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$4 Billion: Bogus Tax Refunds a Growing Problem

Tax Refund Fraud
Manuel Balce Ceneta/APAttorney General Eric Holder

WASHINGTON -- An Internet connection and a bunch of stolen identities are all it takes for crooks to collect billions of dollars in bogus federal tax refunds. And the scam is proving too pervasive to stop.

A government report in November said the IRS issued $4 billion in fraudulent tax refunds over the previous year to criminals who were using other people's personal information. Attorney General Eric Holder said this week that the "scale, scope and execution of these fraud schemes" has grown substantially and the Justice Department in the past year has charged 880 people.

Who's involved? In a video message released ahead of the April 15 tax filing deadline, Holder said the scams "are carried out by a variety of actors, from greedy tax return preparers to identity brokers who profit from the sale of personal information to gangs and drug rings looking for easy access to cash."

Even Holder isn't immune. Two men pleaded guilty in Georgia last year to trying to get a tax refund by using his name, Social Security number and date of birth on tax forms.

The IRS says it opened nearly 1,500 criminal investigations related to identity theft in fiscal year 2013, a 66 percent increase over the previous year, and has strengthened filters that help detect where the scams are coming from. It says it stops far more fraudulent refunds than it pays out and is making a dent in the problem.

Still, the schemes have grown more sophisticated, attracting criminals with violent backgrounds who see an easy and safe vehicle for theft, according to law enforcement officials who fear that not enough controls are in place.

"I've been on calls with Alabama, Chicago, some other field divisions, where they're now experiencing people who were from Florida and now moving to other states to conduct this same type of fraud," said FBI Supervisory Special Agent Jay Bernardo, who works fraud cases in south Florida.

"Based on the parameters that are in place now," he added, "it's very difficult to stop."

What can taxpayers do? The most important step: Protect their Social Security numbers.

Thieves steal Social Security numbers in any number of ways, including from publicly available sources or workplaces. Victims include school children, prisoners, Medicaid beneficiaries and the deceased.
Criminals use the information to file false returns and then pocket the refund checks, often before the legitimate taxpayers have had a chance to submit their own returns. It's a crime made easier by electronic tax filing, which lets crooks mass-produce fraudulent returns.

"Part of what's happening is people are reverse engineering," IRS Commissioner John Koskinen told a House committee this week. "You know, you file a thousand fraudulent returns and then you see which ones go through. ... They can adjust faster than we can adjust."

In the latest sweep in south Florida, a hub for refund fraud, federal prosecutors last week announced charges against 25 people for using thousands of stolen identities to claim $36 million in fraudulent tax refunds. In one case, a middle school food services worker is accused of stealing students' personal information from an electronic database. In another, a jail guard is alleged to have stolen the identities of inmates and used the data to file false refunds. A mail carrier is accused of stealing tax documents out of people's mailboxes.

In Washington, a barber shop owner pleaded guilty last year to running a $20 million fraud scheme that sought tax returns on behalf of nursing home residents, prisoners and the dead. Some people sold their own personal information, while others turned it over after being led to believe they were entitled to "Obama Stimulus Money" or an income tax refund. A Cincinnati woman pleaded guilty in January to submitting false tax returns on behalf of legitimate, unwitting businesses, using her laptop computer in a public library.

A November Treasury Department inspector general report said fraudulent payouts over the previous year also went to addresses in Bulgaria, Lithuania and Ireland. In the U.S., more fraudulent refunds went to Miami than any other city.

Assistant Attorney General Kathyrn Keneally, who heads the Justice Department's Tax Division, said refund fraud remains a serious concern but that authorities are "turning a corner" in their understanding of the crime and their ability to track down and prosecute fraudsters.

"We're getting more and more sophisticated about how to catch it, how to stop it and how to prosecute it as we go on," she said.

In Miami, law enforcement officials say they've been encouraging people and companies to better protect their information and have been targeting those who buy and sell personal data before any false return can even be filed.

"That's the only thing we can do on our side, is just tell them be more cautious with your information," said FBI Assistant Special Agent in Charge Bill Maddalena.

