Tax Refund Scam Has Cost Taxpayers Billions for Years

CBS NEWS – It was too easy to resist, says one convicted fraud artist. All he needed was a computer and an easily obtained list of stolen social security numbers to steal millions from the IRS – a scam repeated by millions for five years that has cost the U.S. Treasury billions of dollars in fraudulent tax refunds. And the IRS still hasn’t figured out how to stop the increasingly popular scam. Steve Kroft’s report will be broadcast on the 47th Season Premiere of 60 MINUTES on Sunday.

Kroft reports on the scam from Miami, a hotbed of IRS fraud due to the high number of identity theft there. Scam artists buy lists of social security numbers stolen from customer records from places like hospitals or banks. The thief then goes to an online tax preparation site and files a bogus tax return seeking a modest refund using the stolen social and the victim’s date of birth.

It was easy says Corey Williams, convicted of the scam recently. “Anybody who knew about it, you’d be a fool not to try to get involved with making some money,” he tells Kroft. “In the comfort of my own home … just get on a laptop, do about 15 returns a day. Fifteen times $3,000 a return, that’s $45,000 a day.” Williams said the government paid about 40 percent of the fake submissions, usually in seven days. Watch an excerpt.

“It’s a tsunami of fraud,” says Wilfredo Ferrer, the U.S. attorney for Southern Florida. “Something that I don’t think the IRS ever really was ready for.”

He says Florida is a big source of much of this fraud due to its heavy incidence of ID theft, with Miami leading all metropolitan areas in ID theft complaints. He and George Piro, the head of the Miami FBI field office, run a federal task force trying to prosecute the rampant fraud.

Piro and Ferrer explain one of the ways the IRS got into such a mess.

“There are no supporting documents when you are filing electronically,” says Piro. The IRS doesn’t match returns with W-2 forms right away because the law requires refunds be sent out within six weeks and many employer W-2s are not available until months later. “That’s the ease and convenience that was created for the benefit of the innocent taxpayer, which is now being exploited by criminals,” adds Piro.

“The way you learn you become a victim of this is when you go and try and file your tax return, the IRS tells you ‘Oh, you’ve already filed,’” says Ferrer. “Well, it wasn’t you, it was the fraudster who used your identity to file the return.” Taxpayers whose IDs are stolen in the scam who are due a refund say they are victimized twice, because they must then navigate IRS bureaucracy to get their money.

Most of the time, the IRS still can’t tell whether the person seeking the refund is the actual taxpayer, a distinction credit card companies are much better at detecting when it comes to suspicious purchases.

John Koskinen, the IRS’s fourth commissioner in two years, says the IRS is moving in that direction, it just hasn’t gotten there yet. He says the agency catches a lot of the fraud, but budget cuts have hampered their efforts.

“It’s still a big problem that while we are making great progress, we’ve got a lot of work to do.”

(TM and © Copyright 2014 CBS Radio Inc. and its relevant subsidiaries. CBS RADIO and EYE Logo TM and Copyright 2014 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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