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Old-school fear of IRS fades with lure of easy money in tax refund scams

Kristine, left, and Chelsea Berry went to the IRS office in Tampa on Monday to sort out Chelsea’s tax refund after her identity was stolen. Social Security numbers are gold.

WILLIE J. ALLEN JR. | Times

Kristine, left, and Chelsea Berry went to the IRS office in Tampa on Monday to sort out Chelsea’s tax refund after her identity was stolen. Social Security numbers are gold.

TAMPA — Last spring, police followed a tip to a northeast Tampa apartment and arrested Micah Lashawn Alexander, suspected of collecting federal tax refunds on dead people.

An ex-boyfriend told police she took Social Security numbers off a genealogy website and stood to make nearly $20,000.

On a leopard skin tray and throughout Alexander's apartment, investigators found preloaded debit cards in other people's names. She admitted that she spent fraudulent tax refunds, police reported.

At 22, she was perhaps too young to remember when America's fear of the Internal Revenue Service was ingrained in pop culture, when people worried about getting into trouble just for rounding up instead of down.

Most adults try to avoid the IRS. And in a society of self-reporting taxpayers, a little trepidation goes a long way. Without it, there would be no federal budget to arm the troops or provide Medicaid.

Absent penalties, honest taxpayers start to feel like chumps.

So how does the IRS react when someone is accused of out-and-out theft from the Treasury?

Ask Alexander. The IRS didn't go after her. Local authorities did, but she served just five months in the Hillsborough jail.

Last Tuesday, as tax season ended, she stood in her doorway watching children. Afraid of the IRS? Not her. "What the hell is the IRS," she said.

It wasn't a question.

Thieves have stumbled upon a disruptive truth: In the winter and early spring, the IRS is busy processing returns and handing out refunds. There is little time for agents to answer questions, let alone ask them.

Actor Wesley Snipes claims a refund of $7.3 million? Pay first, investigate later. But that approach leaves the government vulnerable to fraud.

The IRS can be conned, not simply by tax protesters or unscrupulous accountants but by uneducated people with stolen identities and tax software. If it weren't so unsettling, it would be so American.

"You've got this huge hole and money pouring out of the Treasury and here we are trying to be good stewards of those dollars," said U.S. Rep. Rich Nugent, a Republican and former sheriff of Hernando County.

The IRS has not publicly estimated how much money it has lost in hijacked refunds. The agency simply doesn't know, according to watchdog J. Russell George, the Treasury's inspector general for tax administration. Members of Congress, in recent hearings on the topic, have used the word "billions."

The IRS does try to quantify the identity assaults it stops.

IRS Deputy Commissioner Steve T. Miller told a House subcommittee that in 2011 the agency kept at least $1.4 billion in requested refunds out of the hands of identity thieves.

But an analysis by George's office concluded that the IRS pays fraudulent refunds in "significantly greater" numbers than it detects.

Meanwhile, at the local level, the findings stun people who think the federal government should have a better idea of how much taxpayer money is being pilfered.

In just one city, Tampa, police say that over two years' time, they tracked "hundreds of millions" of dollars in ill-gotten tax refunds, often after the money had been spent. (For comparison, the Tampa Police Department's entire budget is about $137 million.)

"They're so large," Nugent said of the IRS, "they've lost the ability to react to changing circumstances."

Federal authorities acknowledge that the IRS doesn't check before issuing a refund to see if taxpayer-reported earnings match those reported by employers. In the summer, the agency comes up for air and looks for irregularities.

Talks on Capitol Hill these days inevitably question the logic of that timing. George called third-party verification the "single most important tool" for combating identity-related tax fraud.

"Clearly you'd like to head this off in the first place," said James R. White, director of strategic issues for the Government Accountability Office. "It's hard to get money back once it's out the door."

Trails grow cold. By the time theft is detected, video surveillance images of culprits spending tax refund debit cards may already have been erased, killing local criminal cases. There is already brake dust on the 21-inch rims of luxury cars rolling through urban neighborhoods where Tampa police report epidemic tax fraud.

It is a federal matter, but the Department of Justice chooses targets carefully and takes few identity-related tax cases to court. Those worth less than $100,000 aren't likely to make the cut, leaving enforcement up to the discretion of local police.

With the past year's congressional scrutiny, the IRS says it has ramped up detection and enforcement efforts.

Deputy Chief Miller said his agency stopped 215,000 questionable returns in the first 10 weeks of this year, flagged by new filters aimed at capturing identity fraud.

