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NY man pleads guilty to $9 million in fraudulent tax refunds

The New York man behind a five-year identity theft tax refund scheme that cost the U.S. Treasury more than $12 million is headed to jail.


Jose Torres, 47, of the Bronx, pleaded guilty in U.S. District Court in Newark, N.J., to conspiracy to defraud the United States, theft of government property and aggravated identity theft.

Federal prosecutors say Torres was the leader of one of the nation's largest and longest running stolen identity refund fraud schemes ever identified. Torres was personally responsible, says the Department of Justice, for $9 million in fraudulent refunds issued between 2007 and 2012.

Torres previously pleaded guilty in the Southern District of New York to charges arising out of the same scheme. He will be sentenced in the Southern District of New York on the charges from both states at a date to be determined.

The conspiracy count is punishable by a maximum potential penalty of five years in prison and up to a $250,000 fine. The substantive count of theft of government property is punishable by a maximum potential penalty of 10 years in prison and up to a $250,000 fine. The aggravated identity theft count is punishable by a statutory mandatory minimum sentence of two years in prison, which must run consecutively to any other sentence.

Common and costly tax fraud scheme: Actually, we should be glad that $12 million is all that Torres and 13 alleged tax fraud co-conspirators (all were arrested and charged in September 2012) got from the Internal Revenue Service.

Court papers say that the group filed about 8,000 false tax returns claiming more than $65 million in refunds.

Most of those fraudulent refunds, however, were never sent out or were intercepted by the feds.

The scheme is officially known as Stolen Identity Refund Fraud, or SIRF, and feds say that this common type of tax fraud costs Uncle Sam more than $2 billion a year.

Basically, SIRF perpetrators get taxpayers' personal identifying information, including Social Security numbers and dates of birth, and then complete tax returns using that data along with false wages, taxes withheld and other information required on 1040 forms.

The fake return directs the IRS to send the refund money to locations or bank accounts the crooks control or can access. The fraudulent filers then can spend the illegally obtained refunds or, in many cases, sell the checks, either at a discount or face value.

In the Torres et al case, the scheme relied primarily on information stolen from people living in Puerto Rico. Puerto Ricans are issued Social Security numbers, but do not have to pay U.S. income tax unless they receive income from U.S.-based companies or the U.S. government.

Identity theft tax fraud increasing: The Torres et al situation is a case study in identity theft tax refund fraud.

A recently released Treasury Inspector General for Tax Administration (TIGTA) report found that detection of such schemes has improved. However, noted TIGTA, identity theft continues to result in billions of dollars in potentially fraudulent tax refunds.

The latest TIGTA review was a follow-up to its July 2012 audit of the issue. Investigators wanted to see whether the IRS has improved its programs and procedures to identify and prevent fraudulent ID theft-related tax refunds.

The bottom line for the IRS?

"Our review found that expanded identity theft detection efforts are helping identify fraudulent tax returns," TIGTA said in the report. "However, billions of dollars in potentially fraudulent refunds continue to be paid."

TIGTA recommended that the IRS deactivate taxpayer identification numbers that were assigned to individuals prior to the 2013 tax year where the individuals no longer have a tax filing requirement. TIGTA also suggested that the tax agency continue to analyze ID theft tax fraud characteristics and use that date to expand tax return processing filters.

More tax return scrutiny planned: IRS management has taken TIGTA's recommendations to heart. 

The inspector's report says the IRS has a team addressing the taxpayer identification number deactivation process.

In addition, during the 2012 and 2013 tax filing seasons, the IRS' Taxpayer Protection Program identified opportunities for improvement to the filter processes and implemented changes that improved their performance and effectiveness.

The IRS plans to continue to evaluate the feasibility and impact of tax fraud filter changes this coming filing season.

The bottom line for us taxpayers?

It might take a bit longer for the IRS to move our returns through the system. But I'll put up with that if it keeps more tax money out of crooks hands.

Bankrate Taxes Blog icom More tax-related scams: Another type of tax-related crime was a topic last week at my other tax blog.

The devastation of Typhoon Haiyan has prompted many people to donate to charitable groups helping in the recovery efforts. Just be careful of charity scams.

Give only to IRS approved nonprofits, especially if you plan to deduct your donation on your taxes.

Also over at the Bankrate Taxes Blog last week, I blogged about 2014's inflation-adjusted standard deduction amounts.

You can read my additional tax thoughts at that personal finance website on most Tuesdays and Thursdays. Or you can find a synopsis here on the ol' blog the following weekend.

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