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By Melanie Payne, The (Fort Myers, Fla.) News-Press
FORT MYERS, Fla. — More than 460,000 taxpayers since 2008 have been victims of wage and/or identity tax fraud, according to the IRS.
The number of cases almost tripled between 2009 and 2011, data show. As law enforcement and the IRS attempt to address the problem, it continues to grow as criminals find new ways to thwart a system designed to quickly process and refund money to taxpayers.
Most of those nearly half-million taxpayers found out they were victims when they tried to file their taxes and couldn’t do it electronically; or when weeks passed and they didn’t get their income tax refund; or when, in the summer, a letter came from the IRS telling them they had income they didn’t report on their tax return.
This fraud is costing the American taxpayers billions in stolen U.S. Treasury funds and government resources.
Rocky Festa, a task force officer with the North Miami Police Department, works with the Secret Service and the IRS to investigate and nab criminals in what he describes as an explosion of tax refund identity theft.
“We weren’t seeing drugs coming across (Alligator) Alley anymore,” Festa said, referring to Interstate 75 between the east and west coasts of Florida. “We were seeing Walmart MoneyCards. That was the new crack cocaine. (Criminals) don’t have to sling drugs on the corner, dodging bullets, to make $1,000 when (they can) do one tax return and get $9,000.”
The trade in names and Social Security numbers is so lucrative, Festa said, that the front-line thieves can earn up to $200 to $300 for each identity pilfered.
Once the criminals file the tax returns electronically, Festa said, it takes only eight days to get a refund. Using the direct deposit option, the criminal can have the money deposited on a prepaid money card.
“The IRS is making it appear that they’re right on top of this,” said author Robert Mazur, a former IRS special agent who has also worked in the U.S Customs Service and the Drug Enforcement Administration and now runs an investigations firm in Tampa, Fla.
“The bottom line is the system is broken. There is a huge vulnerability no matter how the IRS wants to spin it.”
The IRS has stepped up efforts to combat identity theft, which topped its 2012 list of the annual “Dirty Dozen Tax Scams.”
In January, a nationwide crackdown on identity theft fraud by the IRS along with the Justice Department’s Tax Division and U.S. Attorney’s offices led to 69 indictments, 58 arrests and 939 criminal charges filed.
At the time of the action, IRS Commissioner Doug Shulman said in a press release: “This unprecedented effort against identity theft sends a strong, unmistakable message to anyone considering participating in a refund fraud scheme this tax season. We are aggressively pursuing cases across the nation with the Justice Department, and people will be going to jail.”
The IRS intercepted 260,000 fraudulent returns in 2011, saving $1.4 billion in fraudulent refunds from being paid out. But an agency spokesman could not provide information on the number of taxpayers who had filed the Form 14039, used for victims of identity theft tax fraud, or how many taxpayers had received refunds after a refund had been previously paid on a fraudulent return.
“When we identify a fraudulent refund, we act to stop the issuance of that refund. The data that we are able to provide reflect the refunds we have stopped,” IRS spokesman Michael Dobzinski wrote in an email.
Mazur credits the rise in this type of tax fraud to the IRS’ offer of a “ludicrous turnaround of 48 hours to get a refund now replaced by the equally ludicrous seven to 10 days.”
That’s not enough time to properly vet a tax return and, moreover, the short time allows “the crook to beat the legitimate taxpayer to the punch,” Mazur said.
Crooks even use Social Security numbers from people who have been dead for years and those who are in prison, knowing the IRS won’t cross-check the Social Security numbers on the returns before issuing refunds, Mazur said.
Beefing up efforts
The lack of information for victims is frustrating.
“I’d like a copy of the return to see what other information they have. Were there brokerage statements?” asked tax fraud victim Ed Wagoner, who has been waiting for a refund for almost a year after discovering someone had already filed taxes using his Social Security number.
When Wagoner requested information on the fraudulent return, “(the IRS) said, it’s a privacy issue, we can’t give you this. Privacy? It’s ostensibly my information. What’s private about it?”
