Florida ID theft ‘nightmare’ part of $20B IRS fraud estimate

Florida ID theft ‘nightmare’ part of $20B IRS fraud estimate

The man in charge of collecting trillions in federal income taxes paid a visit Thursday to South Florida, where criminals have turned to stealing other people’s identities and refunds into a recurring nightmare for taxpayers and his agency.

John Koskinen, who took command of the Internal Revenue Service this year, acknowledged the extensive financial damage from fraudulent tax refunds — estimated to top $20 billion between 2011 and 2015, according to a Treasury Department’s report.

The IRS commissioner said fighting such fraud is a “top priority” for his agency, while crediting criminal prosecutions with slowing its rapid spread around the country.

“It tended to start and explode in 2010, ’11 and ’12,” Koskinen told reporters at the Claude Pepper Federal Building in downtown Miami. “Florida has been a center of that activity, along with Georgia and the District of Columbia.”

“We think we’re getting our hands around the problem to some extent primarily because of the ability we’ve had to track down the perpetrators of identity theft and refund fraud,” said Koskinen, who met with civil and criminal investigators Thursday during a visit to the IRS regional office in Miami.

The IRS commissioner noted there are some 2,000 criminal investigations under way, including about 800 launched this year, with a conviction rate of more than 90 percent.

He also said that with improved tactics and technology, the IRS stopped six million suspicious returns last year and prevented $18 billion in fraudulent refunds.

In addition, he said the IRS has improved its handling of refund claims by victims of fraud, reducing the time it takes to resolve a problem from one year to four months.

But Koskinen lamented that the IRS has lost $850 million in funds and nearly 10,000 employees over the past four years as a result of budget cuts by Congress. And those reductions have hobbled the agency’s ability to attack ID theft and tax fraud more aggressively.

“It’s important for people to understand, as I’ve tried to get the Congress to understand, you get what you pay for,” Koskinen said.

Critics have repeatedly said the root of the problem is that the IRS rarely checks tax documents such as W-2 income forms in real time to see if employees’ returns match information provided by their employers before the April 15 filing deadline. That has given tax-fraud offenders ample time early in the tax season to use stolen identities to file bogus returns to beat legitimate tax filers to the punch.

The IRS commissioner acknowledged this was the agency’s greatest challenge. He said obtaining those documents from employees and employers as early as possible in the tax season would enable IRS examiners to make those legitimate matches and root out fabricated returns.

“That would be a major step forward,” Koskinen said.

He also said that two other significant solutions would be upgrading the agency’s technology and changing identifiers for taxpayers, who use their Social Security numbers.

Overall, Koskinen described the fight against ID theft and tax fraud as an “ongoing battle.”

In South Florida, that would be an understatement.

In April, at the height of tax season, federal authorities charged 25 South Florida suspects — including a Miami-Dade public school employee — with stealing personal information from unwitting victims such as students to file fraudulent income-tax returns in their names.

U.S. Attorney Wifredo Ferrer, who has launched the only task force in the nation to crack down on ID theft and tax fraud, spotlighted the latest arrests before the April 15 tax-filing deadline and South Florida’s dubious reputation as the capital of these twin crimes. He also warned the public to guard their Social Security numbers and other personal information against cyber thieves to prevent themselves from becoming tax-fraud victims.

“It has been spreading like a virus in South Florida,” Ferrer said. “Not only is it America’s fastest-growing crime, it is a consumer’s worst nightmare.”

South Florida victims run the gamut: Holocaust survivors, U.S. Marines stationed in Afghanistan, hospital patients and senior citizens.

Perpetrators routinely steal the names, dates of birth and Social Security numbers of people, including prisoners, the poor and even children. They are attractive targets because they don’t file income tax returns. As a result, the IRS can’t detect duplicate filings.

Since 2012, the U.S. attorney’s office has prosecuted upward of 300 defendants who have stolen about 90,000 identities and filed $485 million in false refund claims, resulting in $106 million in payments by the IRS.

Federal agents with the IRS and FBI have focused on illegitimate tax preparers who apply for or steal electronic identification numbers that allow them to file multiple fraudulent refund claims and to receive payments on debit cards.

IRS criminal investigators have suspended a total of 70 electronic filing ID numbers that allowed perpetrators to file 53,900 fraudulent tax-refund claims over the past two years. These numbers are normally used to file legitimate returns by accountants and other tax preparers.

The problem has spiraled so out of control that some South Florida perpetrators haven’t even bothered with stealing people’s identities to commit tax fraud. They have simply filed phony refund claims for tens of thousands or hundreds of thousands of dollars in their own names and the IRS has issued massive refunds to them in the form of checks or debit cards.

In January, a North Miami man, whose last job was packing bait, was convicted at trial after filing a fraudulent $600,000 refund claim while pretending to be a highly paid entertainment executive. When IRS agents caught up with 40-year-old Jean Louis, who actually scored the refund, he told them: “Sometimes people get lucky.”
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