by Janet Novack, Forbes
Over the course of a year, the Internal Revenue Service processed and paid out $12.1 million in fraudulent tax refund claims submitted using the stolen names and Social Security numbers of 5,108 dead people. Incredibly, the claims were all processed under the “Electronic Filing Identification Number” assigned to just one tax preparer, without, apparently, being blocked by any of the computerized screening programs used by the IRS to catch refund fraud.
That surprising disclosure is contained in a “Complaint for Forfeiture” lawsuit the government filed late last month in the Southern District of Florida. The suit seeks to keep $851,832 federal agents seized in March from ten Bank of America accounts and $760,035 they seized from three JP Morgan Chase Bank accounts — all the cash allegedly proceeds of the post-mortem identity theft scam.
The phony refund claims, all for calendar year 2009, were filed in the names of people who had died in 2009 or 2010. The fraud may well have been facilitated by the fact that the Social Security Death Index—a database of all deaths reported to the Social Security Administration since 1962 —is publicly available on the web through such sites as Ancestry.com and geneaologybank.com. A fraudster can, for example, search for the names of everyone who died in certain months and then access information for each individual, including his or her Social Security number, birth date, death date, and the zip code for the individual’s last known residence.
According to the government’s complaint, the tax preparer Electronic Filing Identification Number used in the massive scam was assigned to a Florida man who told federal agents he was paid $1,000 to apply for it, but never prepared any returns or used the number. Some of the refunds were sent to an account at BankAtlantic opened by a different Florida man. Federal agents have traced proceeds of the dead taxpayer refund scam to 303 accounts spread over nine different banks, the complaint says. It is unclear from public filings just how much of the $12.1 million the government has recovered, but apparently the largest recovered chunks were in the Bank of America and JP Morgan Chase accounts.
So far, there have been no criminal charges brought in the case. The Assistant U.S. Attorney who filed the forfeiture case declined to comment on the status of any criminal investigation or other aspects of the case.
The Social Security Administration sends weekly death report updates to the IRS. So why would the IRS pay any refunds at all to dead people? A spokeswoman for the IRS, citing taxpayer privacy laws, declined to comment on any aspects of this case, but noted that a 1040 for the year of or before a taxpayer’s death is often due and filed by a surviving spouse or an estate. That raises the possibility that surviving relatives of the dead identity theft victims may have encountered difficulties when filing last returns for their loved ones; if the identity thief filed a 1040 under the Social Security number first, the second, legitimate refund claim would typically be frozen while the IRS investigated.
In a formal statement e-mailed to Forbes, the IRS said it has made preventing identity theft a top priority, but is still “seeing an increase in identity theft cases, including more complex and sophisticated schemes.”
Here’s the full IRS statement:
“Preventing identity theft is a top priority at the IRS, and we have committed significant resources to addressing and resolving cases of taxpayer identity theft. The IRS understands that identity theft issues can be very frustrating and complicated for people. Tax-related identity theft cases can be extremely complex, and the IRS is committed to working with taxpayers who have become victims.
The IRS processes more than 142 million tax returns every year, and issues over 109 million refunds totaling over $328 billion and has a robust screening process with measures in place to stop fraudulent returns Unfortunately we are seeing an increase in identity theft cases, including more complex and sophisticated schemes. Just this year alone, the IRS has stopped nearly 117,000 identity theft returns and protected more than $582 million from getting into the wrong hands. The IRS not only stops the vast majority of fraudulent refund claims, but also investigates and works with the Department of Justice to criminally prosecute ID theft cases against scam artists.”
This isn’t the only recent bizarre identity theft case involving the IRS. Last month, Forbes discovered that an unidentified person had managed to steal the tax identity of 2,300 small nonprofits from a new IRS online filing system. The system had so many holes that Forbes senior editor William P. Barrett was able to register to use the system under the name of Donald Duck.