IRS May Have Lost Billions To Identity Theft, Treasury Says.

The Internal Revenue Service may have delivered more than $5 billion in refund checks to identity thieves who filed fraudulent tax returns for 2011, Treasury Department investigators said on August 2, 2012. They estimate another $21 billion could make its way to ID thieves’ pockets over the next five years.

The IRS is detecting far fewer fraudulent tax refund claims than actually occur, according to a government audit that warned the widespread problem could undermine public trust in the U.S. tax system. Although the IRS detected about 940,000 fraudulent returns for last year claiming $6.5 billion in refunds, there were potentially another 1.5 million undetected cases of thieves seeking refunds after assuming the identity of a dead person, child or someone else who normally wouldn’t file a tax return.

In one example, investigators found a single address in Lansing, Mich., that was used to file 2,137 separate tax returns. The IRS issued more than $3.3 million in refunds to that address. Three addresses in Florida, the epicenter of the identity theft crisis, filed more than 500 returns totaling more than $1 million in refunds for each address.

In another troubling scenario, hundreds of refunds were deposited into the same bank account – a red flag for investigators searching for ID thieves who may be filing for refunds for multiple people. In one instance, the IRS deposited 590 refunds totaling more than $900,000 into one account.

“We found multiple reasons for the IRS’s inability to detect billions of dollars in fraud,” J. Russell George, the Treasury Department’s inspector general for tax administration, in a statement. “At a time when every dollar counts, these results are extremely troubling.”

Topping the list of concerns is the IRS’s lack of timely access to third-party information it needs to verify returns and root out fraud.

Many Americans are struggling to pay their bills and the IRS takes pride in processing returns and issuing refunds promptly. But taxpayers can start filing their returns in mid-January, while employers and financial institutions don’t have to submit withholding and income documents for taxpayers to the IRS until the end of March. That means the IRS often issues refunds long before it can confirm the veracity of what’s listed on taxpayer returns.

Thieves are also exploiting vulnerabilities in the way the IRS delivers refunds, investigators found. Of the 1.5 million undetected cases of potential fraud, 1.2 million used direct deposits, including pre-loaded debit cards. Thieves often prefer those methods to a paper check, which require a physical address to receive the check and photo ID matching the taxpayer’s name to cash it.

IRS officials said the growth of identity theft-related fraud is one of its biggest challenges. Already this year, the agency has stopped almost $12 billion in confirmed fraud, it says. And it says its criminal investigators are actively pursuing those who perpetrate fraud – including the previously undetected cases identified by the audit.

“If the IRS determines a refund has been issued improperly, we will attempt to recoup the funds,” said IRS spokeswoman Michelle Eldridge.

The IRS agreed with the inspector general that Congress should expand the agency’s access to resources that could help it fight theft, including the National Directory of New Hires, a database created to help states enforce child support orders. The IRS specifically asked Congress for that authority in its 2013 budget request.

But IRS officials disputed the notion that $21 billion in fraudulent returns could be issued over the next five years, arguing that the estimate didn’t take into account the IRS’s stepped-up compliance and prevention efforts.

“We’re going to continue to monitor the IRS in this area until we see some improvement,” Michael McKenney, the acting deputy inspector general for audit, told The Associated Press.

Investigators went back through a sample of the 1.5 billion undetected cases to see why the IRS never flagged them as fraudulent. In 49 of 60 returns, investigators said, the return didn’t score high enough on the IRS’s fraud filter to merit a closer review. In eight of the 11 cases where the IRS did perform an additional review, it never verified the income and withholding on the return.

The audit was prompted by a request from Florida Sen. Bill Nelson, whose home state contains the top two cities where fraudulent tax returns originate: Tampa and Miami. Last week Nelson, a Democrat, joined with Republican Sen. Tom Coburn of Oklahoma to introduce legislation designed to curb identity theft in the tax system.

“It’s an ongoing problem,” Nelson said in a statement. “We’ve got to find a fix.”

