Police in Tampa, Florida have reported that they have broken up what they believe to be a massive fraud scheme. The scheme involves individuals filing for phony tax returns in order to get money from the IRS. 49 people so far have been arrested and these individuals stole the identities off of family tree websites and then applied for the refunds.
By ERIC PIANIN
February 28, 2012
The Fiscal Times
Nearly 100 residents of the northeast Georgia community of Elberton got a rude surprise recently when they filed for their federal tax returns: Crooks who had stolen their Social Security numbers and other identification had already beaten them to the money.
Many of the victims gave up their full names, Social Security numbers and other identification to strangers who contacted them with a story that they could qualify for government stimulus funds if they provided key pieces of identification. “When the actual victim tries to get his income tax filled out, the IRS is saying they can’t because their Social Security number has been already used,” Elbert County Sheriff Barry Haston told a local television station.
These rural Georgia residents have plenty of company in their financial misery: a nationwide epidemic of identity theft has led to the quintupling of the number of cases of taxpayers being victimized by tax-return thieves over the past two years.
The Internal Revenue Service says that in 2010 it uncovered 48,966 cases of “bad” income tax returns involving $247 million of fraudulent returns that they removed from processing. Last year, the number of cases jumped to 261,982 and involved $1.4 billion of returns.
Since 2008, the IRS has identified more than 404,000 taxpayers who have been impacted by identity theft. Yet the agency has left big holes in their electronic filing system that allows thieves to enter undetected.
There’s no way of knowing precisely the scope and cost of this alarming tax return scandal. The IRS and the Justice Department’s Tax Division last month launched investigations in 23 states targeting 105 suspects, with the biggest concentration of cases in the South, South West and California. IRS officials say they are aggressively cracking down on these tax return scams, although some of their technology and procedures for ferreting out cheats are behind the times and pale by comparison with credit card companies or even Amazon and i-Tunes in securing accounts.
“It is a sizable issue, and it’s definitely something that’s a high priority here,” Julianne Fisher Breitbeil, a spokesperson for the IRS, told The Fiscal Times on Monday. “It’s something we have done a lot of work to address. We have taken a lot of steps in the past year – including [employing] new filters, partnering with law enforcement around the country, offering taxpayer education, and increasing training for our folks here.”
The IRS has come under pressure from Congress and others to crack down on identity theft, which prompted IRS Commissioner Doug Shulman to recently vow to wage “an unprecedented” enforcement effort that will send tax return cheats to prison. But the additional enforcement measures and new filtering systems for detecting wrongdoers have also slowed down tax refunds for those who have filed early. IRS officials say there is a “delicate balance” between aggressive enforcement and getting tax returns to Americans entitled to them in a timely fashion.
NBC reported on Sunday that police and federal agents in Tampa, Fla., have broken up what they describe as a massive fraud scheme. Forty-nine people were arrested and charged with fraud and identify theft for filing phony tax returns to get money from the IRS. Officials told NBC that the crooks stole the identities from family tree websites and then used tax filing software to apply for refunds with the stolen names.
Last year, the IRS Criminal Investigation unit initiated 276 cases, obtained 165 indictments, and helped convict 80 people who received sentences averaging 44 months, according to the IRS. In 2010, by comparison, the IRS initiated 224 cases, indicted 94 people and helped obtain 45 convictions of people who received an average sentence of 41 months.
During the last week of January alone, the IRS announced 30 enforcement actions in cities ranging from Montgomery, Ala., Miami and Baton Rouge, to Newark, Cleveland, Dayton, Los Angeles and Phoenix.
The exploding number of cases of federal tax return theft coincides with the more general increase within the economy of identification theft that leads to the illegal use of credit cars, illegal access to bank and savings account and investment holdings. Moreover, some on-line operations like Ancestory.com until recently posted the names and Social Security numbers of dead people to assist in genealogy research that became useful fodder for thieves who wanted to create phony identifications for refund fraud.
Tax filings can be affected by identity theft in various ways, according to the IRS. For example, an identity thief can steal a legitimate taxpayer’s personal information in order to file a fake tax return and attempt to obtain a fraudulent refund. Or, an identity thief may use someone else’s name and Social Security number to obtain a job, which may result in the issuance of a W-2 reporting wage income that ends up being wrongly attributed to the legitimate taxpayer.
Ferreting out fraud among the 140 million tax returns filed annually can be complicated, especially since roughly 10 million people move every year; and hundreds of thousands get married, divorced, change their jobs or change their names, complicating the challenge of detecting fraudulent returns. The IRS says it has a system for detecting these scams, but some government auditors have noted that a tax return often is paid out before the scam is detected. That’s because the IRS doesn’t check tax return forms against W-2 pay forms until well after the tax return checks go out.
Under the current procedure, W-2 pay forms filed with tax returns by April 15 are sent to the Social Security Administration for review, and the SSA provides the IRS with that information later in the year. That means the IRS doesn’t actually match documents until much later in the year. The IRS commissioner has ordered an initiative to explore ways of doing “real time” matching of tax returns and W-2 forms, but that could take many months or longer to accomplish.
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