Investigation: Tax refund loopholes

Investigation: Tax refund loopholes

RICHMOND, VA (WWBT) - If you haven't already filed your taxes - this On Your Side investigation might have you rushing to get your refund. Thieves are beating more and more people to their hard earned money.

James Bradley hadn't even started thinking about his taxes. "The IRS letter came and a day or two later came the state of Virginia," he said. That is, until he got a letter saying, "we received your income tax return and are in the process of conducting a thorough review."

The letter was addressed to someone else, but it listed his wife's social security number. "We did not file. We don't normally file until a little bit later in the year. It was a surprise to say the least," said Bradley.

So what happened here? Thieves are getting people's names, dates of birth and social security numbers and they are filing online. They have the checks or prepaid Visa debt cards mailed to an address they can easily access.

"They get the money, and then when you are the legitimate tax payer and you finally file, the IRS has a red flag. They holdup your refund and it could take months before this matter is finally resolved," said financial adviser Douglas Alexander.

Fortunately for the Bradleys, the crime was caught before their refund was paid.

But that's not always the case. A report released in February from the investigative arm of Congress called out the IRS tax refund program as high risk for fraud, waste and abuse.

Even more shocking: there's a loophole the government's known about and has yet to fix.

"That is ridiculous," said Bradley.

Here's the problem: Employers are required by law to send out our W-2s by the end of January, but most employers don't have to provide that exact same information to the IRS until the end of March. There's a two-month window where crooks can file at will with little oversight. They make up numbers, use your identity and claim your refund.

"I mean, if they know about it and they're not doing something to stop it? That makes no sense," said Bradley.

The IRS is catching some of these thieves. It's doing five times as many investigations than it did just three years ago. IRS Special Agents caught 14 million suspicious returns last year, but according to that report from Congress, the agency also paid out $5.8 billion to thieves with fake tax returns in 2013.

"It's crazy," said Sen. Mark Warner. "With a country that's $17 trillion in debt, we have to be better stewards of our dollars."

Warner is already leading an effort fix some of the issues with the IRS including, how the IRS says, because of privacy laws, it can't even notify you if it finds out that you've been a victim of identity theft. The agency doesn't notify police either.

How can that be? "That's the kind of question that, even as a former governor and senator, I kind of scratch my head," Warner said. "I understand privacy laws, but my gosh people would want to know if their identity's been stolen."

As for Bradley, his account is now flagged and he can't file electronically. It is a hassle he's prepared to accept. He just doesn't want to see so many others ripped off.

"It doesn't surprise me that there are people out there doing this. But everybody shouldn't have to be victimized because there's this loophole," said Bradley.

Warner is taking a close look at this issue. The IRS points out its sort of boxed in. By law, it has to get the refunds out quickly, whether everything is verified or not.

Rashia Wilson calls herself the First Lady of tax fraud. She even boasted on Facebook, holding stacks of money and daring police to catch her.

Police accepted that challenge, and now Wilson is behind bars, busted for stealing $3 million by filing fake tax returns.

Ramoth Jean was taken down in Henricooutsidee a storage locker, where police found hundreds of cards filled with stolen identities from around the country. Jean had prepaid debit cards filled with tax refunds, and he filed those returns from hotels around Richmond, netting nearly $630,000.

"Some of the people who conduct these schemes, they are very resourceful with how they are able to gather the information," said IRS Special Agent Joy Cuffee. "Here locally, we had a gentleman who was sentenced to 48 months in prison for using personal identifiable information of federal prison inmates.

The crime is shockingly easy. Personal information gets stolen daily through computer hacks of big companies like Anthem or Target. It's sold on the black market by hackers. The crooks just fill out a bogus return and hope to send it in before you do.

That's what happened Bradley says happened to him earlier in February.

"We're just living our lives and the next thing you know something like this happens," he said. "It was so, to say the least, a shocking surprise."

Bradley spent days on the phone trying to prove he didn't file. He now can't file online and must go through a tax advocate.

So how do you stop it? it's tough. The biggest advice is to file your taxes as soon as possible. Keep a constant monitor on your credit reports.

Warner is even pushing the IRS to send you notification if it thinks your identity has been stolen. He says the agency can do much more to stop this crime, but you can also help.

"And that means change up your password on a regular basis," Warner said. "This is going to be a problem that's going to only grow, unfortunately and not diminish as we become more and more technology-dependent."

In the mean time, instead of giving the IRS more, Congress slashed the agency's budget. In a letter sent in January, the IRS commissioner warned the cuts are hurting the agency's ability to crack down on tax cheats.

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