A few minutes after Robert Ascanio hit “send” on his electronic 2013 tax return, he got a reply that it had been rejected. His Social Security number had already been used to file a 2013 return.
Ascanio – and the federal government, which paid a refund – had become a victim of the rapidly growing problem of tax refund fraud.
“A number of us were affected,” said Ascanio, an anesthesiologist at Maine Medical Center in Portland. “It seems to be a deliberate net was cast amongst physicians around the Maine Med area. … At least a half-dozen of us, immediately upon filing, experienced the same thing.”
Stolen-identity refund fraud tops this year’s IRS “Dirty Dozen” list of scams for which taxpayers should be on the lookout. And as Mainers hurry to beat the April 15 tax filing deadline, a growing number are finding that someone has beaten them to it.
Cape Elizabeth Police Chief Neil Williams said his officers took three reports of identity-theft refund fraud last week. Portland police also have had a recent influx of reports.
Refund theft is costing the federal government $4 billion a year, said Michael McKenney, an inspector general focusing on tax administration, who testified last summer before the House subcommittee on government operations. An IRS spokeswoman said the agency doesn’t keep a state-by-state breakdown of the losses or identified fraud.
The IRS processes 147 million individual tax returns each year, collecting $2.1 trillion and issuing $333 billion in tax refunds. Last year, it identified about two million incidents of identity theft – 212,000 reported by victims and the rest identified by the IRS.
“It’s been a scam that’s been around for at least a few years now,” said Peggy Riley, spokeswoman for the IRS regional office in Boston, which covers Maine. “It seems to get bigger in some parts of the country.”
She said the IRS is working with the Department of Justice to prosecute more cases.
The losses are the price of an increasingly convenient system for filing tax returns.
From a home computer, with tax software or free forms from the IRS, an identity thief can submit a fake return that generates a substantial refund. That refund can be deposited electronically in any bank account, to multiple bank accounts or even to a prepaid debit card. By the time the legitimate taxpayer or the IRS discovers the scheme, the thief can be long gone.
But not always.
ELABORATE SCHEMES, AND ARESTS
Joann Rittall, 43, of Gardiner is awaiting sentencing in U.S. District Court in Portland for identity-theft refund fraud totaling more than $200,000 from 2009 to 2012.
According to court documents, she offered to help 25 people file for Maine’s circuit-breaker property tax and rent refund program, though she was not a professional tax preparer. She then used their personal information to file fake federal income tax returns, even though at least one of those people was in prison at the time. She included her own children as dependents on some of the returns to increase the refunds. She had the money deposited directly in her accounts.
Troy Fears ran a similar scheme, from prison.
Fears filed 117 fake returns from 2005 to 2009 while in prisons in Maine and Arizona, collecting $119,000 in tax refunds and federal stimulus checks. He told inmates at the Maine State Prison in Warren that he was applying for grants on their behalf, and got their names and Social Security numbers. He had people outside the prison submit the returns, which he said he was doing on behalf of the prisoners.
Fears was already serving life in prison, but got another 57 months tacked on.
U.S. Attorney Thomas Delahanty said his office aggressively prosecutes identity theft tax fraud.
“We recognize that it is a high priority for the Department of Justice as well as the Internal Revenue Service,” he said. “We have prosecuted a number of such cases and people who commit such crimes in Maine should expect to be caught, prosecuted and sentenced to prison.”
But Maine is not the center of such activity. Elaborate networks have been uncovered in other states.
A man in Montgomery, Ala., was sentenced to five years in prison last year for running a tax fraud conspiracy across several states. Using Social Security numbers pilfered from a medical facility and other places, he and accomplices submitted fake returns, had refunds wired to prepaid debit cards, then paid “runners” to go to other states to withdraw cash with the cards.
At one point, he had 600 stolen identities and 200 prepaid debit cards, according to the Department of Justice.
IDENTITY THEFT THE BIGGER PROBLEM
Robert Ascanio found out immediately that his identity had been compromised.
Peter Purington of Portland didn’t find out until he went to withdraw money from his bank account. He found there was a tax lien on his savings.
“This shouldn’t be going on. It’s a really a bad thing for people,” said Purington, who had to scurry to get funds released so he could pay his rent.
The state of Virginia said he owed it money for the 2012 tax year. He had never worked in Virginia. To this day, he’s not sure where the tax debt came from – a false return filed in his name, or someone working with his name but not paying their taxes.
“I’m in the middle of trying to clear it up as we speak,” he said. “I feel like I’m a very huge victim right now, and it’s countrywide.”
Ultimately, fake federal refunds don’t come out of the individual taxpayers’ pockets. But someone who is counting on a refund may have to wait several months while the IRS confirms who the real taxpayer is and disburses the money.
The real consequences come from the identity theft. If someone is submitting fake tax forms, they may also be trying to get credit cards, which could seriously hurt the victim’s credit rating. Other accounts may be at risk as well.
“Now you have to cover yourself,” Ascanio said. “Someone clearly has your information. Banks, retirement funds, you have to alert everybody that someone has stolen your identity.”
He said he was fortunate to have contracted previously with an identity theft protection company. It didn’t prevent the theft of his information, but it quickly notified the companies that needed to know, he said.
Ascanio also had to spend time convincing the IRS that he was the real taxpayer.
He had to submit ample identifying information, like his passport and Social Security card. He had to file a paper return along with an identity theft form that “puts you in a pile so the fraud people can vet out who is the real you.”
VICTIMS FROM ALL INCOME LEVELS
Riley, from the IRS, said prevention is less painful than the cure.
“We tell people they should try to protect their identity and their personal identification as much as possible, especially their Social Security number and date of birth. … Don’t carry the Social Security card, don’t give (the number) out.”
The problem is, Social Security numbers are used by many entities to verify identity.
The people sentenced for stolen-identity refund fraud nationally include state workers, postal employees, health care workers and tax preparers.
Riley said the fraud victims eventually get their proper refunds.
“Sometimes they end up waiting months,” she said. “They will eventually get it, but it will take some time.”
The victims aren’t necessarily well off financially. Many are people who aren’t required to file tax returns so they remain unaware that their identity has been stolen.
The inspector general noted that the IRS does not follow direct deposit regulations, which require tax refunds to be deposited only in accounts listed in the name of the tax filers.
“Direct deposit, which now includes debit cards, provides the ability to receive fraudulent tax refunds quickly, without the difficulty of having to negotiate a tax refund paper check,” McKenney, the inspector general for tax administration, told the congressional panel in August.
He noted that an analysis of 2011 returns showed that one bank account received 446 direct deposits totaling more than $591,000.
David Hench can be contacted at 791-6327 or at: