IRS plays-up identity theft, fraud fight

Prosecutions increase but tidal wave of scammers continues

While tax return fraud seems to have hit epidemic proportions, the Internal Revenue Service today said it has started more than 200 new investigations this filing season into identity theft and refund fraud schemes.

The agency’s Criminal Investigation unit has started 295 new identity theft investigations since January, pushing the number of active cases to more than 1,800.

The effort by the unit is part of a larger effort at the IRS to combat identity theft and refund fraud by pursuing identity thieves, preventing fraudulent refunds from being issued and helping victims of this crime.

+More on Network World: IRS: Top 10 things every taxpayer should know about identity theft  | IRS warns on 'Dirty Dozen' tax scams for 2014 +

The IRS said that since the start of 2014, increased activity by CI has led to more prosecution recommendations, indictments and sentencing hearings, which reflect the overall success by the IRS on the increased number and effectiveness of ID theft filters used during the processing of tax returns. Highlights of this year’s work include:

A new and key component for IRS efforts this year is to investigate the misuse of Electronic Filing Identification Number (EFIN). An EFIN is assigned to tax preparers that have completed the IRS e-file Application to become an Authorized IRS e-file Provider. After the provider completes the application and passes a suitability check, the IRS sends an acceptance letter, including the EFIN, to the provider.

Since the start of the fiscal year through March 31, 2014, the IRS has revoked or suspended 395 EFINS based on recommendations from CI, and CI has initiated 60 EFIN source investigations involving EFINs used by individuals involved in refund fraud and identity theft schemes. By revoking and suspending the EFINs, IRS can prevent the transmission of the fraudulent tax returns, the IRS stated.

In Fiscal Year 2013, the IRS initiated approximately 1,492 identity theft related criminal investigations, an increase of 66% over investigations initiated in 2012. Direct investigative time applied to identity theft related investigations has increased 216%  over the last two years. Prosecution recommendations, indictments, and those convicted and sentenced for identity theft violations have increased dramatically since FY 2011. Sentences handed down for convictions relating to identity theft have been significant, ranging from two months to 317 months.

identity theft

The IRS detailed some recent cases including:

• On March 27, 2014, A Miami man was convicted by jury of one count of access device fraud and five counts of aggravated identity theft. According to the indictment and evidence, the defendant obtained an IRS Electronic Filing Identification Number and used it to file 52 fraudulent tax returns, many filed with stolen identities.

• On Feb. 27, 2014, in Tampa, Fla., two defendants were sentenced to 121 months and 192 months in prison, respectively. As part of their sentence, the court entered a $790,421 money judgment against each, as well as $790,421 in restitution. Both pleaded guilty to conspiring to commit wire fraud and aggravated identity theft. According to court documents, the defendants and others orchestrated a scheme to defraud the United States Treasury by causing fraudulent federal income tax returns to be filed using stolen identities, and soliciting personal identifying information and addresses from co-conspirators in Florida and Georgia. To facilitate the scheme, the conspirators coordinated the withdrawal of fraudulently obtained tax refund amounts from prepaid debit cards. The identities used to file the fraudulent tax returns in this scheme belonged to individuals living in various states across the country. As part of the conspiracy, at least 322 federal income tax returns for tax year 2011 were filed claiming refunds of $2,701,844.

• Tax Return Preparer Sentenced in Fraud and Identity Theft Scheme — On Feb. 18, 2014, a Georgia man was sentenced to 259 months in prison, three years of supervised release and ordered to pay $7 million in restitution. According to information presented in court, from approximately July 2010 to January 2013, the defendant operated a tax preparation business, working with others, led thousands of victims to believe that they could apply for “government stimulus payments” or “free government money” by providing their names and Social Security numbers. The defendant and his co-conspirators acquired names from a variety of sources, including prisons and homeless shelters. In actuality, no stimulus program existed, and the defendant and his co-conspirators instead used the victims’ personal information to file fraudulent tax returns that claimed a total of over $19 million in bogus refunds. The scheme affected over 15,000 victims in virtually every state across the country.

The tax return/identity theft issue has been getting a lot of attention as the April 15 tax deadline approaches but also because it is such a large problem.

Just last week US Attorney General Eric Holder said ID theft and IRS returns was an "increasingly urgent problem" and warned consumers and businesses alike that scammers looking to snatch fraudulent tax refunds based on stolen identities is at an all-time high.

Holder said that a growing pool of criminals are engaged in tax fraud, including gangs and drug sellers seeking quick access to cash. 

Holder said the Justice Department's Tax Division, in conjunction with the IRS and U.S. Attorneys' Offices, have prioritized the investigation and prosecution of individuals who engage in stolen identity refund fraud. In the last year alone, the department charged more than 880 defendants involved in stolen identity refund fraud, and the IRS reports that it resolved or closed approximately 963,000 cases involving identity theft victims. In a 2009 audit of the IRS the agency said it stands to lose as much as $21 billion in revenue over the next five years due to identity theft.

In March the Treasury Inspector General for Taxpayer Administration warned taxpayers to beware of phone calls from individuals claiming to represent the Internal Revenue Service in an effort to defraud them.

"This is the largest scam of its kind that we have ever seen," said J. Russell George, the Treasury Inspector General for Tax Administration. George noted that his agency has received reports of over 20,000 contacts and has become aware of thousands of victims who have collectively paid over $1 million as a result of the scam, in which individuals make unsolicited calls to taxpayers fraudulently claiming to be IRS officials.

The scam has hit taxpayers in nearly every state in the country. Callers claiming to be from the IRS tell intended victims they owe taxes and must pay using a pre-paid debit card or wire transfer. The scammers threaten those who refuse to pay with arrest, deportation or loss of a business or driver's license.

The truth is the IRS usually first contacts people by mail - not by phone - about unpaid taxes. And the IRS won't ask for payment using a pre-paid debit card or wire transfer. The IRS also won't ask for a credit card number over the phone, the agency stated.

Copyright © 2014 IDG Communications, Inc.

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