IRS: Tax scam brings many unhappy returns

Some people are never old enough to know better; con artists love them.

The Internal Revenue Service is trying to put a stop to a scam that targets senior citizens or public assistance recipients by persuading them to file false tax returns with promises of generous refunds.

Normally, senior citizens who receive Social Security benefits aren’t required to file tax returns anyway, said IRS spokesman David Stewart, but the con artists convince their elderly victims that, for $50 to $100 fees, they can squeeze a thousand bucks or more out of the IRS by filing tax returns.

Instead, what a victim really gets is sort of a four-fingered poke in the eye.

First, the victim is out the money he paid for the phony return.

Then, because a return must list income to generate a refund, the IRS will inform the Social Security Administration. That might affect the victim’s benefits. Ditto for public assistance recipients. There are income thresholds that public assistance and food stamp benefits are based on. If it is discovered the recipients have incomes that surpass those limits, they might see benefits changed.

Third, in what Stewart called the rare instances in which refund checks are cut, the victims become responsible for repaying the IRS when they’re found out.

Fourth, the victim sets himself up for identity theft because he has given the phony tax preparer his Social Security number, address and other personal financial information. Identity theft can be more than a lot of trouble; it can be ruinous to a person’s credit rating and eventually financially devastating.

And those who were hoodwinked might have really believed they were entitled to the cash the phony tax preparers said they could get them.

“I think the vast majority don’t have any idea they are filing fraudulent returns,” said Special Agent Shauna Frye, spokeswoman for IRS Criminal Investigations in Philadelphia.

But they find out quickly, Frye said, adding that some people are notified their returns are bad in three months or less. They come into the IRS seeking explanations for those notices. That’s when they learn they’ve been scammed; it’s also when the IRS finds out the con has hit a certain area.

It’s pretty much all gravy for the grifters.

They come off as very professional, Stewart said. They invest a little cash in business cards and very slick-looking posters. They advertise and distribute fliers. And they use church and community groups as well as organizations that assist seniors to smooth their paths to suckers.

On the fliers they distribute, the con men suggest they can get juicy refunds with little or no documentation. And they let others spread the word for them.

Eventually, the victims’ refund claims are rejected or those refunds are only slightly larger than the amounts they paid for the con artists’ “help.” By then, the phony tax preparers and the money they received are long gone.

This dodge has been traipsing around the country after beginning this year in the Midwest, Stewart said. It was first noticed in Pennsylvania in late June and early July, said Frye, when phony tax preparers used their victims’ faith in their own church pastor to perpetrate this con.

They approached an Erie, Pa., pastor and told him some elderly members of his congregation might be eligible for “stimulus money,” Frye said in an interview on Aug. 11. The pastor allowed them to set up shop at his church, and the con artists actually prepared paper returns for their victims, charging them about $75 each, Frye said.

In just a few minutes, though, the victims had been duped into giving out a lot of personal information and were set up to be further victimized. Credit cards could be established in their names, Frye said, and the con men might actually pay the credit card bills for a while so that credit limits would be raised and then max out the cards. It could be years before the victims find out their credit standings have been ruined, Frye said.

Frye stressed that it isn’t just senior citizens that are being victimized. Con men are using the magic words “stimulus money” and their knowledge of entitlement programs to prey on people with low incomes or people on public assistance who might never have filed tax returns.

This aspect of the scheme is more complicated, but the payoffs are sweeter for the con artists — perhaps $5,000 or more per fraudulent return.

Some people are eligible for the federal earned income credit that tops off at about $5,600, Frye said. An eligible person is the single head of a household with two children who makes $8,000 to $20,000 a year.

What the phony tax preparer does is tell a public assistance recipient that he is eligible for $1,000 or $1,500 in federal stimulus money if he just files a return. The con man offers to front the victim the money, takes the victim’s personal information and files a return electronically in which he manufactures an income structured to generate the maximum payout. He has that money paid directly to an account he has set up. When the federal dollars are deposited, the con artist empties the account and vanishes.

Multiply that $3,000 or $4,000 profit by the amount of victims one con man can collect in just a few weeks, and it’s easy to estimate how much money he can accumulate.

The IRS, however, monitors claims for earned income credits, and the victims start getting notices that they have to repay three, four or five times what the phony tax preparers gave them.

Again, Frye said, the victims come into the nearest IRS offices, saying, “I don’t know what this is all about.”

So far, the scam hasn’t turned up in Philadelphia, Frye said, but its arrival is expected.

Frye said the IRS is trying to warn people that there is no free money. Don’t give out any personal information to anyone you don’t really know and don’t sign anything you haven’t fully read.

Anyone victimized or even approached by anyone promoting phony tax returns should call Frye at 215–861–1104.

For other IRS questions, visit www.IRS.gov or call the IRS toll-free at 1–800–829–1040. ••

Reporter John Loftus can be reached at 215–354–3110 or jloftus@bsmphilly.com