Tax fraud increasing in digital age

Jeanette Meers flipped through a stack of index cards; on each one, a different name, address, social security number and date of birth were neatly written in pink and black ink.

Meers, a detective for the Manhattan Beach Police Department, has a binder filled with photocopied notebook pages containing the same information – names, social security numbers and dates of birth – of South Bay residents.

Also stacked on her desk is a mix of real and fake IDs and a pile of about 150 prepaid debit cards. The names on the prepaid debit cards match the handwritten names stashed in her binder.

Manhattan Beach detectives confiscated the material after an investigation led them to a Hawthorne residence whose inhabitants were suspected of identity theft and fraud.

Six individuals were arrested for various charges during a police raid at the house on Feb. 13. Out of the six, two of them were arrested for alleged identity theft and have since been released on bail. The two were also arrested in December for the same crime. The investigation is ongoing.

Based on the material, police believe that the suspects were operating an identity theft ring through which they were fraudulently filing victims’ taxes online using sites like TurboTax or H&R Block, opening prepaid debit cards in that victim’s name and having the refunds wired to that prepaid debit card account. “A lot of these victims had multiple prepaid debit cards opened in their name at multiple banks,” Meers said.

In a digital age, when individuals can file taxes online in just a few clicks, identity theft tax scams are on the rise nationwide. In 2011, the IRS initiated 276 identity theft investigations, up from 187 in 2009.

“Before the victims have a chance to file their taxes, the suspects have already e-filed it and gotten their returns,” Meers said, adding that the Secret Service and Social Security Administration are investigating similar crimes throughout the United States.

In general, tax refunds are issued within two to three weeks of filing. The suspects are allegedly spending the refund money as soon as it is wired over, Meers said.

One victim told police he hadn’t filed his taxes, yet a federal tax refund was loaded onto a prepaid debit card in his name. Purchases were subsequently made at Home Depot and electronics stores using that money, Meers said.

The index card recovered with that victim’s name on it suggested his fraudulent tax returns were filed in October of last year. Records show that the deposit from the IRS into the fraudulent account in his name was also made that month. At the bottom of the card, someone had written “filed.” The fraudulent return earned the perpetrator about $5,000 – $4,145 in federal returns and $811 in state returns.

“Based on all the notes and so forth that I saw for him, it tells me that there are potentially many, many, many more victims,” Meers said.

Based on this victim’s numbers and notes, she estimates the perpetrators made a profit of about $100,000 all together. Other index cards with victim information included other notes, including “denied,” “reject,” or “paid,” suggesting that those refund payments did or did not go through, Meers said.

Identity theft topped the Internal Revenue Service’s list of top five tax scams for 2012. This year, the IRS created a new body, the Identity Protection Specialized Unit, to prevent, spot and resolve identity theft crimes and has also implemented a new system to detect fraud for those who submit electronically. Last month, the IRS and the Justice Department collaboratively made 58 arrests in a 23-state crackdown on identity theft.

“We know that identity theft is a frustrating process for victims,” said IRS spokeswoman Anabel Marquez. “We really consider identity theft a top priority and we’re doing everything we can to stop it from happening.”

While Manhattan Beach detectives are still putting together the pieces of the Hawthorne case, police said identity thieves have plenty of ways to obtain a victim’s personal information. “A lot of my victims were victims of burglary, car burglary, house burglary, robbery,” Meers said, adding that records could have also been stolen from businesses or by crooked employees. Or, she said, “Maybe they threw stuff in the trash and didn’t shred it.”

Detectives recovered stolen drivers licenses, stolen checkbooks and stolen mail – including outgoing checks and incoming credit card statements.

To monitor accounts open in your name, police recommend obtaining a credit report once a year. Even then, victims may not always find out about an account. “There’s not a 100 percent guarantee that no credit is going to be opened in your name because places don’t always run a credit report,” Meers said.

Meers believes the perpetrators were even pulling victims’ credit reports. “Some of my victims will tell me, ‘I went to get my credit report and I couldn’t pull it for free. That tells me the suspect’s already done it,” she said.

It’s unclear if the perpetrators are targeting a specific group of individuals, though it seems they’re allegedly using “whatever identity they can get their hands on,” Meers said.

Out of the hundred names the police have recovered, they’ve contacted about 25 victims so far, all of which have noticed some type of fraud on their accounts or credit cards in their name that they never opened. “Some of my victims are getting letters in the mail that they were denied credit, that’s how they were alerted to it,” Meers said. “It’s like, well, I didn’t apply for credit, what’s going on here?”

Detectives warned that guaranteeing protection is difficult – that it’s not if you’re going to be a victim of identity theft, but when.

“You can’t prevent a determined identity thief just like you can’t prevent a determined burglar – the thing is how you’re going to react to it,” said Manhattan Beach Detective Mike Rosenberger.

If you’ve been a victim of identity theft, call Detective Meers at 310-802-5134. Those who believe their identity has been compromised should also call the IRS at 800-908-4490 to make sure their taxes have not yet been filed. Victims should also fill out an identity theft affidavit, available on the IRS website.