Investigating Tax Refund Fraud

A Georgia woman was recently sentenced to 27 years in prison for stealing the identities of nursing home patients and using their information to apply online for about half a million dollars in fraudulent tax refunds from the Internal Revenue Service (IRS).

Criminals who use stolen personally identifiable information to line their own pockets perpetrate a wide variety of fraudulent financial schemes, like hacking into online accounts, submitting phony insurance claims, and applying for loans and credit cards. Increasingly, though, tax refund fraud using stolThe IRS has reported a significant increase in identity theft-related tax refund fraud over the past several years. This type of crime is perceived by criminals and organized criminal enterprises as relatively easy, seemingly low-risk, and, ultimately, pure profit which can be used to fund other criminal activities…like drug trafficking, money laundering, public corruption, or even terrorism.

Anyone with a Social Security number could become a victim. But criminals who commit tax refund fraud seem to focus more on people who don’t normally file tax returns—the elderly, low-income families, students, patients at long-term health care facilities, and even the homeless. Perpetrators also target public figures like celebrities, athletes, CEOs, and politicians, as well as law enforcement, military, and government personnel…including Attorney General Eric Holder.en identities is fast becoming a favorite money-making endeavor of the criminal element.

How a scheme works. The perpetrator fills out a federal tax return online with stolen identity information and phony wage and tax withholding figures, then informs the IRS how to provide the refund (a check mailed to a certain address, a direct deposit into a bank account he controls, or, more common these days, a deposit onto a debit card in his possession).

In simple tax refund schemes, one person usually handles everything—from obtaining stolen identities to collecting refunds. But in more sophisticated schemes, there are a number of individuals assuming different roles: “ringleaders” who organize entire operations, “sources” who steal identity information, “preparers” who file returns online, and “runners” who actually collect the proceeds.

Law enforcement response. The dedicated work done by IRS-Criminal Investigation professionals is a major component of that agency’s efforts to combat tax-related identity theft. And the IRS continues to make enhancements in fraud prevention, early detection, and victim assistance as well.

But the FBI—working with our partners at the IRS and U.S. Secret Service and through liaison efforts with banks—brings valuable investigative resources to the table: our years of experience investigating financial crimes, our focus on identifying and dismantling large criminal networks, and our use of sophisticated investigative techniques. We also share intelligence and information with other federal law enforcement partners to help link investigations of criminal organizations engaged in tax fraud schemes that may be tied to illegal drugs, weapons, terrorism, or other types of criminal activity.

All of these efforts are paying off—we’ve been part of many successful cases recently (see sidebar).

And the FBI will continue to work cooperatively to investigate stolen identity tax refund fraud—we take our role in identifying and arresting those responsible very seriously. These crimes not only victimize law-abiding individuals but all honest U.S. taxpayers who ultimately foot the bill for this stolen revenue.

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IRS worker charged with stealing from tax filers

As an IRS contact representative, Sherelle Pratt was tasked with tackling confused tax filers’ most complicated questions.

Instead, authorities said Tuesday, she left them with a more burning concern: What happened to their tax returns?

A federal grand jury indicted Pratt, 49, of Philadelphia, on charges of theft, identity theft, and filing false returns – all stemming from an alleged scheme in which she pocketed nearly $29,000 in tax-refund money meant for nine of her clients.

Investigators with the Treasury Department and the IRS began probing Pratt’s work in 2009, after the father of one client questioned what happened to a $958 tax return and $600 stimulus check he believed his son was owed. They later found that the money was deposited in Pratt’s personal bank account, according to court filings.

Further digging revealed that Pratt had allegedly filed for a $3,524 tax refund on behalf of another client without his knowledge.

In other cases, she purportedly pushed clients to claim dependents and child-care and business expenses for which they were not eligible.

Sometimes, prosecutors said, Pratt passed the money along. In others, she split the proceeds with her clients, prosecutors said.

It was not immediately clear Tuesday whether Pratt had retained a lawyer. She did not return calls for comment.

A six-year veteran of the IRS, she has been suspended pending the outcome of her case, the U.S. Attorney’s Office said.

If convicted, Pratt could face up to 33 years in prison and $2.25 million in fines.

Pratt is at least the second local IRS employee to face tax-fraud charges in as many years.

In June, a federal judge sentenced former agency customer service representative Patricia Fountain to 19 years behind bars for bilking the IRS out of more than $1.7 million in bogus refunds.

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