Feds work to check tax fraud, help identity-theft victims

Mar. 20, 2012
Feds work to check tax fraud, help identity-theft victims
Erika Bolstad | McClatchy Newspapers

WASHINGTON — The IRS and federal investigators say they've redoubled their efforts to combat tax fraud from identity theft, a crime they call "epidemic" in Florida that's spreading nationwide.

The Internal Revenue Service identified and prevented the issuance of more than $14 billion in fraudulent refunds last year, said Steven Miller, the agency's deputy commissioner for services and enforcement.

So far this year, it's flagged 2 million returns for review, Miller told Sen. Bill Nelson, D-Fla., who'd asked federal officials to testify Tuesday at a Senate hearing that looked at what sort of progress they've made in blocking fake returns, prosecuting offenders and helping tax fraud victims. The agency also has issued 250,000 special identification numbers to taxpayers who've had their identities stolen, Miller said, to help them file their returns without delay.

"The IRS is confronted with the same challenges as every major financial institution in preventing and detecting identity theft," Miller said. "We cannot stop all identity theft. However, we are better than we were, and will get better still."

It still has much to do to, particularly when it comes to helping victims of tax fraud and identity theft, said Nina Olson, the national taxpayer advocate for the IRS.

She said she was particularly disheartened to hear how difficult it was for people to get through on a telephone line set up for honest taxpayers who'd had their identities stolen. They had to wait on hold an average of 66 minutes, a delay that resulted in only 11.7 percent of the calls to the line getting answered.

"There've been hundreds of thousands of cases where unsuspecting law-abiding taxpayers, their lives are being turned upside down by identity theft and tax refund fraud," Nelson said. "To the poor taxpayer, it's unfair and unjust."

Nelson had asked the IRS for an update after a congressional hearing last spring detailed some of the abuses. Tax-related identity theft incidents jumped from 51,702 in 2008 to 248,357 in 2010, a leap Miller said "appears disproportionately" in Florida.

In September, a crackdown led by the Tampa Police Department arrested 49 people and uncovered as much as $130 million in fraudulent returns. One offender was responsible for as much as $9 million in fraud, police there said.

In February, federal officials charged a Miami woman with stealing the identities of U.S. Marines and others in an alleged tax-refund scheme to dupe the IRS into sending her thousands of dollars. Dorothy Boulin, 29, was charged with using an electronic IRS number usually issued to tax preparers to file multiple bogus returns in the names of Marines, including one currently serving in Afghanistan.

Nelson, the chairman of the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth, has been promoting legislation that would help victims get their money more quickly when their refunds are stolen. It also would make it more difficult for the public to access the Social Security numbers of deceased taxpayers.

Before it spread to the wider public, electronic tax fraud had its roots in prisons, an IRS official said Tuesday. The agency has stopped 135,000 fraudulent returns from being filed from prisons this tax season as part of the crackdown, but it noted that it needs an extension on a federal law that allows state and federal prison officials to work with federal investigators to share information.

Thieves commit tax-return fraud by stealing people's Social Security numbers and filing returns on their behalf. The thieves often work in criminal syndicates, investigators said, and they train a network of people to commit tax fraud.

The ease of electronic filing has aided to the rise in fraud; at the same time, the growing number of taxpayers who file electronically has allowed the IRS to flag more returns before refunds are ever issued.

It's a relatively easy and violence-free crime, said Sal Augeri, a detective with the Tampa Police Department. Although some offenders have gone as far as to intimidate people at their mailboxes so they can't pick up debit cards loaded with their tax returns, most of the crime is computer-based.

Some of the victims are dead. One of the Tampa Police Department's officers had his identity stolen after he was killed in the line of duty in 2010 and his Social Security number became available in public records.

The thieves have "no reservations about stealing the government's money," Augeri said. "The magnitude of the problem is staggering."

Nelson said he thought the IRS was headed in the right direction and that the hearing bolstered his case for legislation that will allow state and federal investigators to collaborate even as they protect taxpayers' privacy.

During the hearing, the chief of the Tampa Police Department emailed Nelson to say that the slain officer's widow still hasn't been able to sort out her IRS troubles.

"Taxpayers are being taken enormously advantage of," Nelson said. "In the case of this policeman's widow, two years have gone by and she still can't get it straightened out. Is it any wonder people are frustrated?"