Federal prosecutors have uncovered a tax scam that potentially costs the IRS billions of dollars in phony IRS refunds based on the stolen identifies of Puerto Rican citizens, who don’t pay federal taxes.
“What we have uncovered may very well be the tip of the iceberg,” Manhattan U.S. Attorney Preet Bharara told The Wall Street Journal. “It’s a massive fraud.”
The Journal reports that the IRS successfully prevented about $14 billion in fraudulent tax refunds from being sent out last year, including some portion of which that were based on stolen Puerto Rican identities. At first glance, the returns look as though they’ve been filed by Puerto Ricans who have moved to the continental United States.
Using stolen Social Security numbers — valued at $8 to $10 on the black market — scammers file fake withholding documents from companies, and then claim phony refunds by filing tax returns based on the withholding documents — often netting between $5,000 to $7,000 in a single refund.
In some cases, the returns list phony dependents based on the stolen identities of Puerto Rican children.
At times the scammers have paid off postal carriers to intercept the fraudulent refund checks, while in other cases honest postal workers have played an important role in uncovering such fraud by reporting instances where large numbers of refund checks have been mailed to the same address, or to people who don’t live at a particular address.
Some of the checks have been cashed by bank tellers or employees at money service companies who are complicit in the scheme, according to the Journal.
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