Federal authorities have uncovered a widespread scheme that may have defrauded the Internal Revenue Service (IRS) out of billions of dollars using the stolen identities of Puerto Rican citizens, according to a recent report from the Wall Street Journal.
“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," the report adds. "In some cases, they enlist U.S. mail carriers to intercept the refund checks that are disbursed [emphasis added]."
Dating back to 2007, the plan involves participants from both the U.S. and Latin America. Two sources claim the scheme was led by a group from the Dominican Republic. And although prosecutors have managed to obtain several convictions, they don’t think they’ve come close to catching the operations “top players.”
"What we have uncovered may very well be the tip of the iceberg," said Manhattan U.S. Attorney Preet Bharara, whose office was among the first to investigate the group. "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.
Source: Wall Street Journal
At this time, it’s uncertain just how much money the IRS lost to the Puerto Rico scam but it’s estimated to be about $2 billion, according to sources familiar with the investigation.