Nelson’s bill would improve protections for Social Security numbers that thieves need to file returns, and would expand an existing program that gives previous victims of ID theft a personal identification number to deter repeat offenses against the same taxpayer. Another bipartisan bill passed by the House on Wednesday would bolster prosecutions and strengthen criminal penalties on ID thieves.

The IRS said it is already putting a number of new measures in place, including new ID theft screening filters that will hold on to refunds until the IRS can verify a taxpayer’s identity. That filter had thwarted about $1.3 billion in potentially fraudulent refunds through April, the audit said. Another system flags returns filed with Social Security numbers of those who have died.

For those who fall victim to identity thieves, the recovery process can be less than smooth. A separate report by the inspector general in May found that the IRS wasn’t providing good customer service and proper assistance to victims of ID theft, increasing the burden for those whose identities are stolen. The Federal Trade Commission has listed identity theft as the No. 1 consumer complaint for the past 12 years.

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New app protects against ID theft, fraud.

If you live in Florida, the odds are you will come across way more identity thieves and fraudsters than hurricanes or alligators. So it may be worth adding the new app called Scam Detector onto your iPhone or Android device.

The app is free, so you’ve go nothing to lose checking it out. And in Florida, you have plenty to lose when it comes to bad guys wanting to steal your identity or cash.

Florida is among the worst in the nation for these types of crimes. It ranks first per capita in identity theft complaints nationwide, with more than 178 complaints per 100,000 residents; and ranks sixth in fraud complaints, with about 515 complaints per 100,000 residents, according to the Consumer Sentinel Network, which compiles data on consumer complaints received by the Federal Trade Commission and state agencies, such as the Florida Department of Agricultural and Consumer Services.

Scam Detector is designed to prevent you from becoming such a statistic by keeping you informed of the latest schemes out there.

The app’s menu offers five categories to research: Auto, Face to Face, Internet, Telephone and Travel scams. Under the latter, I learned about the Beach Massage scheme, in which a woman walks up and offers a massage while you lay on your towel. By the time you open your eyes, there are two women both asking to be paid. And the ol’ Gym Membership scam, in which add-on charges for “insurance” and “maintenance and upkeep” appear on your bill after you sign up, not during the sales pitch.

If you believe you are a victim of fraud, contact the Florida Attorney General’s Office at 866-966-7226 or go to myfloridalegal.com. You may also contact the FTC at 1-877-ID-THEFT or visit FTC.com.

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Broward Woman Sentenced for Identity Theft Scheme Involving U.S. Marine Victims

Wifredo A. Ferrer, United States Attorney for the Southern District of Florida; Jeffrey C. Mazanec, Acting Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office; and José A. Gonzalez, Special Agent in Charge, Internal Revenue Service, Criminal Investigation (IRS-CI), Miami Field Office, announced that Dorothy Boulin, 29, was sentenced on July 12th to 70 months in prison, to be followed by three years of supervised release, in connection with an identity theft tax fraud scheme. Boulin pled guilty on April 19, 2012 to one count of wire fraud and one count of aggravated identity theft.

According to court documents, sometime prior to January 2012, the defendant received a list of military personnel (United States Marines) containing their names and Social Security numbers to be used for identity theft tax fraud purposes.

On January 17, 2012, the defendant, from a computer in her residence in Broward County, caused six fraudulent tax returns to be submitted online. Five of these returns were submitted without the authorization of the individuals whose Social Security numbers appear on the returns. These five returns sought approximately $21,301 in fraudulent refunds. Several of these victims were U.S. Marines.

On January 19, 2012, the defendant caused another eight fraudulent tax returns to be submitted online. Seven of these returns were submitted without the authorization of the individuals whose social security numbers appear on the returns. These seven returns sought approximately $32,627 in fraudulent refunds. Several of these victims were U.S. Marines.

Mr. Ferrer commended the FBI, IRS-CI, and the FBI Miami Area Corruption Task Force for their work on the case. The case is being prosecuted by Assistant U.S. Attorney Michael N. Berger.

A copy of this press release may be found on the website of the United States Attorney’s Office for the Southern District of Florida.

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