Crime

Ripping off your refunds: South Florida’s booming tax fraud racket

Alexandria Smith's face lights up with joyful relief as she phones the man who helped her finally get back an IRS tax refund after a three-year wait. But the Palm Beach County cook and cashier, victim of an ID thief who filed a bogus return under her name, is still waiting on two more years of refunds held up by the federal tax agency.
Alexandria Smith's face lights up with joyful relief as she phones the man who helped her finally get back an IRS tax refund after a three-year wait. But the Palm Beach County cook and cashier, victim of an ID thief who filed a bogus return under her name, is still waiting on two more years of refunds held up by the federal tax agency. MIAMI HERALD STAFF

Malinksy Bazile, a corrupt Miami police officer, had never met Candace Rogers or Alexandria Smith.

Rogers, a housewife, lives with her husband, a Fort Lauderdale lawyer and city commissioner, in an affluent neighborhood near the Intracoastal Waterway. Smith, who works in a barbecue restaurant, has a second-story apartment overlooking the railroad tracks in West Palm Beach.

Both women, from very different walks of life, fell prey to the same crook — along with hundreds of other women who shared only two things: the same general age and common last names. Bazile used his police-issued laptop to steal their Social Security numbers and birth dates from a state driver’s license database. It was all the information he needed to file piles of false tax returns, plunging his victims into a bureaucratic nightmare that has become all too common in South Florida, reaching its peak now during the weeks leading up to the April 15 filing deadline.

How infuriating can it get for the tens of thousands of victims of tax-refund ripoffs?

Consider this contrast: The Internal Revenue Service, under congressional orders to issue fast refunds, quickly cut a $613,034 check in 2012 to a North Miami lawn-care operator claiming to be a fabulously paid record company honcho. The tax agency’s Swiss-cheese scrutiny failed to detect that he was really living on disability benefits.

Meanwhile, Smith, one of Bazile’s victims, waited three years before the IRS finally sent her a check earlier this month. It was for all of $3,300 — and the agency is still sitting on two more years of the real refunds that she’s owed.

“I worked so hard for this money,” said Smith, a cook and cashier. “I can’t believe a police officer would do something like this.”

The reality is that an array of everyday criminals — some in seemingly upstanding positions of cop, nurse, soldier and even college student — have transformed South Florida into the nation’s capital of tax fraud.

The range of victims is stunning: Holocaust survivors in South Florida, U.S. Marines stationed in Afghanistan, even the nation’s top law enforcement officers. Former U.S. Attorney General Janet Reno, a Miami resident, and current Attorney General Eric Holder both have been victims of tax fraud in South Florida, according to law enforcement sources. In Holder’s case, perpetrators were suspected of filing a phony tax return in his name and using a refund-loaded debit card to withdraw money at local ATM machines.

“It’s safe to say there are tens of thousands of ID theft victims in South Florida,” U.S. Attorney Wifredo Ferrer told the Miami Herald. “Personal ID information has become the new crack cocaine of currency for street criminals.”

A growth industry

Identity theft is the fastest-growing crime in America. Florida holds the highest per capita statewide rate of ID theft complaints, followed by Georgia and California, according to the Federal Trade Commission. And the worst metro area by far is South Florida, with an ID-theft rate nearly four times the national average.

All those pilfered IDs have sparked a surge in tax fraud. Beginning in 2010, IRS criminal investigators, working with local and federal authorities, began targeting the crime. But the numbers show it remains very much a growth industry.

Nationwide, the IRS estimated it received 5 million returns with stolen identities, totaling $29.4 billion in fraudulent refund claims during the 2013 filing season, according to the latest Government Accountability Office report. Of that total, the agency estimated it paid 900,000 bad refunds totaling $5.2 billion.

“However,” the GAO report cautioned, “the full extent of [identity-theft] refund fraud is unknown.”

IRS administrators and their critics pretty much agree on the root of the problem: By law, the agency must issue refunds within 45 days, while steady budget cuts have left it short of time, manpower and technology to spot and stop the flood of suspicious tax returns.

Ferrer, who in 2012 established the only anti-tax fraud task force in the country, has regularly called the continuing crisis a “tsunami of fraud” — similar to Medicare fraud operations that federal agencies also have battled to control. In South Florida, he said, his office has charged more than 325 defendants with tax-refund schemes. They were caught with a “conservative” estimate of more than 100,000 stolen identities.

