Federal investigators have uncovered a multi-billion dollar tax fraud scheme, the Wall Street Journal reports.
Federal authorities are struggling to crack down on what they describe as a widespread scheme that has already likely defrauded the Internal Revenue Service of billions of dollars using the stolen identities of Puerto Rican citizens.
The perpetrators of the scheme, authorities say, swipe the Social Security numbers of Puerto Rican citizens, who don’t have to pay federal income tax—and are less likely to be on the IRS radar—and use their information to file fake returns. In some cases, they enlist U.S. mail carriers to intercept the refund checks that are disbursed.
The plot, which includes participants from around the U.S. and Latin America, has been around for at least five years. Prosecutors have obtained multiple convictions but none involving those believed to be among the top players in the operation, according to several people briefed on investigations into the fraud.
Manhattan U.S. Attorney Preet Bharara, who is involved in the investigation, said the evidence uncovered so far could be “the tip of the iceberg … it’s a massive fraud.”
So how did the plan work? The Journal explains:
The alleged scammers use the stolen Social Security numbers to file fake documents from companies purporting to withhold tax, then fake returns that are structured to ensure the filer is owed a refund.
The refund checks are mailed to the addresses on the forged documents even though the addressees don’t live at those locations, which is why some [U.S.] postal workers have been recruited [as mentioned in the above]…
Once the checks are collected, participants in the fraud take them to bank tellers or employees at money-service locations who often have taken bribes, according to court documents submitted in several cases.
The checks often are worth between $5,000 and $7,000 each, investigators say, with stolen identities of children sometimes used to add dependents to the returns in order to inflate the refunds.
If a Puerto Rican citizen has never paid federal income tax, it looks to the IRS as if the person filing a return simply moved to the continental U.S. and began working.
At least three U.S. postal carriers have been sentenced for crimes tied to stolen identities from Puerto Rico, according to the report.
“The scheme has metastasized and spread,” from New York City and Boston, said Serrin Turner, an assistant U.S. Attorney in Manhattan. According to Turner, investigations into similar schemes are being conducted in Massachusetts, Pennsylvania, North Carolina, Connecticut, Florida, Rhode Island, New Jersey, and California.