Did you know that someone can file a tax return in your name and pocket all the refunds due to you? Stolen Identity Refund Fraud (SIRF) is growing in epic proportions and affects thousands of American tax payers every year. A recent indictment of a seven member gang who defrauded the IRS and tax payers of $111 million highlights the severity of the problem and how we need to be more vigilant than ever against identity theft.
The Identity Theft Crime
On March 7, 2023, a federal grand jury in Austin indicted seven individuals in a Stolen Identity Refund Fraud (SIRF) scheme. Between 2018 and 2021, these seven individuals allegedly used stolen identities of accountants and tax payers and filed 371 fraudulent tax returns claiming over $111 million in refunds from the IRS.
These numbers are astounding. In 2021, the IRS flagged 3.5 million tax returns potentially filed by identity thieves with refunds totaling approximately $11.7 billion for additional review through 155 identity theft filters. 39,578 tax returns were found to be fraudulent and prevented the issuance of $249.8 million in refunds related to identity theft. But many went undetected and refunds were made.
An indictment is merely an allegation and all the seven defendants are presumed innocent until proven guilty. But if they are proven guilty beyond reasonable doubt in a court of law, the conspiracy and the crime is alarming. Let’s see how the modus operandi of this gang.
Crime Step 1 – Steal Identities of tax payers and accountants
The gang allegedly collected stolen identities of tax payers and tax professionals by various means. The exact sources are not known but it could be purchasing from the dark web, mail theft, unscrupulous people who had access to the information, etc.
Crime Step 2 – Collect addresses, prepare debit cards
The gang also collected addresses they control to use in this scheme. These addresses would be used to receive the fraudulent refunds. They also prepared prepaid debit cards to receive the fraudulent refunds.
Crime Step 3 – Register with the IRS
The gang then registered with the IRS, posing as authorized agents of multiple taxpayers. The stolen identities relating to the victims and their real tax preparers would be used.
Crime step 4 – change IRS records
Armed with this validation by the IRS as authorized agents of the victims, the conspirators then allegedly directed the IRS to change the addresses on file for the taxpayers and to send their tax information, including account transcripts and wage records, to the addresses controlled by the conspirators.
Crime step 5 – file fraudulent returns
The conspirators now have all the information they need to electronically file tax returns claiming fraudulent refunds. The IRS has hundreds of filters to verify tax returns but these filings passed through all these checks and were successfully filed and processed by the IRS. Prior to issuing tax refunds to some taxpayers, the IRS allegedly sent verification letters to the addresses controlled by the fraudsters. The conspirators obviously instructed the IRS to release the refunds.
Crime step 6 – load the refunds onto prepaid debit cards
The refunds amounting to $111 million would be split among several prepaid debit cards they had acquired. Prepaid cards have fewer controls on them than on regular credit and debit cards issued by banks. Cyber security experts say the use of prepaid debit cards is making it easier for hackers to withdraw large amounts of money before detection.
Crime step 7 – money laundering
Once the tax refunds were deposited onto the prepaid debit cards, they laundered the funds by purchasing, among other things, money orders from local stores in amounts low enough to avoid reporting thresholds. They also indulged in designer clothing, cars and other luxuries.
The punishment for Identity Theft Crimes
The indictment charges each defendant with varying crimes, including mail and wire fraud, aggravated identity theft, money laundering and access device fraud. If convicted, they face sentences varying from 2 years to 20 years in prison, monetary penalties, restitution and forfeiture for the various crimes.
How do we protect ourselves against Identity Theft
How do we protect ourselves from becoming victims of identity theft and see our tax refunds stolen? We would like to reiterate the 3Ms mantra – maximize security, minimize information sharing and monitor your exposure.
Tips to prevent SIRF
Tip #1 – Apply for an identity protection PIN at the IRS website.
Tip # 2 – File your taxes as early as possible. Once the taxes are filed, criminals cannot file again and they look for the individuals who have not filed to execute their nefarious scheme
The importance of being vigilant against identity thieves
Identity theft is a serious problem in today’s increasingly complex digital world. To protect our online identity it takes effort, time or if you can afford it, money. So we have to be vigilant and follow a regimen to keep our identities safe. As we have shown in this website, we need to have an action plan, we need to understand the online security basics and we need to join forces to defeat the criminals.