And that, in his estimation, is merely scratching the surface. Last year, for example, prosecutors convicted one school cafeteria worker who had access to every student Social Security number in the entire Miami-Dade public school system. The employee sold hundreds of their IDs at $10 a pop for filing fake tax returns.

“A lot of folks are doing it because they can make a lot of money and it’s safe,” Ferrer said. “They’re all stealing from the same pot of money [the IRS] because there’s no competition.”

IRS Commissioner John Koskinen told the Miami Herald that he believes his agency’s latest software “filters” — computer programs that look for changes in joint filings, marital status and addresses, for example — have helped bring the problem “under control to the extent that it’s not continuing to expand exponentially” as it did from 2010 to 2012.

But the commissioner, during a stop in South Florida last year, cautioned that “it is still an ongoing battle.” This month, Koskinen told the U.S. Senate Finance Committee that the IRS has been hobbled by $1.2 billion in budget cuts over the past five years, delaying upgrades of “aging” and “antiquated” technology intended to flag false tax returns and to verify refund claims.

Tracking ID thieves

It wasn’t sophisticated software that nabbed Bazile, a young officer who patrolled Liberty City. He first appeared on the radar of an anti-corruption task force run by the FBI and Miami police internal affairs detectives in 2012 when his stepbrother snitched on him.

Investigators installed a tracking device on Bazile’s work-issued laptop after they found he had run more than 1,000 “suspicious” searches of people in the Florida Department of Highway Safety and Motor Vehicles database. They soon discovered that Bazile pulled personal information for 700 women with common last names such as Rogers, Smith and Gonzalez — all between the ages of 57 and 61.

Bazile filed nearly identical returns in their names, using tax software. The income information was fabricated, and each refund claim was for $1,700. On the returns for Rogers and Smith, the Miami cop even falsely claimed that both women lived in Nashville.

Investigators obtained numerous ATM photos of Bazile as he withdrew thousands of dollars on special debit cards loaded with the IRS-issued refunds. When investigators confronted him, he admitted he had tapped the state database and pocketed between $130,000 and $140,000.

Like countless other victims, Smith and Rogers had no clue why the IRS rejected their real tax returns in 2012 — only that someone else had submitted claims in their names before they had filed their own.

While they battled the slow-moving IRS bureaucracy, filing affidavits of ID theft and tax fraud, each received a call from a Miami police detective that a city cop had been the culprit.

Rogers, the Fort Lauderdale housewife, and her husband did not respond to calls from the Herald. But she testified at Bazile’s trial in fall 2013 that her husband experienced problems filing their joint tax return.

That was nothing compared to the travails for Smith, a West Palm Beach mother of five grown children who also testified at Bazile’s trial.

Slow justice

One thing that she learned particularly upset her: The IRS had issued her refund to Bazile on a debit card that made it a breeze for him to cash or spend a refund issued in her name.

“I’m old school,” Smith said. “I don’t even have a debit card.”

After Bazile’s trial — he got 12 years for ID theft and tax fraud — federal prosecutor Michael Berger wrote a letter on Smith’s behalf to help her recover her actual refund of $3,300, noting that the Miami cop had stolen her identity and filed a bogus tax return in her name.

Smith gave that letter to her tax preparer, Keith Lindsey, whom she met at her workplace, McCray’s Barbecue, in West Palm. Lindsey said he has tried to obtain her refunds not only for 2011, when Bazile pulled his scam, but also for the next two years, 2012 and 2013, which also were held up by the IRS.

“I felt sorry for her because I knew someone had stolen her identity,” said Lindsey, who runs his own business, Palm Beach Tax Inc.

For Smith, the desperation was mounting. Slow business cut her hours at McCray’s, and she was fearful she could lose her $575-a-month apartment.

“If you know your ID has been stolen, why should it take so long to get your refund?” Smith said.

When a Treasury check for 2013 surprised her in the mailbox earlier this month, she was jubilant. With one in hand, her tax preparer is hopeful the other two will soon follow.

“It is hard to believe after all this time,” said Smith, who is planning to use some of her refund for a trip to her native Bahamas. “Now I can go visit my mother’s gravesite and buy a headstone for her.”

