Her job running credit checks on customers gave her access to the crucial personal information. She pleaded guilty in December and was sentenced to three years.

So just how much of this is going on? Hard to say. IRS Deputy Commissioner for Services and Enforcement Steven T. Miller told the House Oversight and Government Reform Committee last week that the “IRS has seen a significant increase in refund fraud schemes in general and schemes involving identity theft in particular.” With the help of new identity theft screening filters, he said, as of March 9, 2012, the IRS had stopped 215,000 questionable 2011 refunds worth $1.15 billion from going out. How many refunds have gotten through those filters? He didn’t say and the IRS likely doesn’t really know.

The growth in big dollar refundable tax credits and the greater sophistication of the credit card companies’ fraud detection programs, seem to have combined to make refund tax fraud the current hot area for identity thieves. In its 2011 annual report, the Federal Trade Commission reports complaints about government documents/benefits fraud have risen 11% since 2009, while identity theft-related credit card fraud complaints have declined 3%.

Pressure on the IRS to get refunds out fast has contributed to the problem. “They’ve made it so easy for people to file electronically and for them to get quick and efficient refunds that it’s spawned this huge problem,’’ Lafferty observes. “The IRS has been playing catch-up and now employers are playing catch-up too because they didn’t realize their own employees would be complicit.”
While Tampa has become, as Lafferty puts it, “ground zero” for the identity theft/tax fraud explosion, the problem is neither geographically contained nor new—just growing. These examples show how anyone, from a medical patient to a student loan borrower, can become a victim.

*In January a Millbrook Ala. woman, Janikea Fernae Bates, was sentenced to 94 months in the federal pen after a jury convicted her of 13 counts, including identity theft and conspiracy to commit tax fraud. Prosecutors said she stole the names and social security numbers of student loan borrowers when she worked as a customer service representative for data processor EDS in Montgomery during 2005 and 2006 and then provided them to confederates who filed for phony refunds. (EDS was acquired by Hewlett Packard in August 2008 and in September 2009 was renamed HP Enterprise Services.) According to the government’s sentencing memo, at trial, some of Bates’ identity theft victims, brought in from around the country, testified that they “continue to suffer the ramifications of identity theft and seemingly endless struggles with the IRS, as they continue to wait for their legitimate tax refunds and continue to explain away the negative marks on their credit reports as they live their everyday lives.” In asking for a long sentence as deterrence, the prosecutor asserted that Montgomery had become “a hot bed of tax preparer fraud involving identity theft.”

*Another Alabama woman, Veronica Denise Dale, is in prison and awaiting sentencing after pleading guilty last October to aggravated identity theft and defrauding the government. In her plea agreement, she admitted there’s proof that between June 2007 and February 2008, while working as a temporary employee at EDS in Montgomery, she illegally acquired the names, Social Security numbers and dates of birth of thousands of Medicaid recipients and later, with her confederates, used those identities to file more than 500 false tax returns.

*Last week, the Suffolk County District Attorney announced the indictment of a 30-year-old man who alleged stole the identities of 56-brain-injured people while working as a manager of the Long Island Head injury Association, which helps clients with housing and services, back in 2006 and 2007. He used those identities to collect refunds from New York, as well as Uncle Sam. (The man, Benjamin Achampong, was arraigned and pleaded not guilty after he was extradited from Georgia where he was arrested for using a fake credit card at a BJ’s Wholesale Club store.)

*In February, a Chardon, Ohio woman, Nelida I. Velasco, pleaded guilty to stealing 35 identities from the medical billing company where she worked—identities that were used to file false refund claims with the IRS. She is awaiting sentencing.
*In January, the U.S. Attorney for Central California charged that Veronica Niko, of Lancaster, Cal., while working for the California Department of Social Services, stole names and Social Security numbers from the DPSS computer system and gave them to her co-conspirators, who used them in 2009 to file phony returns requesting refunds for the Earned Income Tax Credit, and the temporary $8,000 first time home buyers refundable tax credit. She has pleaded not guilty.

IRS Pays Refunds To 5,000 Dead People In Post-Morten Identity Theft Scam

Until the Federal penalty for ID theft becomes tougher,this will go on....

This is the Agency that is going to run OBAMACARE!!!!