When a woman named Veronica tried to cash a federal income tax refund check for $8,113 April 5 at a Sampson County check-cashing business, instead of a handful of cash she was greeted by members of the Sampson County sheriff’s office who suspected that her tax refund was the result of a fraudulent tax return.
Deputies were acting on a tip that the IRS had issued the check to Veronica, who had used a fictitious identity and reported fictitious earnings on her individual income tax return. Carolina Journal independently confirmed that her refund claim was fraudulent.
They detained Veronica, seized the check, which had been issued March 22, and made a copy of the tax return and a driver’s license from Honduras that she used at the check cashing business to establish her identity.
The same day, deputies discovered that four men were attempting a similar scheme, cashing IRS refund checks using phony identities. Altogether, deputies intercepted five IRS checks totaling $34,380. Veronica and the four men had documents showing them to be from Honduras.
The deputies determined the suspects used forged identification cards. All five admitted they were in the country illegally. Some had been deported more than once. The deputies concluded also that the individuals had not engaged in identity theft but had instead created identities by making up names and tax identification numbers.
Sheriff Jimmy Thornton told CJ he was happy his officers were able to stop some checks from being cashed, but said he has no idea what the magnitude of the problem is in Sampson County, let alone North Carolina.
The sheriff’s office said it had no authority to arrest the five, who were not accused of breaking any local laws. They were released and the confiscated checks and other documents were turned over to IRS investigators. Officials said they consider this an open investigation, ongoing in cooperation with the IRS. Any charges or prosecution likely would be the responsibility of the federal government.
Thornton allowed CJ to examine copies of some of the items seized. Upon request, CJ agreed to use only the first names of the refund recipients for this story, even though the names likely are fictitious.
Veronica’s documents included one from the IRS appearing to assign her an Individual Taxpayer Identification Number, which the IRS uses to track taxes that are due to people who do not have Social Security numbers. She also had a Form W-2 Wage and Tax Statement issued by a New York-based employer that does business in North Carolina and several other states.
The W-2 stated in 2012 she earned $25,180 in income and had $5,103 in federal income tax withheld. The ITIN on the W-2 (which she apparently filed with her tax return) was different from the one the IRS had given her, and also different from the one she used on her tax return.
CJ contacted the New York employer to ask if Veronica had worked at the company. A human resources representative said she had not. The W-2 form was a fake, the representative said, so her claim of a refund due from the IRS was a fraud.
On her tax return, Veronica claimed to have three children younger than 17. She listed an ITIN for each. She listed itemized deductions of $8,400 and claimed the allowed $3,650 income exemption for herself and each child, leaving her with a taxable income of $9,450. She listed her tax due as $948. Under federal income tax withheld, she erroneously listed $6,051 — the sum of the $5,103 claimed in withholding and the $948 tax due. She then claimed an additional child tax credit of $2,052. Adding those numbers, she claimed a refund due of $8,103, which is what the IRS sent her.
The four men produced identification claiming they were from Honduras. On Eugenio’s tax return, he claimed earnings of $31,498, withholdings of $4,378, and $156 tax due. He received a refund from the IRS of $6,315, mailed to an address in Sampson County. He claimed three exemptions on the first page of the return, for himself and two nieces, but on the second page he entered four exemptions.
José’s tax return claimed earnings of $27,691, withholdings of $4,431, and tax due of $387. The IRS issued a $7,053 check March 29 and mailed it to an address in Duplin County.
Carlos claimed earnings of $24,869, $4,378 in withholdings, and exemptions for three children. His tax due was $156 and he received a refund check from the IRS dated March 22 for $6,671. It was mailed to an address in Clinton.
Ramon’s tax return was identical to the one filed by Carlos, except he said he was owed a different refund. On March 15, the IRS mailed a $6,238 check to an address in Clinton.
None of the returns was filed electronically. Instead, all five returns stated they had been completed by the same Sampson County tax preparer. When CJ phoned the preparer, a woman speaking Spanish answered the call. She then shifted to broken English and indicated the tax preparation business no longer operated. The sheriff’s office had told CJ that it received a similar answer when a detective called the number.
Tax fraud rampant
CJ has reported on what federal officials call Stolen Identity Refund Fraud on several occasions. (Read the earlier stories here.) Officials say it’s the “No. 1 tax scam of 2013,” with more than $5.2 billion in losses to U.S. taxpayers reported in tax year 2010.
Yet, as CJ’s reporting indicates, some if not much of this refund fraud has slipped past the IRS and state revenue agencies. And because tax officials say they’re under pressure to issue refunds quickly to satisfy tax filers, those efforts preclude a thorough examination of tax returns to prevent fraudulent refund checks from being issued. Scam artists can take advantage of these gaps in detection and enforcement.
Don Carrington is executive editor of Carolina Journal.