The Fraud Underworld


There are many benefits to living a digital lifestyle. We can access information 24/7/365, work remotely from just about anywhere in the world, shop online and stay connected through email, phone or texts at all times. (But, along with progress, there also is the potential for unscrupulous individuals to take advantage of the digital world and use it dishonestly to victimize others.) An article published in the Miami Herald follows the explosive growth of tax fraud in South Florida, citing several criminals and the scams they used to defraud the Internal Revenue Service (IRS) through the use of Electronic Filing Identification Numbers (EFINs).

The story states that EFINs are used by tax preparers to file multiple tax returns under other peoples’ names. Evidently, EFINS are fairly easy to obtain. As a result, just about anyone can get one including scammers, who use stolen personal identity information and EFINs to file multiple fraudulent refund claims. They can also order hundreds or even thousands of prepaid debit cards, load the bogus tax refunds on the debit cards for their ”customers,” and then use the debit cards to withdraw cash from almost any ATM machine without showing personal identification. (That’s way too easy.)

According to the article, South Florida not only has the highest rate of identity theft, but it also has become the capital of tax refund fraud. Records show that thousands of EFINs were issued to purported electronic tax preparers in the South Florida area. (It turns out that many of the EFINs were used in the South Florida fraud hot spots, which are mostly poor inner-city communities.)

Fortunately, the IRS – in conjunction with the Federal Bureau of Investigation (FBI) and the U.S. Attorney’s office – has been able to revoke 117 EFINs since mid-2014 to stop the rampant filing of bogus tax returns. (More than 166,000 phony refunds were filed using the revoked EFINs.)

The article details one fraudster who operated an EFIN tax fraud scheme out of his Miami waterfront condo. Over two years, he used his luxury condo building’s Wi-Fi to seek $700,000 in bogus refunds. This created a challenge for FBI agents who had to analyze 685 tenants to determine which one was the perpetrator. A 31-year-old male received a two-and-a-half year prison sentence for his illegal acts, plus three years of supervised release. (He will no longer be enjoying the use of his Land Rover.)

In a separate case, one woman received 26 years in prison for helping to file 2,000 phony electronic returns seeking refunds of $11 million.

The story also mentions that a 10-person ring submitted $35 million in false tax returns using the names of deceased people. A 31-year-old involved in this particular scam used his EFIN and smart phone to submit $2 million in false tax returns. (When interviewed by a reporter from CBS’ 60 Minutes, the fraudster boasted that he could make more than $45,000 a day in the comfort of his own home by filing 15 returns requesting $3,000 each on a daily basis.)

While it appears that many fraudsters use their EFINs to electronically file large batches of modest tax refunds, paper filers with EFINs can also get in on the criminal action. (Paper return filers can receive sizeable refunds by submitting just a few tax returns claiming large refunds.)

According to the article, tax refund fraud costs the federal government about $5 billion a year in nationwide losses. The IRS has done a great job in reducing the amount of money lost from this rampant crime spree by revoking EFINs. (While electronic filing allows for the easy submission of tax returns and improves customer service and satisfaction for citizens, it unfortunately has been used by fraudsters to fund a luxurious lifestyle in a criminal underworld.) Hopefully, these perpetrators have learned their lesson that in the real world, crime doesn’t pay and they will be held accountable for their actions

Source: Today’s ”Fraud of the Day” is based on an article titled, ”Ripping Off Your Refunds: One Little Number Fuels South Florida’s Tax-fraud Explosion,” written by Jay Weaver and published in the Miami Herald on February 22, 2015.

Like so many street-smart cyber thieves, Josue Pierre took a shortcut into the easy-money underworld of tax fraud.

Pierre exploited a special tax-filing designation from the Internal Revenue Service so he could use stolen IDs to file hundreds of fabricated online tax returns.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.