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IRS refunded $12 million to dead people in scam

According to the government's lawsuit, the phony claims -- apparently processed by a single tax preparer -- were spread over some 300 accounts in several different banks.

By MSN Money Partner May 6, 2011 11:28AM

This post comes from Janet Novack at partner site Forbes.com.

 

Forbes.com on MSN MoneyOver 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 10 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. Post continues after video.

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 300 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.

More on Forbes.com and MSN Money:

43Comments
May 6, 2011 12:49PM
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I think it is time that someone audits the IRS!
May 6, 2011 12:54PM
May 6, 2011 2:26PM
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Ok, I was a single mom of three kids, a dead beat dad not paying child support. I was working and filing tax returns.  According to our divorce decree he was responsible for the last year of our marriage since I was a stay at home mom.  I found out 3yrs into being a single mom and struggling that he had filed bankruptcy and they had been in contact with him for 3 years trying to collect (plus penalty and interest), I found out because I opened my paycheck and they had garnished all of it!  Long story short, after long phone conversations (with very cruel, rude people) and driving to the IRS building in Denver to show them the divorce papers that he signed and he was responsible.  I was told I should've know the type of person he was and that he probably wasn't going to pay, so it was my fault!  I asked if they could take the penalties and interest off since they were not in contact with me, and only my ex.  They said no that was also my fault!  They came after me with a vengence, even though I was in plain sight, they even gave me refunds with the 3 years I filed!  YET, people are taking MILLIONS and getting away with it?!?  What is wrong with this picture.
May 6, 2011 3:10PM
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$12 Million to dead people and I am still waiting for my refund I filed January 14th because the IRS says they are researching!!!!!!!!!!!!!!!!!!!!!!! My little ol refund needs to be researched but they mail out $12 million on a scam.......GO FIGURE

May 6, 2011 2:10PM
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Flat tax - 10% all income & cap. gains. No deductions. Exempt the first 40k.
make up to 40k - no tax. make 60k - pay 2k. make 1 million - pay 96k.
Just a thought.

May 6, 2011 12:48PM
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Another great job by the IRS "working" for the citizens... How long will it take to figure this all out? Also, any other instances of this? Wouldn't be surprised. The perp is probably sitting on a beach somewhere smiling. Thanks IRS for all you do. Someone produces ID's for dead people that you receive on regular basis and yet fail to catch on until its too late. Someone or some persons who are important better be getting fired or at least be sitting in the hot seat right now. Maybe if you weren't worried about harassing those people who file returns and are off by $.01 or so you could figure things out like this sooner. Another example of an inefficient, ineffective government agency. Now I have no issues with the IRS, and I understand what they have to do, what I'm tired of is the broken system that we have and stories like this that come up resulting in a further middle finger to the honest taxpayers. Hey IRS if you really care, take a stand against Congress and tell them it isn't working anymore, because FYI, its not! Again I say hello to Fair Tax good by to current system. Stories like this would be a thing of the past. It is time to make the change, now!
May 6, 2011 1:30PM
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@poor taxpayer....Love it!!!!  Let's audit the IRS.
May 6, 2011 12:59PM
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I'd like to know WHY those involved were NOT NAMED?? The media never hides anything unless paid to do so or threatened by a "supreme power...." Humm... could it have been a relative of some high priority official or politician.... Nah.... they wouldn't let that happen....
May 6, 2011 1:52PM
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And we should let the gov. be in charge of health care. Let alone banks, autos, stimulus bail outs give me a break..

May 6, 2011 3:04PM
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Medicare admits to at least $75,000,000,000 dollars in Medicare fraud each year with about half known to go to illegal immigrants working out of Miami, Florida.  Our Federal government is inept and can not manage the system we have now and Obama wants to add more to the plate encumbered with even more complicated rules and new taxes.  Most of the Obama money will go to illegal aliens who are already robbing our country blind.  Socialism does not work and it has been proven in Cuba, Russia and most of the European countries.  We need a new leader and reduced government just as our founding fathers called for.  They make most of todays politicians look like useless idiots.
May 6, 2011 3:03PM
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Man do I have egg on my face.  I got Audited.  Had to pay a bundle for an Accountant's mistake.  Why didn't I think of this?!!!

May 6, 2011 1:08PM
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Yep I have always felt that flat tax was the best way to go. I have had that thought for over 40 years.. It is clean and no one can complain when everyone Corps. and rich included have to pay the same. I have no problem with that but then again who am I other than one of the guys that pays and then pays again?
May 6, 2011 3:36PM
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brilliant... Ive been preparing taxes for some 30 years, and after all this time the geniuses at IRS decide that, due to an elevated level of incompetence i need a new id number which is gonna weed out all the dopes..... then they issue one to a clown who sells it (supposedly) to somebody who uses it to prepare millions of dollars worth of fraudulent refund checks. puh-lease.... the problem with this country is NOBODY is on the up and up anymore, and anybody is willing to take a shot at the big bucks no matter how fraudulent and under-handed  they have to be... anybody want to guess whether they write it all off?
May 6, 2011 1:54PM
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I heard one year that they tried to audit the IRS.  But when half the paper work was missing or screwed up. they could not  do it. If that was u or me , Oh Boy.
May 6, 2011 3:09PM
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What, you expect the IRS to work properly? How long have you been living in the U.S.?
May 6, 2011 1:46PM
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Well, here is at least 12 million to be put towards our 'debt'.

May 6, 2011 3:03PM
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Yet living legal people cannot get their legitimate tax refunds. I have been a victim of identity theft 4 times! People using my name and social security number to file tax returns, the IRS cannot catch them. Any time I am due a refund, some one else steals my identity, and gets the refund.  When I am to pay back to the govt. No one else does. If the government can find Bin Laden in Pakistan. I wonder why the IRS cannot find the person/people who have been doing this to me.  I am almost losing my mind.
May 6, 2011 2:37PM
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The Govt. does NOT have a problem giving tax payer dollars (a lot) to scamming banks (thieves) and car companies (unions), so why should we care if the IRS (Govt.) gives dead people some money (a little)?

The U.S. Govt. has been screwing The People for many years, and until We revolt, they will continue to screw you and me 'til Kingdom come.
May 6, 2011 4:52PM
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Thanks MSN for adding to my Happy Friday.  Can't you ever write about anything except crap that incites people to acts of violence and rage?  We read all the time about how it's too expensive to put a stop to welfare fraud and medicaid and Medicare fraud, while decent people can't get good health care and veterans are treated so poorly.  The people that run these imcompent and corrup government programs love the status quo so much sitting on their fat rear ends enjoying their cush federal, state and county jobs while the rest of us sweat about where our next tank of gas is coming from.  Menawhile MSN offers us up headlines like this one or which are the most popular baby names of 2010.  They should have to pay us to read this horse dung. 
May 6, 2011 3:45PM
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I'm dead from the neck up, where's my check?
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