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I made a one-hundred-dollar error in my favor
and it was caught by the IRS and I had to pay.
No problem; no complaint ........ if they can find
that why can't they tell the difference between
a real return and a phony one ?

I say abolish the crooked IRS and go to a
national sales tax. Try and avoid paying that.


April 13 2014 at 2:23 AM Report abuse +1 rate up rate down Reply

We have more 99% types cheating than 1%ers. And if they would put the same kind of effort into legit activities as into crooked ones they could become 1%ers legally.

April 12 2014 at 5:48 PM Report abuse rate up rate down Reply
Lone Ranger

And strangely…voters in November reflected little concern for the 4 bil but freedom got a thrill
When they lit up Obama, OTHER Demwits and RINOs for three generations paying 17 TRILL !!!

April 11 2014 at 5:05 PM Report abuse +1 rate up rate down Reply

Hi everybody my name is: Just to let you guys know
I wish the Govt. gives me $4 Billion: Bogus Tax Refunds

April 11 2014 at 1:10 PM Report abuse rate up rate down Reply

Yet another reason to adopt a flat tax system. There will be no refunds, nor a reason to file. Or go to a national sales tax. Either way we eliminate a severely flawed system that is not fair, accurate or safe.

I have no qualms about executing the scammers either. These people are willing to destroy people and families just for money. They have no business using any of our resouces, including air.

April 11 2014 at 12:47 PM Report abuse +1 rate up rate down Reply

It isn't stealing if the people you're taking it from stole it from you in the first place.

April 11 2014 at 12:14 PM Report abuse +1 rate up rate down Reply

if they can't tell a real one from a phoney then they got no business asking anyone to file a return

April 11 2014 at 12:06 PM Report abuse +4 rate up rate down Reply
1 reply to janka51's comment

Great point....I wish I had thought of it first.

April 11 2014 at 12:48 PM Report abuse +2 rate up rate down Reply

It is happening because the SS Administration rolls are not up to date. They even admit it. They still carry people who are dead, in prison, illegals with stolen or phoney nos. adnd duplications of nos. Unless they bring their rolls up to date every other benefit dept is wrong also. Not only tax refs. but people are defrauding on Welfare, Food Stamps, Disability and even Unemployment. Wast, fraud and abuse is one of the biggest problem we have with our deb. I had someone file taxes with my SS # 2 yrs ago, I have been on SS and have not worked in 11 yrs. it took over a year to get it straightened out and this person even got a refund under my no. Because of this I had to fight with my state because this person made over the yearly amout for my state benefits, I am considered low income. Had to wait a few months before the IRS and SS told them it was an error. It finially got fixed and my SS no. is now flagged for any earnings other than SS. You have to be a victum to really suffer the affect of something like this.

April 11 2014 at 11:56 AM Report abuse +1 rate up rate down Reply

It's not just returns with stolen identity, it's also return where married couples file separate and split their dependents for the purpose of receiving the earned income credit

April 11 2014 at 11:53 AM Report abuse rate up rate down Reply
1 reply to Irene's comment

Illegals do this too. They work in the fields in this country and claim a dozen kids as dependents to received earned income credit. Get rid of the earned income credit and eliminate a lot of this theft.

April 11 2014 at 12:03 PM Report abuse +2 rate up rate down Reply

Its an easy fix a flat tax rate no deductions thus no returns. that way all pay their fair share if you make 500 dollars and the flat rate is say 10 % its your share if you make 500,000 and the flat rate is 10% you are also paying your fair share. But of course congress doesn't want this because they could not get the perks thru the deductions. If they had a flat rate our debt would be paid off in a matter of 3 years.

April 11 2014 at 11:42 AM Report abuse +3 rate up rate down Reply
1 reply to lambsarty's comment

A flat tax is better than the mess we have now, but the best tax is no tax. If the government is so great and does such a good job of protecting us and keeping us safe, let it compete for voluntary donations just like every other corporation...

April 11 2014 at 12:17 PM Report abuse -1 rate up rate down Reply