IRS policies help fuel tax refund
fraud, officials say
By Scott Zamost and
Randi Kaye, CNN Special Investigations Unit
Tue March 20, 2012, 9:08 AM EDT,
For more on this story, watch "Refund Robbery" on CNN Presents
at 8 and 11 p.m. ET Sunday.
http://www.cnn.com/2012/03/20/us/tax-refund-scam/index.html
North Miami Beach, Florida (CNN) -- Criminals
across the country are raking in billions of dollars in tax refunds through a
new and brazen form of fraud that takes advantage of the IRS's fast online
returns, law enforcement officials say.
Using laptops and
free Wi-Fi connections, criminals are stealing
identities and using the names of legitimate taxpayers to file fraudulent
online tax returns. They've raked in billions, buying luxury cars, expensive
jewelry and plastic surgery, police said.
"It's like
the federal government is putting crack cocaine in candy machines," said
Detective Craig Catlin of the North Miami Beach, Florida,
Police Department. "It's that easy."
First, thieves
obtain Social Security numbers and other personal information from insiders at
hospitals, doctor's offices, car dealerships or anywhere the information is
stored. Then, they file an online tax return using the real taxpayer's name and
a fictitious income. In most cases, the criminals buy a debit card so the IRS
can issue the refund on that card, although some thieves have also gotten their
returns on actual Treasury checks.
The thieves know
that the IRS does not verify the employer W-2s sent with the return until after
the refund is issued.
It is a particular
problem in the state of Florida,
according to law enforcement officials.
"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."
And it's not just
small-time criminals, he said.
"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."
Prisoners' tax refund scam nets millions from IRS
Last year, North Miami Beach police
arrested the leader of the "Money
Avenue" gang that they say specializes in tax
return fraud. When police searched his home, they found about $250,000 in debit
cards "just sitting on the dining room table for that week's worth of
work," Catlin said.
"And inside
his closet, there were nine to 10 spiral notebooks, ledgers of names, Social
Security numbers, and dates of birth and the dollar amounts of returns that
they've done on 3,000 victims," he added.
It's a crime that
has replaced drug dealing in many neighborhoods.
"They're
sitting on a computer or iPad; they're doing a return
with a stolen identity where they don't have to rob anybody or stick a gun in
anybody's face or run through the streets from police," Catlin said.
Although tax
refund fraud has been around for decades, North Miami's interim police Chief Larry
Gomer said the speedy returns and the option of
having your refund issued on a debit card are making it easier for criminals to
pull off the fraud.
"I think (the
IRS's) intentions might have been good in trying to speed returns to members of
the community, but I think the problem is, they have set up a system that is
too easy to abuse," Gomer said.
He suggested that
the IRS slow its processing of tax returns.
"Right now,
when someone becomes a victim of income tax fraud and they catch it, it could
take up to a year for them to get their return," Gomer
said. "But the way that the IRS is running the system right now, somebody
can make a fraudulent return, (and) they are mailing out a check to them in two
weeks without checking the information on the return."
In Florida, where identity theft is rampant, the cities of North Miami Beach and Tampa have been particularly hard hit by the
fraud. Police estimate that in the past two years, criminals in Tampa have cashed in on
$450 million in fraudulent tax return money.
Even police who
are fully aware of the scam have become targets themselves, including four
North Miami Beach Police Department detectives who specialize in combating tax
refund fraud and officers in other South Florida police departments.
Police in Tampa discovered "a
written tutorial that tells you step by step how to commit this type of
crime," according to the city's police chief, Jane Castor.
"Throughout
those written pages, it says how simple it is to do it," she said.
"We've also heard from people on the street that it's about a five-minute
street-corner lesson."
In fact, a police
informant who teaches friends how to commit the fraud said anyone could learn
it.
"It's like
friends get together, and everybody brings their laptops, and we all work
together," the informant said. "Some people I know get up at like 8
in the morning and don't finish until 8 at night."
Law enforcement
officials said that if the IRS stopped allowing the use of debit cards, that would curtail a majority of the fraud.
