Tax season is in full swing. While most people are working to file their returns before April 18, some view this as a prime time to cheat unknowing victims and the IRS through various tax fraud schemes.
The OIG becomes involved in more tax fraud cases than you might think. If people misuse Social Security numbers (SSNs) to submit fraudulent tax returns, we might assist the IRS Criminal Investigations Division (CID) and other agencies on a number of misuse and fraud cases.
As the following examples show, some cases can involve Social Security fraud and tax fraud, and they can affect a large number of victims and result in significant losses.
Fraudulent Tax Returns in Hawaii
In a recent case, we assisted the Hawaii Department of Taxation and determined a Hawaii man fraudulently received nearly $242,000 by using the SSNs and other personal information of unknowing citizens to file fraudulent State of Hawaii tax returns. The investigation revealed the man improperly obtained the personal information online, and he used that information to file Hawaii tax returns with commercial tax software. He even filed fraudulent tax returns with the IRS and the State of Hawaii with his deceased wife’s information.
In January, after the man pled guilty to identity theft, a judge sentenced him to two years in prison and ordered him to make full restitution to the State of Hawaii.
Tax Fraud from Prison
A couple in Colorado carried out a scheme that resulted in the fraudulent payment of about $300,000 in IRS refunds. We assisted IRS CID and determined the couple filed fake tax returns for fake companies with the IRS—and one of the perpetrators participated in the scheme from prison.
While incarcerated, a man used information provided by his girlfriend to complete fraudulent tax returns by using nine individuals’ names without their knowledge and creating 12 fake businesses for the tax returns. The man had the tax returns mailed to another friend, who was responsible for depositing the returns.
In January, after the man’s girlfriend pled guilty to conspiracy to defraud the government, a judge sentenced her to 18 months in prison and ordered her to pay restitution of more than $16,000 to the IRS.
An Accountant’s Grand Scheme
Finally, an OIG deceased payee fraud investigation with IRS CID revealed a New Jersey accountant’s larger tax fraud scheme.
IRS CID referred to us a case of potential deceased payee fraud; a man suspected his family’s accountant—a New Jersey woman—stole his deceased father’s Social Security benefits. The investigation found that the man’s father died in 2005, and between 2005 and 2009, the accountant forged the deceased man’s name and deposited forged checks into her business bank accounts. She stole more than $105,000 in Social Security benefits intended for the deceased man over that time.
The accountant’s schemes did not stop there, however. The investigation also revealed she would show her clients fake tax returns that showed they had no tax or refund due, owed a minimal amount of tax, or were due a refund that was much less than what they were entitled. Then, she prepared a second set of tax returns and signed them without the permission of her clients, which she later submitted to the IRS for the full tax refund. Based on the second set of returns, the IRS or the State of New Jersey issued and mailed the tax refund checks to the woman’s accounting firm.
After depositing the tax refund checks into the firm’s accounts without her clients’ permission, she would also direct her clients to make payments to the IRS for various tax liabilities. Lastly, after the payments were made, the woman, without the victims' knowledge, applied for refunds and received refund checks, upon which she would forge victims’ signatures and deposit into her account.
In December 2016, after the woman pled guilty to mail fraud and tax fraud, a judge sentenced her to 37 months in prison and ordered her to pay restitution of more than $1.8 million, of which about $103,000 was due to SSA. The remainder of the restitution was due to the scheme’s victims and the IRS.
If you suspect any form of tax fraud, you can contact the IRS here: https://www.irs.gov/individuals/how-do-you-report-suspected-tax-fraud-activity