The IRS is prohibited by statute to share information on tax returns, something that has even hindered law enforcement actions, said U.S. Rep. Richard Nugent, R-Fla.
Nugent, a former sheriff of Hernando County, Fla., spoke in November as part of a House oversight committee about the need for the IRS to improve its systems to thwart the growing problem of identity theft and the payment of criminals with U.S. Treasury funds.
“We understand this is an incredibly frustrating process for victims,” IRS spokesman Dobzinski wrote in an email. “Once we have been alerted to the possibility of identity theft we must fully examine the account.”
Steven Miller, deputy commissioner of the Internal Revenue Service, in remarks to the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth, outlined a number of steps the IRS is taking to address identity theft tax fraud. Miller added it is a priority for 2012.
An enhanced return processing program was begun in 2011, Miller said, which added new screening filters “to spot false returns before they are processed and before a refund is issued.” As of March 9, Miller said, 215,000 questionable returns with $1.15 billion in claimed refunds were caught by the filters.
A mystery
The IRS stresses protecting one’s identity as a way to avoid this type of fraud. But most victims don’t have any idea how or when their identities were stolen. Or, there was nothing they could have done to prevent it, as is the case with Galen Ballard of Cape Coral, Fla.
Ballard and his wife were patients at the Spartanburg, S.C., Regional Hospital shortly before a former employee’s laptop computer was stolen from his unlocked car. According to the letter the hospital sent to patients, “the computer contained a password-protected file with Social Security numbers as well as names, addresses, dates of birth and medical billing codes.” The very next sentence reads: “We have no reason to believe that any information has been misused.”
The computer was stolen in March 2011; the Ballards filed their return in early April. By July, when the couple had still not received the approximately $2,500 refund, they became concerned.
“I called the IRS, which then — and only then — informed me that an earlier joint return had been filed in (our) names and the IRS had routinely and unquestioningly paid it,” Ballard said.
After filing a theft affidavit, Ballard said he called the IRS regularly.
In January, the IRS sent a letter to Ballard stating his case was being investigated.
“They’re victimizing me twice,” Ballard said. “Once by the crook who stole my ID, and then by the IRS.”
On March 16, almost a year after filing his return, Ballard received his refund from the IRS.
Tips for victims of identity tax fraud
Identity theft, especially as it relates to government benefits and taxes, was the No. 1 consumer complaint in the U.S. in 2011, according to the Federal Trade Commission. This type of crime has nearly tripled since 2008. So what should you do if you have been a victim of identity theft or you are a potential victim because you have lost your wallet, purse or have been notified that a security breach has occurred at your work or medical care provider?:
- File a Form 14039 with the IRS
- Report the identity theft to the police and get a copy of your report.
- Close all accounts that may have been affected by the theft of your identity including accounts that may have been fraudulently opened.
- File an Identity Theft Complaint with the Federal Trade Commission.
- Consider signing up with an identity theft protection service and hiring an accountant or enrolled agent to deal with the IRS identity theft issue on your behalf.
Whom to contact
Get in touch with one of the three credit reporting agencies and report you are victim of identity theft (it is only necessary to contact one; they are obligated to report it to the other two) and have a fraud alert placed on your account. The three reporting agencies are:
- TransUnion: 800-680-7289; transunion.com; Fraud Victim Assistance Division, P.O. Box 6790, Fullerton, CA 92834-6790
- Equifax: 800-525-6285; equifax.com; P.O. Box 740241, Atlanta, GA 30374-0241
- Experian: 888-EXPERIAN (397-3742); experian.com; P.O. Box 9554, Allen, TX 75013
More resources
- Online: ftccomplaintassistant.gov
- By phone: 877-ID-THEFT (438-4338); TTY: 866-653-4261;
- By mail: Identity Theft Clearinghouse, Federal Trade Commission, 600 Pennsylvania Avenue, NW, Washington, DC 20580.