News

I-Team: Massive Tax Refund Fraud Exposed

View Comments
taxrefunds
CBS4 Investigates
Read More

“I had all my stuff in order. It’s nice and neat,” taxpayer Marija Weinman told CBS4 I-Team Investigator, Stephen Stock.

Though her tax return was nearly perfect, the 60-year-old Weinman got the surprise of her life this spring when the IRS held up her tax return.

“I was very upset when they called me,” said Weinman. “I said to myself, ‘What!?!’”

This spring, according to Weinman’s commercial tax preparer, the IRS held up her tax return and refund because someone else had stolen her disabled adult son’s identity and claimed him as a dependent.

“It’s not fair because we all go to work every day,” said Weinman. “We work very hard for our money. And then someone steals it. There’s no punishment that is too harsh for someone who did this. I hope to God that they catch him or them.”

The total amount the IRS is haggling with Weinman over is about $600. That is the amount her tax preparer says she can reduce her tax liability by legitimately claiming her adult son as a dependent.

Then there is a Miami business owner, we’ll call “Pete,” who asked not to be identified after the same thing happened to him. Only Pete’s story might make you fall out of your chair because his case involves, not $600, but more than a quarter of a million dollars.

“All I got from anybody was their condolences,” he said

It involved an error not against Pete, as in Marija’s case, but in Pete’s favor.

That’s right, the IRS sent Pete a refund of more than a quarter million dollars.

By mistake.

“I was expecting $20,000 or $30,000 (refund) not a quarter million dollars,” said Pete, who then contacted the IRS to return the check.

What happened next might shock you.

The IRS refused to take back the false refund. An official insisted that Pete cash the check he wasn’t due.

“And they (IRS officials) then said ‘No sir, that is indeed your correct amount of your refund.’ And they said, ‘You’re entitled to cash that check. That’s your money.’”

Only it wasn’t Pete’s money and he knew it, despite what IRS officials had insisted to him.

The Miami businessman did his own investigation and quickly found out that someone had stolen his identity and then filed a fraudulent return of about $60,000.  Then, Pete and other specialists he hired to track down this theft uncovered a fortunate glitch.

Fortunate for taxpayers that is.

Pete and the folks he hired to track this all down discovered that the IRS sent a refund check of $260,000 dollars not to the fraudulent identity thief but to Pete, who was honest and refused to cash the check.

“It’s no way to do business,” said Pete. “But if there are no checks and balances and there’s no one to be accountable to or for, then there’s no stopping this runaway train (of fraud).”

What’s worse, the IRS did this on three different occasions three different years in a row despite the fact that Pete had officially notified them to flag his return. He’d even filled out all the official paperwork to notify the IRS that his identity had been stolen.

Experts who used to work for the IRS said the stories of Pete and Marija do not surprise them.

“Part of it is a resource issue. Part of it is a funding issue,” said former IRS special criminal investigative agent Jose Marrero. “Part of it is that there are agencies that are at odds with each other.”

Marrero served as a special criminal investigator with the IRS for 28-years before retiring in May, 2004.

Marrero told the CBS4 I-Team that he estimates the lost taxpayer dollars could add up to $2 billion a year or more. Marrero makes that estimate based on internal IRS documents, audits and criminal investigations he’s seen firsthand as a special investigative agent and because he helped prepare and write some of those reports. And he says that $2 Billion is a conservative estimate.

“I will tell you that if everybody paid their fair share and there wasn’t any fraud I would almost guarantee you that we wouldn’t have a deficit,” said Marrero. “That’s how big the problem is.”

The IRS did not respond to requests from CBS4’s I-Team for a full accounting of how much tax refund fraud exists.

The agency that audits and monitors the IRS, the Treasury Inspector General for Tax Administration has not added up a total for the amount of tax refund fraud that the IRS suffers each year.

Jose Marrero now co-owns MRW consulting, a forensic accounting firm in Fort Lauderdale, with his partners Luis Rivera and Ron Wise. All three men are retired IRS special criminal investigative agents with a combined 90-years experience.

Wise, who retired in March 2006 after 33 years with the IRS, led the Atlanta field office for a time. He was Chief of Criminal Investigations and manager of the fraud unit in Atlanta’s IRS office before his career took him to Washington, D.C.

“I’m not at all surprised,” said Wise. “There are many, many thousands of people involved with processing tax returns. Anytime you deal with that number of individuals the likelihood of human error increases greatly.”

The CBS4 I-Team spent the last six months digging through tax records, audit reports and discovered one report to Congress that stated that $142,599,342 in fraudulent activities had been recovered in only one six month period of time (April 1, 2010 through September 30, 2010). But one estimate shows that amount is likely only one tenth of the actual fraud for one six month period.

Click here to read the Report to Congress, Sept. 2010

The MRW Consulting partners say that many IRS officials whom they worked with in Washington, D.C. simply treat refund fraud as the cost of doing business at the IRS.

“This is not the cost of doing business,” said Florida’s senior US Senator Bill Nelson. “This is fraud and it ought to be dealt with immediately and severely.”

To that end, Senator Nelson, along with New York Senator Chuck Schumer, are trying to reform IRS rules in an effort to slow down, if not stop this fraud.

Senator Nelson said the story of the Miami businessman named “Pete” who the I-Team uncovered serves as a perfect example of how broken the IRS system is when it comes to catching tax refund fraud.

“If our constituent in South Florida gets a $250,000 refund check that’s not real then you can see the potential not only hundreds of millions but billions of dollars that could be involved across the country,” said Nelson.

Marija Weinman believes her government wronged her twice: first, by holding up her legitimate refund; secondly, by seeming to allow this massive fraud to continue.

“It’s not fair at all,” said Weinman. “I don’t know how, but someone needs to go into IRS and revamp.”

I-Team investigator Stephen Stock asked Weinman, “Fix it?”

“Fix it,” said Weinman.

We discovered during the course of this investigation that while the IRS acknowledged the fraud, and that it is bad, no one actually knows exactly how bad it is.

Despite its technology, despite its know how, the IRS simply does not even attempt to accurately track how much money refund fraud thieves steal from taxpayers.

View Comments
blog comments powered by Disqus
Follow

Get every new post delivered to your Inbox.

Join 13,694 other followers