RALEIGH — While some scammers engaging in stolen identity refund fraud in North Carolina have been arrested and convicted in the past year, others are continuing the scam in the Tar Heel State.
In late November, Phillip Brooks from the Union County community of Marshville joined several other state residents who have found fraudulent federal tax refund checks in their mailboxes made out to other people.
Marshville is just the latest North Carolina locality in which a tax refund check has been sent to an individual who not only did not live at the recipient’s address, but also, most likely, did not exist.
Brooks contacted Carolina Journal after he found a mailing from the Internal Revenue Service addressed to another person using his address on Camden Road. He said the envelope — addressed to Ray L. Rodriguez Morales — appeared to have a check enclosed.
Brooks did not open the envelope. He said he concluded that his mailbox was being used as part of a fraud scheme, known as stolen identity refund fraud (also known as SIRF), similar to the ones he had read in several recent CJ news reports.
“It is striking to know that this is going on. Until I read your articles I didn’t know about it,” Brooks said.
Brooks has a long driveway and his mailbox is not visible from his home, making it easier for fraudsters to pick up checks without being noticed.
In the presence of a CJ reporter, Brooks on Nov. 25 opened the envelope and found it contained a check for $8,315. CJ delivered the check to a special agent with the IRS Criminal Investigation Division in Charlotte.
Mark William Hanson, a Greensboro-based IRS spokesman for North Carolina, Virginia, and West Virginia, wrote in an email to CJ that the agency “is not permitted to discuss a particular or specific taxpayer’s tax matter or their taxes based on federal disclosure regulations and federal law.”
Federal SIRF audit
A federal audit published in September concluded that “identity theft continues to be a serious and growing problem which has a significant impact on tax administration.” The audit, from the treasury inspector general for tax administration, an agency established to provide independent oversight of IRS activities, concluded that for Tax Year 2011, the IRS issued an estimated 1.1 million fraudulent refunds valued at $3.6 billion, The estimate for the previous tax year was $5.2 billion.
The report also concluded that the IRS stopped $7.9 billion in fraudulent refunds in 2011 and $12.1 billion in 2012.
Earlier in 2013, CJ reported on stolen identity refund fraud incidents in Durham and Clinton, N.C., as well as Long Island, N.Y. Many of the schemes involve checks addressed to Hispanic-sounding names. Some of the fraudsters who have been caught are in the United States illegally.
Even though the IRS has arrested and prosecuted some of the North Carolina-based fraudsters, the practice continues.
The typical scheme works like this: The fraudster obtains a list of stolen Social Security Numbers and matching names, or obtains Individual Taxpayer Identification Numbers for persons who do not reside or work in the United States. The fraudster also obtains Employer Identification Numbers and matching employer names from another source. Then the fraudster files numerous phony tax returns under different names, claiming wages that were never earned. The returns often claim exemptions for children who do not exist. The phony returns typically ask for refunds ranging from $4,000 to $8,000.
Before filing the fake returns, some fraudsters have selected an individual address or a neighborhood as the locations for the refunds to be mailed. Others have rented mailboxes from the U.S. Postal Service or a private mail-delivery business for the fraudulent checks. When the refund is expected to arrive, the fraudster will search through the victim’s mailbox for the checks, or collect them from his rented box. The fraudster will then take the check and a matching fake identification card with the same name and try to cash it at a bank or other check cashing facility. A cooperating tax preparer may be involved in the scheme and take a cut of the proceeds.
The inspector general concluded that this type of fraud continues because the IRS says it is under pressure from Congress to mail refunds as quickly as possible. So the agency issues refund checks before it has received verification from employers that matched the earnings claimed by the fraudsters. Without such a match, refunds would never be mailed, and law enforcement officials would be alerted that a refund fraud scheme was being attempted.
This type of fraud can be lucrative. In May, IRS special agents from North Carolina arrested a mother and daughter, both citizens of Honduras who were living in Clinton, in a SIRF scheme in which the pair obtained $1.4 million in fake refunds involving tax years 2006 through 2012.
Clinton residents Angela Christina Lainez-Flores, 44, and her daughter Karen Mejia, 23, pleaded guilty as charged in July in a conspiracy to defraud the federal government through the filing of false income tax refunds. Lainez–Flores also pleaded guilty to a separate charge of aggravated identity theft.
Their scheme involved the filing of multiple tax returns using fabricated identities, phony W-2 earnings statements, and the listing of nonexistent dependents.
Their arrests followed an IRS undercover operation conducted with the assistance of an unnamed cooperating witness who prepared the fraudulent tax returns with information provided by the two women.
Lainez-Flores and Mejia, with the help of the tax preparer, conspired to file numerous false tax returns beginning in 2009. They obtained identification documents of people who do not reside in the United States and used those IDs to make fraudulent applications for Individual Tax Identification Numbers.
They generated fake W-2 earnings statements from companies that did not employ them. On the returns, they included exemptions for multiple dependents who didn’t exist. One return filed in 2010 under the name Jose Garcia claimed 11 dependents.
They requested that the year 2012 returns be mailed to a post office box in Clinton. They had been paying the tax preparer $100 for each false form, but for forms filed this year, the tax preparer raised the fee to $400.
The fate of the tax preparer is unclear and no one else has been charged publicly in this scheme. The court records of cooperating witnesses — such as the tax preparer — often are sealed for a period of time.
In November, U. S. District Court Judge Terrance Boyle sentenced Lainez-Flores to 30 months in a federal prison and restitution to the IRS of $1,400,291.
But the judge also ruled, “having considered the defendant’s financial resources and ability to pay, [the court] orders that any balance still owed at the time of release will be paid in installments of $50 per month to begin 60 days after the defendant’s release from prison.”
Boyle also ruled that upon release that she will be turned over to immigration officials for deportation.
At press time, Mejia had not been sentenced.
Don Carrington is executive editor of Carolina Journal.