MIAMI: Besieged by identity theft, Florida now faces a fast-spreading form of fraud so simple and lucrative that some violent criminals have traded their guns for laptops. And the target is the U.S. Treasury.
With nothing more than ledgers of stolen identity information — Social Security numbers and their corresponding birth dates and names — criminals have electronically filed thousands of false tax returns with made-up incomes and have received hundreds of millions of dollars in wrongful refunds, law enforcement officials say.
The criminals, some of them former drug dealers, outwit the Internal Revenue Service by filing a return before the legitimate taxpayer files. Then the criminals receive the refund, sometimes by check but more often in a convenient but hard-to-trace prepaid debit card. The government-approved cards, intended to help people who have no bank accounts, are widely available in many places, including tax preparation companies. The swindlers often provide addresses for vacant houses, even buying mailboxes for them, and then collect the refunds there.
Postal workers have been harassed, robbed and, in one case, murdered as they have made their rounds with mail trucks full of debit cards and master keys to mailboxes.
The fraud, which has spread around the country, is costing taxpayers hundreds of millions of dollars annually, federal and state officials say. The IRS sometimes, in effect, pays two refunds instead of one: first to the criminal who gets a claim approved, and then a second to the legitimate taxpayer, who might have to wait as long as a year while the agency verifies the second claim.
J. Russell George, the Treasury inspector general for tax administration, testified before Congress this month that the IRS detected 940,000 fake returns for 2010 in which identity thieves fraudulently received $6.5 billion in refunds. But George said that the agency missed an additional 1.5 million returns with potentially fraudulent refunds worth more than $5.2 billion.
Florida, with its large population of elderly residents and health-care facilities, provides a wealth of opportunities for swindlers. South Florida, which had the highest rate of identity theft in the nation, and Tampa have been hit hardest.
Wifredo Ferrer, the U.S. attorney for the Southern District of Florida, called identity-theft tax fraud an “epidemic.” He formed a task force of 18 federal and state agencies, including the IRS, to combat the problem. Despite those efforts, it is worsening, Ferrer said.
“The IRS is doing what they can to prevent this, but this is like a tsunami of fraud,” he said.
In the past two years, the IRS has recognized the severity and rise of this type of fraud, and its vulnerability to it. The ease of electronic filing and the boom in identity theft have outpaced the agency’s technological ability to detect this sort of fraudulent claim, senior agency officials say. The IRS receives 100 million tax returns a year, most filed within a short period of time and a vast majority legitimate.
From 2008 to 2011, the number of returns filed by identity thieves and stopped by the IRS increased significantly, officials said. In 2010, the agency, with the help of fraud detection measures, stopped 700,000 cases of this form of fraud. Last year, it was at least 1.3 million, said Steven T. Miller, deputy commissioner for services and enforcement at the agency.
This year, with only 30 percent of the filings reviewed so far, the number is already at 2.6 million. The bulk are related to identity theft, Miller said.