Investigating Tax Refund Fraud

FBI Works Cooperatively with Federal Partners

Washington, DC – A Georgia woman was recently sentenced to 27 years in prison for stealing the identities of nursing home patients and using their information to apply online for about half a million dollars in fraudulent tax refunds from the Internal Revenue Service (IRS).

Criminals who use stolen personally identifiable information to line their own pockets perpetrate a wide variety of fraudulent financial schemes, like hacking into online accounts, submitting phony insurance claims, and applying for loans and credit cards. Increasingly, though, tax refund fraud using stolen identities is fast becoming a favorite money-making endeavor of the criminal element.

The IRS has reported a significant increase in identity theft-related tax refund fraud over the past several years. This type of crime is perceived by criminals and organized criminal enterprises as relatively easy, seemingly low-risk, and, ultimately, pure profit which can be used to fund other criminal activities…like drug trafficking, money laundering, public corruption, or even terrorism.

Anyone with a Social Security number could become a victim. But criminals who commit tax refund fraud seem to focus more on people who don’t normally file tax returns—the elderly, low-income families, students, patients at long-term health care facilities, and even the homeless. Perpetrators also target public figures like celebrities, athletes, CEOs, and politicians, as well as law enforcement, military, and government personnel…including Attorney General Eric Holder.

How a scheme works. The perpetrator fills out a federal tax return online with stolen identity information and phony wage and tax withholding figures, then informs the IRS how to provide the refund (a check mailed to a certain address, a direct deposit into a bank account he controls, or, more common these days, a deposit onto a debit card in his possession).

In simple tax refund schemes, one person usually handles everything—from obtaining stolen identities to collecting refunds. But in more sophisticated schemes, there are a number of individuals assuming different roles: “ringleaders” who organize entire operations, “sources” who steal identity information, “preparers” who file returns online, and “runners” who actually collect the proceeds.

Law enforcement response. The dedicated work done by IRS-Criminal Investigation professionals is a major component of that agency’s efforts to combat tax-related identity theft. And the IRS continues to make enhancements in fraud prevention, early detection, and victim assistance as well.

But the FBI—working with our partners at the IRS and U.S. Secret Service and through liaison efforts with banks—brings valuable investigative resources to the table: our years of experience investigating financial crimes, our focus on identifying and dismantling large criminal networks, and our use of sophisticated investigative techniques. We also share intelligence and information with other federal law enforcement partners to help link investigations of criminal organizations engaged in tax fraud schemes that may be tied to illegal drugs, weapons, terrorism, or other types of criminal activity.

All of these efforts are paying off—we’ve been part of many successful cases recently (see below).

And the FBI will continue to work cooperatively to investigate stolen identity tax refund fraud—we take our role in identifying and arresting those responsible very seriously. These crimes not only victimize law-abiding individuals but all honest U.S. taxpayers who ultimately foot the bill for this stolen revenue.

Recent Investigative Successes

The FBI is becoming increasingly involved in investigations into identity theft-related tax refund fraud. Here are some recent case examples…all worked in conjunction with our IRS partners and some with local law enforcement partners as well:

• Sacramento: Seven indicted in false tax refund scheme run in a prison.
• Miami: Former Miami police officer sentenced in identity theft tax refund fraud scheme.
• Baltimore: Former Baltimore police officer sentenced to five years for protecting a heroin dealer and illegally accessing police databases in fraudulent tax refund scheme.
• Tampa: Woman sentenced to prison in stolen identity refund fraud scheme.
• Atlanta: Plasma donation center employee sentenced on identity theft charges.
• Buffalo: Rochester man sentenced in large-scale tax refund fraud scheme.

Protecting Your Personal Identity from Thieves

While identity theft may be difficult to completely guard against, there are steps you can take to make it harder for thieves to steal your personally identifiable information:

• Check your credit report on a regular basis.
• Don’t carry around your Social Security card or any document containing your Social Security number.
• Properly dispose of documents that contain sensitive information; shred them instead of throwing in the trash.
• Only give out your personal information when absolutely necessary—especially on websites and social media sites—and keep track of who you give it to (this could be helpful in determining the source of a breach of personally identifiable information if you become a victim).
• Protect your personal computers by using firewalls and the latest anti-virus software.
• File your taxes as early as possible during tax season, since criminals using stolen identities tend to file their fraudulent returns early to obtain refunds before the legitimate filer submits a return.
• And if you’re someone who isn’t required to file a tax return, consider filing anyway to prevent someone else from filing a false return in your name and to be alerted in case someone has already filed a false return in your name.