Whoever it was that said that crime doesn't pay, had never thought about using other people's identities or Social Security numbers to file fraudulent tax returns seeking refunds. I have blogged about this before, but in the last few days a number of interesting stories have come across my desk, worthy of a follow-up mention.
The IRS' Inspector General has come up with some updated numbers. He says that in the 2011 tax year, the IRS has detected 938,664 returns involving identity theft, claiming a total of $6.5 billion in refunds.
But some individual court cases in recent days show that filing fraudulent returns seeking refunds can be a very lucrative endeavor.
In New Jersey, Federal agents arrested fourteen people charged with operating a long-running identity theft ring that filed thousands of fraudulent federal income tax returns claiming some $65 million in illegal refunds. It is alleged the fourteen were part of a gang that obtained Social Security numbers and other identifying information from Puerto Rican citizens. The gang then used that information to file more than 8,000 returns; obtained the refund checks and either sold them or cashed them.
Many of the returns they filed never made it through the system but they did manage to make away with $11.3 million in refunds.
A 35-year-old Barbados national who was in the United States legally, has pleaded guilty to one count of mail fraud and one count of aggravated identity theft. Federal prosecutors said he used identities of people who had recently died to file 645 false federal tax returns between 2007 and 2011 claiming more than $120 million in tax refunds. The IRS said they flagged many of the returns but Watts received more than $19 million in refund checks.
In the end, though, crime did not pay for this crook. In Chicago, U.S. District Judge Joan Gottschall sentenced him to 7-1/2 years in prison for mail fraud and another two years for aggravated identity theft.
The IRS says it was able to freeze $17 million in accounts that he controlled, but according to the court documents he spent $1.6 million renting top flight apartments in New York, Beverly Hills and Chicago, for a new Mercedes Benz SUV and jewelry and cash for his girlfriend, and first-class travel back and forth from LA to New York.
In North Carolina, two people are in custody while they await a federal sentencing hearing. One of the crooks pleaded guilty to one count of false claims conspiracy, one count of access device fraud and one count of aggravated identity theft. The other only pleaded guilty to the first two crimes.
The couple engaged in an elaborate scheme renting a home on a lake in a neighborhood surrounded by vacation homes and then used neighboring addresses on the bogus returns. They were able to monitor the mailboxes and retrieve the IRS checks when they were delivered. They also used addresses in Greenville, S.C. and Greer, S.C.
Court documents showed they filed over 1,000 false returns and made bogus refund claims of more than $5 million and received about $3.5 million of that.
Given the huge loss the Treasury is suffering, the IRS, and other Federal agencies are moving very aggressively to stem the flow of bogus returns. We'll look at some of the recent results next week.