That Smith waited so long is hardly unusual. Victims often endure months, if not years, of anxiety and frustration to clear up the mess with the IRS before they can rightfully claim their refunds.

Although Koskinen, the IRS commissioner, said the agency has shortened the typical waiting time to recover refunds to four months. Some victims scoff, saying the delay is far longer. Moreover, they say the IRS isn’t exactly apologetic.

Paul Hunt, a part-time professor at Florida International University who lives in South Miami, said he and his wife, Cecilia, have always filed their returns electronically on TurboTax. But during the 2013 filing season, he learned that the IRS rejected their refund claim because someone else had filed a tax return in his wife’s name. He was instructed to submit the couple’s return by mail.

Hunt said he waited months to hear back from the IRS about their $1,541 refund claim. Finally, toward the end of 2013, he called the agency and got an unexpected response.

“The IRS call center person acted as if we were the ones who had done something wrong,” he said. She asked why the couple had not reported it to local police and prosecutors.

That made no sense to Hunt. Just for starters, it was a federal crime.

Hunt said the IRS representative instructed him to fill out an ID theft-tax fraud affidavit to start the process of recovering the couple’s refund. He said this burden struck him as misplaced, because it “was the IRS who made the error by carelessly sending our refund to someone illegally using my wife’s Social Security number and an entirely different address.”

Hunt questioned why the IRS did not operate like a credit-card company, which immediately contacts cardholders about suspicious activity and routinely covers fraudulent charges. The IRS representative, he said, “basically told us it was our problem, not the IRS’ problem.”

In February of last year, the IRS sent a letter acknowledging that the Hunts were victims of ID theft tax fraud and processed their tax return. The couple finally received their refund check for $1,752 — including interest — in September, he said.

In the end, what bothered Hunt, who has taught social welfare and public policy classes at FIU for decades, was the indifference: “Apparently, the IRS is allowed to operate a very ‘loosey-goosey’ operation and we, the honest tax filers, are made to pay the price.”

Fixing tax fraud

The IRS and critics see some simple solutions to two of the major problems driving tax fraud:

Problem No. 1:

Under a congressional mandate to issue fast refunds, the IRS currently doesn’t verify employees’ W-2 income tax forms with their employers’ documents before the April 15 filing deadline. That gives criminals a three-month window to use stolen identities to fabricate returns and beat legitimate tax filers to their refund claims.

The fix:

Employers could submit W-2 forms to the IRS at the same time they provide them to employees in late January — giving the agency time to match tax forms before issuing refunds. To reach that goal, the IRS says it would need legislative support and more money from Congress to upgrade computer technology and hire additional employees.

Problem No. 2:

With ID theft and tax fraud escalating, the IRS implemented software “filters” in 2012 intended to detect suspicious changes in tax-filers’ home addresses, marriage status and other personal factors. But the current system, lacking the latest technology, fails to flag many bogus refunds.

The fix:

The IRS could dramatically expand its technology to flag as many suspicious tax returns as possible, screening for — among other things — five-figure refunds or multiple returns. The agency could then contact tax filers whose returns include questionable personal information — extra scrutiny that could potentially save the IRS and taxpayers billions of dollars a year.

Fraud-

busting tips

Top ways to prevent ID fraud and deal with the IRS if you become a victim.

▪ Secure personal information in your home.

▪ Shred all personal financial papers.

▪ Be careful about what you throw in the trash.

▪ Be wary of sharing your Social Security number with anyone.

▪ File income-tax returns as early as possible before the April 15 deadline. The IRS started accepting returns Jan. 20.

▪ If you think you are a victim of identity theft and tax refund fraud, report the crime to local police and then contact the Internal Revenue Service at www.irs.gov. There is a link for filing a complaint and filling out an affidavit of theft and fraud. After you do, it will be assigned to a case manager, but the process is slow.

▪ Any taxpayers who filed tax returns last year in Florida, Georgia and the District of Columbia can obtain a six-digit Identity Protection PIN from the IRS to help protect them from potential tax fraud. Anyone who qualifies should visit www.irs.gov/getanippin to register.

Source: U.S. Treasury Department; Federal Trade Commission

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