Somebodys Watching Me: IRS Criminal Investigations Ramp Up Efforts To Thwart Tax ID Thefts – Forbes.
He did it for crack cocaine.
That’s what David F. Lewis reportedly told investigators when he was arrested as part of a massive identity theft scheme earlier this summer. Lewis, a former Veterans Affairs employee at the James A. Haley Veterans Hospital, was charged with wrongful disclosure of health information, access device fraud, and aggravated identity theft. While at the Veterans’ Hospital, Lewis allegedly stole the identities of dozens of patients; he sold the information to third parties who used the information to file fraudulent tax returns. Lewis was paid more than $100,000 for his role in the scheme, money that is likely never recoverable since Lewis used the funds to fuel what was deemed “a severe drug problem.”
That same week, a federal grand jury indicted Tigi Moore, a records clerk at Tampa General Hospital for a similar crime. Moore was accused of using her position in the records department to access names and Social Security numbers of a number of patients; she allegedly handed that information to Corey A. Coley, Sr., and Albert E. Moore Jr., and the three used the information in order to file false federal income tax returns. All three were indicted on conspiracy, wire fraud and theft of government property charges; Moore was also indicted on additional counts of wrongful disclosure of health information.
Those arrests followed on the heels of the sentencing of Alci Bonannee, a Fort Lauderdale woman, convicted of one count of conspiracy to defraud the government, nine counts of filing false claims, nine counts of aggravated identity theft and 14 counts of wire fraud. Bonnanee was said to be the ringleader of a scheme which used stolen identities in order to file fraudulent tax returns seeking $11.7 million in fraudulent income tax refunds – the Internal Revenue Service (IRS) paid out nearly half of that before the arrest. For her role in the scheme, Bonannee was sentenced to 26 years and five months in prison and ordered to pay more than $1.9 million in restitution.
These arrests are just the latest in what has been deemed an “epidemic” in identity theft crimes. Acting IRS Commissioner Danny Werfel testified before a subcommittee of the House Oversight and Government Reform panel in Congress that “[r]efund fraud caused by identity theft is one of the biggest challenges facing the IRS today.” Nina Olson, the National Taxpayer Advocate agrees, putting identity theft schemes at the top of the IRS Dirty Dozen Tax Scam list for the second year in a row.
Despite funding challenges as Congress continues to wield an axe over the IRS budget, IRS has ramped up its investigations into identity theft issues. In fiscal year 2012, the number of IRS criminal investigations into identity theft issues more than tripled; that number increased even more for the 2013 filing season. Those efforts in 2012 helped the IRS protect $20 billion of fraudulent refunds (more than twice the proposed IRS budget), including those related to identity theft, compared with $14 billion in 2011.
Leading the charge in enforcement efforts is the IRS Criminal Investigation (CI) department. The little known, rarely touted arm of the IRS is made up of approximately 3,700 employees worldwide; about 70% of those employees are special agents who tackle crimes focusing on tax, money laundering and Bank Secrecy Act laws. CI “follows the money” in many financial crimes cases: while other federal agencies, like the Federal Bureau of Investigation, may also chase financial criminals, IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code.
How effective are they? For the last fiscal year, IRS-CI initiated 5,314 investigations, recommending 4,364 potential defendants to trial. Those cases, which are usually prosecuted by the Tax Department of the Attorney General’s Office of the U.S. Department of Justice, resulted in 3,865 convictions and 3,311 sentencings: a better than 80% to prison rate.
For the last fiscal year, nearly one-third of IRS-CI investigations focused on “questionable refund investigations” – or what you and I would simply consider identity theft. And the epicenter of their operations has been the southeastern United States.
As a former southerner – I grew up on the coast of North Carolina – I’ve been fascinated with the near explosion of identity theft in the southeast. Lewis, Moore and Bonannee ran their operations in Florida. So did Rashia Wilson, the self-dubbed “Queen of IRS Tax Fraud,” and Maurice Larry. In fact, Florida touts the highest per capita rate of reported identity theft complaints in the country – followed by Georgia.
So what gives? Is it the great weather? The lovely beaches? What makes Florida – and other parts of the southeast – such a great target for identity theft?
In a word, says James Robnett, Special Agent in Charge for the Tampa Field Office of IRS-CI, it’s opportunity. The southeast is a target-rich environment. The population is generally older in the southeast than in other parts of the country. Older people frequent doctor’s offices – a potential hotbed for identity theft – and nursing homes; despite accumulated wealth, they may not have a stream of taxable income, making it less likely that they’ll file a federal income tax return.
And of course, there’s the proximity to Puerto Rico; the U.S. granted citizenship to Puerto Ricans in 1917 but under the law, they don’t have to file with the IRS or pay federal taxes unless they have certain kinds of income. They do, however, tend to have Social Security numbers – unused Social Security numbers – making it easy for fraudsters who steal those numbers to use them for years without detection.
This combination has made the area “ripe” for fraud, according to Robnett. Michael DePalma, Special Agent in Charge for the Miami Field Office of Internal Revenue Service – Criminal Investigations (IRS-CI) and former National Identity Theft Coordinator for IRS-CI, agrees, noting that fraud has been more prevalent in the southeast. DePalma hopes, however, that efforts to stamp out identity theft crime – including meaningful criminal sentences – sends a strong message to potential criminals.
But how does the IRS find those potential criminals in the first place? Increasingly, the IRS relies on tips from state and local law enforcement, and coordinates investigative efforts with other federal agencies.
