As many taxpayers scramble to meet this year’s April 17 filing deadline, state officials say they are working to prevent scammers from trying to cheat the system by filing bogus claims for refunds.
To date, the state of New Mexico has halted more than 2,000 refunds it believes were fraudulently claimed, Taxation and Revenue Department Secretary Demesia Padilla said Friday. Those refund claims total more than $3.5 million.
At the same time, the state “possibly” already has paid money to some who weren’t entitled to it, Padilla said, but she didn’t have an estimate.
“We don’t know what we don’t know,” she said.
Padilla said that after she realized the state was seeing an influx this year of potentially fraudulent refund requests, she added four employees to help the sole worker in the Tax Fraud Investigation Division. That one employee had computer support from other agencies, but needed help handling the questionable requests in addition to other work, Padilla said.
The fraud seems to be primarily coming from tax returns filed online from Internet addresses in California, Padilla said, with filers asking for refunds to be put on a prepaid debit card. The state has stopped issuing refunds on such cards for suspicious requests and sends paper checks instead.
The option to put tax refunds on prepaid cards has been around for a few years, Padilla said, and was meant to make it easy for those without bank accounts to get their refunds.
In some identity-theft cases, fraud victims don’t know someone has filed a return using their information until they get a check in the mail before they filed their own return. Or, if the criminal was able to get the refund on a debit card, the victims might not know until they file. Because the state’s system only allows one return per person, it would reject a second return.
So far, 10 people have contacted the state saying they received checks but hadn’t yet filed their taxes. The state will work with them to get them their refunds after they prove their identity and that they did not file a return.
Padilla said that taxpayers who filed online and have waited more than two weeks for a refund should be concerned. The state has recently sped up response times to about four days for those who file online.
The scam filings could be connected to a similar scheme in other states.
Nationwide, the IRS has flagged 2 million returns for possible identity theft this year, according to the Miami Herald. The agency last year stopped more than $14 billion in fraudulent refunds, the newspaper reported. This season, it has caught 135,000 fraudulent returns coming from people in prisons.
Florida is among the states hit hardest by the scam, and police in Tampa last fall arrested 49 people and identified up to $130 million in fraudulent refunds. The Herald said one suspect was responsible for fraud worth about $9 million.
In January, USA Today reported that federal officials had taken action against 105 people in 23 states suspected of identity theft and fraudulent tax activity.
In New Mexico, officials started seeing signs of the scam last year, Padilla said, and stopped about $900,000 in wrongful payments.
So far, though, the state has no suspects and the Taxation and Revenue Department is handling the situation on its own, without law-enforcement help.
“We’re chasing wind on those,” Padilla said of the criminals who have used the prepaid cards, which aren’t traceable like traditional bank accounts.
For now, the department is doing all it can to keep up with the criminals. It hopes to add someone to its tax fraud unit with law-enforcement credentials, Padilla said.
“We have to keep up with the cheats,” she said. “No matter how good we are, we get some of these folks who spend hours and hours each day on how they are going to cheat the system.”
People who suspect they have been victimized can call the state’s Tax Fraud Hotline at 866-457-6789.
Contact Kate Nash at 986-3036 or knash@sfnewmexican.com. Follow her on Twitter at @katenashnm.