Claudia Buck

Claudia Buck: Identity thieves exploit changes in federal law to file phony tax returns

Something was odd when the IRS letter arrived in the mail.

Addressed to Sherril and Jessica, it asked about the couple’s 2013 joint tax return. Only problem: Sherril Cortez had already filed her 2013 income tax return – with her husband of 25 years, Manuel.

In the letter, Cortez, a graphic designer and mother of two, was asked to contact the IRS to verify her identity. When Cortez showed up at the local IRS office in Sacramento – with her tax records and two requested forms of ID – she was startled to discover that someone had filed a second, but bogus, 2013 tax return using her name, address and Social Security number.

“It was a little alarming to get a letter like that,” said Cortez, an Antelope resident. She didn’t know “Jessica,” the other woman whose name was linked to hers, and has “no idea” how they wound up together on a same-sex tax return.

According to what Cortez was told at the IRS office, she and “Jessica” reported an almost-identical income to that of Cortez and her husband. But, because the phony tax return claimed much higher deductions, it was entitled to a much bigger tax refund.

“It sounds like another example of a tax refund scam,” said Arlette Lee, special agent with the IRS criminal investigation division office in Oakland. “We do see scams emerging from changes in federal law,” said Lee. “Somebody will figure out a way to take advantage and try to get money from the federal government.”

She was referring to a significant change in federal tax law in 2013, enacted to accommodate same-sex taxpayers. Last August, the IRS and U.S. Treasury announced that legally married same-sex couples could now file their federal income taxes as married couples. The change was due to the U.S. Supreme Court ruling in the Defense of Marriage Act.

Until then, married same-sex couples often had to file two types of income tax returns – one as married filing jointly in their home state – and a separate one filing individually for the IRS.

Starting with the 2013 tax year, that federal separate-tax-return requirement was eliminated. And apparently, it opened the door for a new form of tax return fraud.

According to Cortez, she was told that the fake tax return was red-flagged for several reasons: her name had always appeared on a joint return with a male spouse, not female. And on the bogus return, her Social Security number was listed first, as the primary taxpayer, which was never the case on her old returns.

Regardless of how it’s executed, tax return fraud has been a persistent problem for the IRS.

“Florida’s a hotbed,” said Lee, “but Northern California has its fair share of tax refund fraud involving ID theft. It’s a problem here.”

And it’s perpetrated in many ways. On July 7, a Fresno woman – who worked as a part-time IRS clerk – was sentenced to four years in prison for filing phony returns claiming more than $1.7 million in fraudulent refunds, according to the U.S. attorney’s office. In June, a Visalia woman was charged with using stolen tax documents to file six returns in other people’s names, claiming more than $50,000 in tax refunds. In March, two local defendants – Aleksandr Kuzmenko, 30, of Loomis and Petr Kuzmenko, 35, of West Sacramento – were arraigned in Sacramento federal court for allegedly using stolen IDs and phony addresses to obtain $600,000 in first-time homebuyers’ tax credits, which were electronically deposited into their bank accounts. The pair, and three other defendants, allegedly operated their scam from a Citrus Heights tax preparation business, according to the federal complaint.

To combat ID theft, the IRS launched a massive nationwide investigative effort in 2012, assigning 3,000 tax agents to investigative units. That year, the IRS said it thwarted $20 billion in fraudulent tax returns, compared with $14 billion in 2011. In January 2013, the IRS conducted a coast-to-coast sweep of identity theft suspects that led to more than 700 enforcement actions, including 298 indictments, complaints and arrests.

But tax-related ID fraud never gets stamped out entirely. Another form of ID theft “popping up quite a bit,” Lee said, are phony telephone calls, trying to scare or trick people into handing over money. Some callers claim to be IRS agents, using fake names and badge numbers. They might say you owe taxes, are under investigation, or are entitled to a large refund. Sometimes they threaten to arrest you or revoke your driver’s license if you don’t comply by sending funds or personal information. In most cases, they offer bogus phone numbers or emails to contact them.

“We’re warning the public: Don’t fall for this. The IRS is not going to call you and threaten arrest,” said Lee.

Instead, hang up and contact the IRS directly, using the (800) 829-1040 consumer line (or special numbers listed below). Do not call using the number that appears on your caller ID. It may appear to be legitimate but could be a fake “spoof” of a real IRS number.

Attempts at tax return fraud are relentless and often require time-consuming, complex investigations that can hold up legitimate tax refunds going to honest taxpayers. “Cases of resolving identity can be complicated by the thieves themselves contacting the IRS,” said the IRS on its website. “Due to the complexity of the situation, this is a time-consuming process,” with the average case taking 180 days to resolve, it said.

In general, if you get an IRS letter indicating there may be fraud related to your account, respond immediately, using the phone number or email in the letter. Lee also urges anyone who’s been affected by ID-theft related tax fraud to contact the IRS criminal investigations unit. “Please come to talk with us as well,” said Lee. “We want to see patterns or other cases that fit in this category. Sometimes it’s random or sometimes it’s part of a scheme that the IRS is already investigating. But we won’t know unless you come talk to us.”

Cortez, who found herself linked with another woman’s name on a phony return, will probably never know how it happened. And like Cortez, the other woman might also be completely innocent. “They told me, ‘Don’t assume she’s the guilty party. She might be a victim just like you.’”

To protect her identity from further scams, Cortez was advised to obtain a free copy of her credit reports, to check for any fraudulent accounts opened in her name.

In May, two weeks after showing up at the IRS tax office, Cortez and her husband finally got their 2013 tax refund in the mail. As for the attempted fraud, “I have no idea how it happened,” said Cortez. Apparently, “I was just a random name and number that someone used.”