One of the best examples of these efforts can be found in Tampa where last year, a collaborative effort was formalized and named the Tampa Bay ID Theft Alliance. The Alliance, has as its mission, the coordination “of police efforts to prosecute individuals that target citizens for criminal financial gain through the theft of personal identifying information.” That criminal financial gain was – by the millions – tax fraud related ID theft, making it natural for the Tampa Office of IRS-Criminal Investigation (CI) to become a center for coordination. Today, the list of those participating in the Alliance reads like a “Who’s Who?” of crime fighters:
Tampa Bay Identity Theft Alliance Members
Florida Department of Law Enforcement
Internal Revenue Service – Criminal Investigation
Hernando County Sheriff’s Office
Hillsborough County Sheriff’s Office
Manatee County Sheriff’s Office
Pasco County Sheriff’s Office
Pinellas County Sheriff’s Office
Polk County Sheriff’s Office
Brooksville Police Department
Clearwater Police Department
Largo Police Department
Plant City Police Department
Tampa Police Department
US Secret Service
US Federal Bureau of Investigation
US Veterans Administration, Office of Inspector General
US Department of Housing and Urban Development, Office of Inspector General
US Treasury Office of Inspector General
US Attorney’s Office, Middle Judicial District of Florida
Florida Statewide Prosecutors Office
This hasn’t always been the case. Traditionally, each of these law enforcement arms and agencies worked independently. There were a lot of factors at play – including coordination challenges and privacy concerns – but some of it was merely sorting out the mechanics of this relatively new crime of tax fraud related ID theft.
Local law enforcement, for example, started noticing different behaviors when they made their patrol rounds. The same thugs that had been focused on drug and gang-related activities were still hanging around at all hours of the day and night but their vehicles weren’t filled with evidences of drug crimes: they were filled with lists of names and numbers. That wasn’t enough to consider criminal behavior without context: how did they get those names and numbers and what were they doing with them? Increasingly, undercover techniques, including videotape, led to the answer: they were stealing names and Social Security numbers and using that data to file false tax returns seeking refunds. Once those pieces started to fall into place, it was natural to coordinate law enforcement efforts with agents in IRS-CI to follow-up on the tax crimes.
Coordination and investigation can take a long time – sometimes months. Why not, I asked, simply make an arrest on the spot? DePalma explained that investigations can be lengthy because taking the little guys out may not always the best strategy. These are, he noted, large and often sophisticated organizations, akin to what we normally think about in terms of organized crime. Building a case is important in order to not only put a stop to the behavior but also to successfully bring those down at the top. Following the money is important, he says, because part of the job is to take away the tools the criminals are using and return those to the Treasury. Recent high profile seizures have included fancy homes, expensive jewelry and luxury vehicles including recent seizures of a BMW X6, Porsche Cayenne, and a Bentley – not to mention the “King Camaro” seized as a result of the Larry investigation. Those assets also include literally millions of dollars in debit cards (loaded up with false tax refunds) and Treasury checks.
You can also learn from the bad guys. Undercover investigations have allowed agents to figure out how schemes are perpetuated and how new criminals are “recruited” into existing schemes. Robnett emphasized that these operations are often conspiracies – not just one-off petty crooks. Operations can involve dozens of people but are usually comprised of at least three individuals: someone to steal the identities, someone to file the returns and someone to collect the money. Organizations are often larger and more complex, with narrowly defined jobs: data thieves, runners, data buyers, data sorters, counterfeiters (to be used to collect checks), tax return preparers, check collectors, signature forgers and check cashers. Each of these criminal elements can result in a jail sentence; sentencing for federal tax crimes is more harsh when it can be proved that the individual components were part of a known and organized scheme to defraud the government.
That takes patience, says Robnett. He credits IRS agents with not only bringing dollars back to taxpayers but bringing criminals to justice for potentially lengthy prison sentences; those sentences, he says, should serve as potential deterrents for future criminals.
IRS-CI has been busy with a number of high profile cases, bringing publicity not only because of the sheer dollars involved but also for the brazen nature and in some cases, “no fear” approach that criminals have taken as they snatch up government money. Many criminals, like Rashia Wilson, taunted the feds, believing that they would never be caught – or if they were caught, they would not serve significant time. The Alliance has proven them wrong. Robnett points to the 21 year sentence for Wilson as an example of what IRS-CI together with the Alliance has been able to achieve. The recent takedown of 45 defendants in South Florida is more evidence that IRS is serious about cracking down on tax fraud.
Robnett is, however, also quick to acknowledge that IRS relies on the “serious commitment by our local partners” who are often the eyes and the ears on the ground. Those partners, he points out, have different resources and talents than IRS. In addition to local law enforcement, other agencies are playing important roles. He cites Crime Stoppers as an example of the process. Billboards and publicity in target areas where citizens have seen and reported criminal activity have resulted in information handed off to investigators in a faster, better, more coordinated fashion than before.
Why rely on the public? Not only are taxpayers a great source of information, they are most affected. Tax refund fraud isn’t an anonymous, victimless crime. In addition to the obvious (the dollar suck at the Treasury for money that has been diverted to criminals), taxpayers who lose their identities may face significant uphill battles trying to get their own lives back. That makes it personal.
According to Richard Weber, Chief, IRS-Criminal Investigation, fighting ID theft is not just about protecting the integrity of the tax system. “This is about doing everything we can do prevent taxpayers from being financially brutalized by identity thieves. It’s a top priority of IRS-CI and we set in motion a very robust, fluid enforcement program partnering with our federal, state and local law enforcement counterparts. Our recent, coordinated enforcement actions around the country bear out our effectiveness in combating this heinous crime. To the surprise of these malfeasants, we are catching them in the act, often before they click the send button. My warning to cold hearted identity bandits: we will track you down, you will be caught and justice will be served.”
So how do you protect yourself? Find out how identity theft theft can happen and tune in later this week for more information about ways to protect yourself.