By ALAN J. ORTBALS
Last month an Alabama woman, Talashia Hinton, was charged with multiple felony violations for filing more than 3,000 fraudulent tax returns over a two-year period, scamming the IRS for more than $7.5 million in illegal tax refunds.
This was not an isolated incident. The IRS estimates that it got zapped for $5.8 billion in illegitimate tax refunds last year alone. And the problem is just getting worse.
“This year we probably more than doubled the number of identity theft cases we dealt with the year before and I think it’s going to be a continual problem until the IRS decides to fix it,” said Ken Diel, founder of Diel & Forguson LLC, certified public accountants.
Mike Fitzgerald, a principal with the accounting firm of Scheffel Boyle, agreed.
“Four years ago I think we had three cases in our office,” Fitzgerald said. “We had 40 identity theft problems this year and that was just in the Alton office. We have 10 other offices.”
Diel said that the problem stems from two things: the ubiquity of Social Security numbers and the gap between the opening day of tax filing and the deadline for employers to submit their W-2s.
“It’s easy to get Social Security numbers,” Diel said, “and all the people need who are filing these returns is your name and Social Security number and they can file a return. They make up everything else.”
Fitzgerald said that the IRS begins accepting tax returns in early January but employers don’t need to submit copies of W-2s to the IRS until the end of February. That gives the tax cheats more than a month in which to perform their dirty work.
“The identity thieves file in early January because it’s the first return filed that gets the refund,” Fitzgerald said. “They file as early as they possibly can with fictitious income and withholding numbers and they make up W-2s to go with it. As long as they have a good name and a good Social Security number, the IRS accepts it. Most of the time they have the refund sent straight to their bank account.”
Most of the returns are somewhere between $7,000 and $12,000, he said.
“There seems to be a sweet spot. They’re all in that range. I think the guys who are doing this don’t want it too big so it’s not raising eyebrows but big enough to make it worth their while,” Fitzgerald said.
By the time the real person files their actual tax return with the real W-2s, it gets rejected by the IRS, creating problems for the taxpayer, his accountant and the IRS.
“We have to file the returns electronically because we do so many of them,” Fitzgerald said. “We’ve finished the return, the clients give us the release form, we send it in and all of a sudden, two or three hours later, ding, you get the thing back saying it has been rejected. We’re scrambling trying to put a paper return together, get the clients back in here, get a copy of their driver’s license with a photo ID and refile this tax return on paper. It’s a real problem.”
When the IRS identifies someone as a victim of identity theft, they issue a Personal Identification Number to use with the legitimate return. The PIN is a temporary number that matches up with their Social Security number and is to be used only for this return. Diel says the solution to the problem appears to be very simple and easy — issue everyone a PIN to file their return; don’t wait for identity theft to occur.
“You were never supposed to use your Social Security number for identification,” Fitzgerald said. “It even says on the bottom of your Social Security card, this card is not for identification purposes. But, that’s what everyone has used them for — including the IRS — so they’re going to have to figure some other method like giving everyone PINs that we can then match with the Social Security number and you’ll need both of those things to file income tax returns. It’s a huge problem.”
The IRS claims that it has 3,000 employees dedicated to identifying and catching identity thieves. It says that it has stopped 19 million suspicious returns, preventing scammers from collecting more than $68 billion in phony refunds. It has successfully prosecuted more than 1,400 identity thieves over the last three years but it’s a tough job, they say, because people are able to have the refund money deposited on green dot debit cards which can be purchased at any number of stores.
Until the IRS comes up with a solution, Fitzgerald cautions people not to give out their Social Security numbers.
“You do not want to give out your Social Security number,” Fitzgerald said. “If someone wants it, ask them why they need it and, most times you’ll find out it’s just on the form but they don’t really need your Social Security number. Protect your social security number; do not walk around with anything in your wallet or your purse that has your Social Security number on it and don’t walk around with your Social Security card.”
The IRS admitted late last month that more than 100,000 taxpayers had their personal tax information stolen from an IRS website as part of an elaborate scheme to claim fraudulent tax refunds. The information was stolen from an online system called “Get Transcript,” where taxpayers can get tax returns and other tax filings from previous years.
In order to access the information, the thieves cleared a security screen that required knowledge about the taxpayer, including Social Security number, date of birth, tax filing status and street address, the IRS said.
“We’re confident that these are not amateurs,” IRS Commissioner John Koskinen told the Associated Press. “These actually are organized crime syndicates that not only we, but everybody in the financial industry, are dealing with.”
The IRS said it is notifying taxpayers whose information was accessed. The IRS is providing them with credit-monitoring services.
Hinton, aka Lay Lay and LaLa, worked with others who supplied her with IRS names and Social Security numbers so that Hinton could prepare and file false tax returns to claim refunds using those stolen names. She directed the IRS to pay the refunds by issuing U.S. Treasury checks and direct deposits onto prepaid debit cards.
If convicted, Hinton faces up to 20 years in prison for each wire fraud count; up to five years in prison for the conspiracy count; and up to two years in prison for aggravated identity theft. Hinton also faces monetary penalties, including fines, forfeiture and restitution.