The IRS staff is putting codes on the accounts of dead people already exploited for illegal refunds so that it doesn't happen again. PINs have been issued to 250,000 taxpayers who suffered prior identity theft.

Congressman Nugent, unimpressed, said he doesn't sense enough urgency by the IRS.

And Tampa police see no relief from the flow of stolen money.

"It's worse than ever out there," said Tampa police spokeswoman Andrea Davis. "You'd think it would slow down, but it's not slowing down."

Tampa has popped up repeatedly during the congressional hearings. But it's one of many cities across the state and nation afflicted by rampant refund fraud.

St. Petersburg police have received 300 reports of stolen refunds since mid January, spokesman Bill Proffitt said. "For the time being, we're referring them to the IRS," he said.

Pasco County deputies have seen 200 incidents this year. In North Miami, a postal worker was reportedly killed for a mailbox key. Prisons and jails have even found inmates committing tax fraud.

Law enforcement families, brain injury patients and the families of dead soldiers have been among those victimized.

"No one's safe," Davis said. "There's almost always a way to keep yourself from becoming a victim. But in this crime there's no way.

"Any time you provide your Social Security number, there's a possibility that an employee within that business will sell your information."

• • •

Estimates of a Social Security number's value on the street start at $10.

Medical offices, car companies, security firms — they all have employees with access to names, numbers and dates of birth.

People pass around tip sheets on how to complete tax forms and what calculations to use. Some filers have learned to keep their refund requests below $10,000 to avoid attracting IRS attention, police say.

Drug dealers now take plastic. People are getting high off the Treasury.

Frequently, when police find probable cause to search for drugs on a traffic stop, they find trappings of the tax refund trade.

A Nissan Xterra searched in a March 30 drug bust at 50th Street and 10th Avenue in East Tampa turned up 48.7 grams of powder and rock cocaine, 100 grams of marijuana, digital scales, $14,957 in cash, four fraudulent tax return checks worth $32,165, and 67 TurboTax debit cards, along with ledgers of personal information for hundreds of people, police said.

While suspects may be tight-lipped about drugs, they show little fear over the potential for tax fraud charges.

"A lot of times people don't think they're doing anything wrong and they admit to doing everything," said Sheri Maxim, deputy chief of the economic crimes unit at the Hillsborough State Attorney's Office.

Even with an admission, she often can't make identity charges stick, unless investigators catch people on video spending money.

"It frustrates us, but we're limited by the law," Maxim said.

Alexander, the young woman suspected of digging up dead people's names from public records for tax refund claims, gave police a break.

While she was out on bail last summer, a surveillance camera caught her using a fraudulently obtained debit card, police reported. She pleaded guilty to fraudulent use of personal information, a third-degree felony.

Last week, she seemed perturbed when a news reporter seeking Alexander's side of the story got her address off public records and came knocking. "You going to pay me?" she asked.

Outside the Tampa office of the IRS, people had the same question on their minds.

• • •

The wounded were everywhere in tax season's waning hours. Every third person had a story of theft.

Kristine Berry, 37, thinks the IRS ought to start requiring fingerprints. She was there with her twin sister, Chelsea, the victim of tax return fraud. They got in line about 7 a.m. and didn't leave until midafternoon.

"I kept thinking, 'How did they gain access to my information?' " Chelsea Berry said.

One elderly woman shuffled to a bus stop, intending to go file a police report. As she was leaving, housekeeper Raquel Torres, 38, was coming.

"Me robaron," Torres said.

Twice, someone robbed her. This year, and last year.

Software analyst Patrick Sebiro, 39, owed taxes, but the IRS paid someone a refund anyway. He even knows the date. Feb. 25. And the debit card: Endeavor.

"I worked hard to build my life," he said, "and now I feel like I have to rebuild it all over."

Purcell Young, 46, lost his job last year. He had hoped to pay off a traffic ticket and catch up on child support, maybe take the kids on a little trip. Now he'll have to wait at least two months, probably longer, to get the money — his money.

"It weighs on you the first couple of days," Young said. "You feel violated, like somebody robbed your house."

He guesses that the thieves must be young. He's been around long enough to believe that wise people do not mess with the IRS.

"I'm from the old school," he said. "Don't mess with them feds."

News researcher John Martin contributed to this report. Staff writer Patty Ryan can be reached at pryan@tampabay.com or (813) 226-3382.

Old-school fear of IRS fades with lure of easy money in tax refund scams 04/21/12 [Last modified: Wednesday, May 9, 2012 2:51pm]

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