"The debit
cards are a huge problem," Castor said. "Plus ... the (IRS's) focus,
from my understanding, is getting these tax returns out quickly ... so instead
of focusing on getting those out quickly, (the IRS should) put more of a focus
on the fraudulent aspect of it."
Deputy
IRS Commissioner Beth Tucker pointed out that the debit cards are widely used
by legitimate taxpayers who may not have a bank account.
"One hundred
and forty million folks are filing their returns every year. Not every taxpayer
has a bank account, and so the debit cards that are issued by a third-party
provider are a legitimate way for taxpayers to get their refund," she
said.
Last year, the IRS
reported 938,664 fraudulent returns related to identity theft, totaling $6.5
billion, Treasury Inspector General for Tax Administration J. Russell George
told a House subcommittee this month.
Treasury officials
say that was money identified by the IRS as fraudulent but not actually issued.
The IRS could not provide an estimate of how much fraudulent refund money it
has issued.
"Any dollar
that goes out of our tax system related to refund fraud is a dollar too
much," Tucker said. "We have noticed that there are more folks
attempting identity theft. We're in the middle of filing season, and we should
be able to have a better assessment of exactly what the dollar amount could
potentially be."
They're sitting on a computer or iPad
... where they don't have to rob anybody or stick a gun in anybody's face.
Det. Craig Catlin, North Miami Beach police
Last year, the IRS
identified at least 582,000 taxpayers who were the victims of identity theft,
which is more than double the amount from only three years prior.
In testimony
before Congress last year, National Taxpayer Advocate Nina Olson said the IRS
has implemented a number of filters to catch the fraud, including an electronic
marker to mark accounts of verified identity theft victims, an IRS identity
theft affidavit form and a standardized list of acceptable documents to
substantiate identity theft.
Tucker said the
IRS filters are "in place from the start of the filing season" and
are "part of our prevention and detection." She also said the IRS has
trained 40,000 employees across the country in the past three months to deal
with identity theft.
Also, the IRS last
year began issuing an Identity Protection Personal Identification Number to
victims of identity theft when filing their future returns.
But the filters,
according to Olson's annual report to Congress, "inevitably
block large numbers of proper refund claims" since there "is no easy
way to distinguish proper claims from improper ones."
IRS'
tips to protect against identity theft
- Do not respond to emails claiming to be from
the IRS asking for personal information
- Contact the IRS if your identity may have been stolen
- If you are filing online tax returns, use a strong password
- Save your electronically filed tax return to a CD or flash drive, and store
it in a safe place
- After saving the e-file, delete personal return information from your hard
drive
Source: www.irs.gov
Tax refund fraud
by identity theft will be the subject of Tuesday's hearing before the Senate Subcommittee on Fiscal
Responsibility and Economic Growth. It is the third hearing on the
issue since last year.
Tampa officials
have expressed concern that the IRS is not doing enough to combat the
situation, which Castor said is one of the worst cases of fraud she has seen in
her career.
"In my 28
years of law enforcement, I don't think that I have ever seen this magnitude of
fraud that is just wide open," the police chief said. "It's wide open
and there just doesn't seem to be much being done about it."
Tampa Mayor Bob
Buckhorn said he's angry that the IRS has not done more to help the city combat
the fraud.
"As far as
I'm concerned, they're missing in action," Buckhorn said. "They have
not been helpful; they have not been a player; they have not taken
responsibility for their side of the enforcement. If anything, you know, we've
been banging our heads against their door asking for help and getting nothing
in response. The silence has been deafening."
Tucker disagreed
with the mayor, noting that the IRS has "significantly increased the
amount of resources we've devoted to identity theft, a heinous crime."
A week after CNN's
March 6 interview with Tucker, the IRS sent a team of officials to meet with
police officials in North Miami Beach and Tampa.
Buckhorn said the
problem in Tampa is "just the tip of the
iceberg" and offered this warning to the mayors of other U.S. cities:
"Go back and
ask the IRS in (your) jurisdiction, 'What are you doing? Is this a problem in
my jurisdiction?' Because I guarantee you it is," Buckhorn said. "You
may not know it, but it is."