2 Investigators: Identity Thieves Stealing Billions With Fraudulent Tax Returns
(CBS) -- Identity thieves got away with $5.8 billion in tax refunds last year by filing fraudulent tax returns, federal officials estimate.
So what's being done to catch them before the money is doled out leaving legitimate taxpayers with all kinds of red tape to prove who they are and long waits to get their money?
The CBS 2 Investigators found efforts are being made, but much more needs to be done.
Nobody knows that better than honest taxpayers who this year found their returns rejected by the IRS because somebody else had already filed a return using their social security numbers.
"I was angry," said Ryan Bruinsma, after he recently got a notice that his e-filed tax return was rejected by the IRS because of "duplicate conditions."
"And those duplications were not one, not two, but all three of my daughters' identities had been stolen and they were claimed as dependents by others," Bruinsma said.
To get his refund he's now had to file an identity theft affidavit with proof that he is the real taxpayer and father of the three children.
"Whoever this person or persons were they filed ahead of us, so it's literally a first come, first served thing," Bruinsma said. "Anyone can claim anybody."
The IRS says that over the last four years it has taken steps that have stopped 19 million suspicious returns and stopped scammers from collecting more than $68 billion in refunds.
"We actually have over 3,000 people that are dedicated just for identity theft," said IRS spokesman Joe Munoz.
The agency is using filters to catch anomalies before fraudulent refunds are paid and contact the real taxpayers.
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For example, the IRS sent an inquiry to Thomas Mueller who has filed joint returns with his wife for the last 32 years. The agency wanted to know if a return filed in February using the name of another woman as his wife was actually filed by Mueller. It wasn't.
When he realized what had happened he says, "I just started shaking."
So who is behind these refund thefts?
"Everything from international criminal gangs to street gangs in American cities to just individual hackers," says William Kresse, a fraud expert and professor at Governors State University.
It probably starts with a data breach where the fraudsters get your social security number and other personal information and then sell the information or use it themselves to file fraudulent returns and collect refunds.
Kresse showed CBS 2 Investigators a chat room where they are brazen enough to share advice on what the IRS is doing and how to get around it. For example comments in the chat room included, "People, the secret still stays in numbers so file as many applications as you can. No matter how accurate your tax info is."
Another advised scammers should use an average adjusted gross income and refund request. "Stop asking for $9,000 per refund," and use the average refund amount taxpayers experience, "about 2500 to 3000." Follow those instructions, the writer says and "Nobody will come looking for you."
"For every effort that the IRS does to block the bogus refunds the bad guys have figured it out," Kresse says, changing their methods of operations to get around them.
The IRS has successfully prosecuted more than 1,400 identity theft refund thieves in the last three years, but the cases are difficult to make. Why?
In part because the identity thieves are able to have the refund money deposited on green dot debit cards which can be purchased at any number of stores.
"They put the cash in their pocket and it's virtually untraceable," Kresse says.
And even when the IRS does intercept an apparent effort to commit a refund theft, as in the case of Thomas Mueller, taxpayers say they have another huge problem getting information from the agency.
Tom Mueller says he did follow IRS written instructions to file a fraud affidavit online and mail in his return with his tax payment. But he wanted to get more information from the IRS and also called the 800 number provided by the agency--- 20 times a day for weeks.
"To this date, I have never spoken to anyone from the IRS," Mueller said.
The IRS admits its overloaded phone system this tax filing season hung up on 8 million tax papers. Only 40 percent got through after long waits.
"There's no follow through," Mueller said. "They just leave you hanging and I expect more from our federal government than that."
The IRS commissioner blames the problems on severe budget cuts, totaling $346 million. That includes $200 million needed the commissioner says is needed to invest in advanced computer systems that could add new protections against refund identity theft-- thefts that cost $5.8 billion last year.
But that will take an act of Congress.
"The one time investment of millions of dollars will save us billions of dollars every year," Kresse observed. "It's a case of being penny wise but billions of dollars foolish."
