Identity theft growing during tax season…

Nearly 1 million false tax returns in 2011 created headaches for victims.

If you haven’t filed your tax return yet, there’s a growing chance someone may have done it for you. The head of a federal oversight agency told Congress that nearly a million fraudulent tax returns last year — worth $6.5 billion — involved identity theft.

Victims are numerous across our region, and the Internal Revenue Service has seen a fivefold increase in innocent taxpayers having their refunds confounded by identity theft, the Dayton Daily News found.

The ID thefts include thieves filing tax returns on behalf of taxpayers, or holding jobs using stolen Social Security numbers and leaving victims on the hook for taxes.

“It’s an every-year thing for me,” said Arcadio Alvarez, 27, of West Carrollton.

Alvarez lost his wallet nine years ago. Someone else has been working jobs in Cincinnati and California under his name, using his Social Security number. As a result, the IRS has accused him of not paying about $3,000 in taxes every year since the theft.

“Every year before you’re asked to file your taxes, I get a letter from the IRS saying I had another job that wasn’t claimed on the previous year’s return,” he said. “It’s a whole waiting thing to see if it happens the next year.”

So far he has been able to convince the IRS the other person wasn’t him; but he lives in fear of the year they don’t believe him.

The federal government has stepped up prosecutions, but investigations still number only in the thousands. Victims, meanwhile, are subjected to a months-long headache of proving they’re the real taxpayer.

“Part of being the victim is you have to prove that it wasn’t you,” said Fred Francis, a former IRS revenue officer who is now a tax preparer with Clark, Schaefer Hackett, which has offices in Dayton, Springfield and Middletown.

Infographic: How identity theft refund fraud works + ENLARGE PHOTO


E-filing feeds fraud

Area tax advisers say the rise of identity theft corresponds with the growing prevalence of electronic filing. Francis said it happens “enough to call it scary.”

He said when he was with the IRS’ Dayton office he saw cases where family members would steal information from each other and file for refunds, sometimes claiming massive amounts they weren’t due.

He said electronic filing makes it easier for this to happen because it doesn’t require a W-2 to be submitted with the filing and allows returns to be deposited into any account.

“It’s a big problem,” Francis said. “Until technology catches up with itself you’re going to have this issue, and even when it does catch up they’ll just find a way around it.”

“It is definitely on the rise, and it happens frequently where taxpayers go to file their tax return and somebody has already filed a return under that number,” said Jeff Woeste, tax manager at Flagel, Huber, Flagel, which prepares taxes for clients in the Dayton and Cincinnati areas.

Sometimes he said this happens from another taxpayer filing online and accidentally keying in the wrong Social Security number.

Woeste said the response from taxpayers when they’re told they’ve already filed is “shock.”

“(It means) loss of funds, delayed use of funds and more cost to them for professional advice,” he said.

Local preparers say the best thing you can do to protect yourself is file early, before someone else gets a chance.

Cases totaled nearly a million in 2011

Treasury Inspector General for Tax Administration J. Russell George, an IRS watchdog, expressed to Congress last week concern not only about the number of suspected fraudulent returns but also the time it takes to resolve issues with innocent taxpayers.

Of the 2.1 million fraudulent returns the IRS identified in 2011, George said 938,664 with $6.5 billion in associated fraudulent refunds involved identity theft.

A Government Accountability Office report on taxes and identity theft released in May found the number of tax-related identity theft incidents identified by the IRS increased fivefold, from 51,702 in 2008 to 248,357 in 2010.

The median amount of these refunds in 2009 was $3,400, the GAO reported.

The IRS wouldn’t directly release numbers on suspected fraud, only cases that have been caught. In 2011 nearly 262,000 tax returns were removed from the system, blocking payment of roughly $1.4 billion. This is an increase from nearly 49,000 returns in 2010, worth $247 million.

Thieves employ ‘sinister schemes’

For an identity theft scheme to work, thieves need personal information such as name, Social Security number and birthday.

They obtain this in myriad ways, according to Craig Casserly, spokesman with the IRS criminal investigative unit in Columbus.

Sometimes the information is taken by someone who knows the victim, he said. Often, it’s obtained through an Internet phishing scheme from someone pretending to be the IRS.

“The IRS will not email you,” he said.

