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Learn About Tax Fraud From a Fraudster

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The advent of the internet and social media has exponentially decreased the amount of time it takes for new discoveries and knowledge to be shared, thus creating economies of scale to be realized for (arguably) every industry on earth.

This is generally seen as a positive effect, and easier modes of communication have made the world smaller and more attainable; however, there is a yang to this yin… For every doctor that has shared a life-saving discovery with others around the globe, there is a con artist sharing new, more highly developed methods of swindling an unsuspecting mark.

Take tax fraud, for example. The US government has their eyes and ears open, and learns from the fraudsters themselves just how they are able to steal billions of dollars from the Treasury each year. One way the government has done this is by infiltrating tax fraud forums and chat rooms. According to “Peleus,” a gregarious and well-informed fraudster, the US government has made tax fraud more difficult this year.

“I know that the IRS has new check filters this year but federals suck big time this year, I only got 2 refunds approved from 35 applications …all my federals are between $2300 – $2600 which is the average refund amount in the US so i wouldn’t raise any flags…I also put a small yearly salary like 25-30k….All this precautions and my results still suck big time compared to last year when i had like 30%- 35% approval rate …what the **** changed this year? Do they check the EIN from last year’s return so you need his real employer information?”

That is great news! Now if only state governments had the ability to be as quick on the uptake.

“I started early in January (15-20) on TT [TurboTax] and HR [H&R Block] and made about 35 applications on Federal and State..My stats are as follows [sic]:

Federal: 35 applications (less than 10% approval rate) – average per return $2500

State: 35 apps – 15 approved (average per return $1600). State works just as great as last year, their approval rate is nearly 50% and processing time no more than 10 – 12 days,” Peleus reports.

According to other con artists in the fraud forum, they believe that one reason for this decrease in approved fraudulent tax claims is that they have become more stringent in validating the applicant’s Social Security Number against the Employer Identification Number (EIN). The EIN is essentially the SSN of a business, and while bigger companies will openly share the number (since it is public information anyways), smaller companies are often less willing to put it out there, and can be secretive about it.

According to postings, there appears to be several ways that con artists are able to fly under the radar and increase the amount of money they fraudulently receive each year:

Limit your refund amount. Peleus advises fellow fraudsters that they are less likely to be flagged if the amount of the refund falls around the average amount, which, in the US, is between $2,400 and $2,600. “Stop asking for $9k per refund,” he tells the chat room

Quantity over Quality. The more the merrier. “People, the secret still stays in numbers, so file as many applications as you can… you should make 3 of 3k, more refunds is better [sic]. Next year it will be harder I am sure, but we will all be smarter and fewer,” Peleus says, non-apologetically.

Use Turbo Tax. It is the largest online tax preparation company, with nearly 30 million customers. With numbers that large, it is easy to see how Peleus and others have greater success filing false claims than they would with smaller online businesses.

Use the right bank, or no bank at all. Peleus tells the room that Wells Fargo will apparently flag a savings or checking account that receives more than 3 tax refunds; SunTrust, on the other hand, is way more lax. “If Suntrust [sic] works like last year, you should have 5-7 refunds per account easy. They don’t seem to [care].” Or, even better, he lectures to the room, use a Green Dot pre-paid bank card or Amazon, as neither company even checks for tax fraud. Green Dot will give the consumer a Routing and Account number, just like a regular checking or savings account, and there is no way to differentiate between a pre-paid card and a debit card.

In reaction to the pre-paid fraud, the state of Utah’s Tax Commission Chairman, John Valentine, says they have been keeping an eye on this problem, and every single suspicious return they have caught this year had changed last year’s banking information for direct deposit to a Green Dot debit card. It’s best to catch it BEFORE the money is transferred to the Green Dot card because, Valentine says, “Once the funds are transferred to such cards, they cannot easily be traced or recovered.”

This seems to be a big gaping security issue for the US government, and here is why; the US Treasury must pay interest on a refund if it takes them 45 days or longer to pay out; because of that, they try to have the refund issued within 21 days. This is great for most of us – the sooner we can get our money, the better! But this does not give the government enough time to catch most bogus returns before they are issued, and by the time they do catch it, the money is long gone.

The US government (and some states) is doing their best to crack down on fraud. The IRS estimates in January 2015’s GAO report that in 2013, they caught $24.2 billion in fake claims, but still paid out $5.2 billion –though the amount is probably much larger, due to the claims that were not ever caught.

Do you have any ideas on what can be done to help reduce tax fraud? Do you appreciate the swiftness with which you receive your refund, or would you be willing to wait a little longer if it could help reduce fraud? Please feel free to share your thoughts with us!