Nina Olson, National Taxpayer Advocate, noted in U.S. Senate testimony last year that “criminals have become more proficient in devising schemes to steal identities.”

One of the more “sinister schemes” she identified was the use of deceased taxpayers’ identities — SSN, date of birth and other information is publicly accessible upon a person’s death, often for free from some websites — in filing for a return.

Sometimes thieves steal the identities of deceased children to claim them as dependents, she said.

Olsen said the IRS instituted new rules to filter out some of these returns in April 2011 and stopped 42,441 in one month with refunds totaling $194 million. It identified 221,000 returns claiming $700 million in refunds that would have been stopped had the measure been in place in January.

Olsen also said identity thieves are targeting the elderly and children.

“Because these individuals often do not file tax returns, it can take years to discover that an identity thief has usurped their SSN,” she said.

In his testimony this month, George said having better access to wage and withholding information — which often isn’t passed to the IRS until after a refund is issued — could prevent the issuance of billions of dollars of fraudulent tax refunds.

George also identified a backlog of cases and said communications with taxpayers is “limited and confusing, and victims are asked multiple times to substantiate their identity.”

IRS: 3 local women exploited disabled

The IRS has stepped up enforcement efforts.

A nationwide sweep at the end of January netted charges against 105 people in 23 states. This included three women in Dayton accused of stealing the identities of more than 30 people — most of them mentally disabled — and then filing fraudulent income tax returns claiming about $170,000 in refunds between 2008 and 2009.

Karen T. Taylor, 50; Laquanna R. Bradshaw, 30; and Tiffany L. Cole, 26; were indicted Jan. 11 in U.S. District Court.

The indictment against the three says Taylor worked as an office cleaner for an unnamed company and was able to obtain records containing personal information of, among others, mentally disabled adults.

It also says Cole and Bradshaw would then file tax returns using this information and claim these people earned significant income working jobs such as household help, which would not require a W-2.

They would then list fictitious dependents to qualify the person for an earned income tax credit. They then had the refunds deposited into bank accounts to which they had access and spent the money, the indictment says.

Other local cases

More recently, a federal grand jury charged Kesi Spear and Bobby Wade in February of making false claims for federal income tax refunds of more than $30,000.

The alleged scheme involved Spear, a Dayton-area tax preparer, filing federal income tax returns in the names of others, which falsely claimed a refund of taxes, according to the IRS. The refunds ranged in amount from $2,416 to $6,279.

Spear and Wade were also charged with conspiracy to destroy evidence, namely a computer and documents to be used in the trial.

Rickie S. Rutledge of Dayton was sentenced Jan. 26 to 32 months in prison for preparing false tax returns to get refunds in the name of other taxpayers. Rutledge had pleaded guilty in May 2011.

Court records state Rutledge worked with his co-conspirator, Donna Dunn, to submit thousands of dollars in false personal income tax returns to the IRS using personal information they obtained from dozens of people in the area.

They claimed these taxpayers were entitled to substantial tax refunds from the IRS and had the refund checks sent to addresses across the region that the duo had control over or access to and cashed them at various locations.

Dunn was sentenced in August 2011 to five years of probation. Rutledge was ordered to pay $81,000 in restitution to the IRS and must serve three years on supervised release after his prison term.

How to avoid becoming the victim of an identity thief

The IRS does not initiate contact with taxpayers by email or social media to request personal or financial information. The IRS does not send emails stating you are being electronically audited or that you are getting a refund. This includes any type of electronic communication, such as text messages and social media channels.

If you receive a scam email claiming to be from the IRS or discover a website that claims to be the IRS but does not begin with ‘’, forward the link or email to the IRS at

Identity thieves access personal information by many different means, including: stealing your wallet or purse, posing as someone who needs information about you through a phone call or email, looking through your trash for personal information, accessing information you provide to an unsecured Internet site.

While preparing your tax return for electronic filing, make sure to use a strong password to protect the data file. Once your return has been e-filed, save the file to a CD or flash drive and then delete the personal return information from your hard drive. If working with an accountant, ask them what measures they take to protect your information.

Source: Internal Revenue Service

By Josh Sweigart, Staff Writer

Posted on: March 16th, 2012 at 5:46pm by bwittenbaum. Filed under: Uncategorized

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