Gangs Add Identity Theft and Tax Fraud to Dealing Drugs

Guest post by Nussin S. Fogel.

Gangs across the country are finding white collar crime much easier than dealing drugs on street corners: they’ve learned how to profit from identity theft and tax fraud.

Florida is ground zero for the crime, but the problem is growing throughout the US.

Identity Theft and Tax Fraud

Last year the IRS caught almost a million fraudulent tax returns, claiming $6.5 billion in refunds. The amount lost to fake claims the IRS didn’t catch may be much higher. InTampa alone, police estimate that criminals have stolen $450 million in fraudulent tax return money in just the past two years.

The IRS identified at least 582,000 US taxpayers who were the victims of identity theft (PDF) in 2010 — more than double the number from three years earlier.

Overall, about 12 million Americans were victims of some form of identity fraud in 2011 – an increase of 13% from 2010.

Gang members and other thieves collect Social Security numbers and other personal information from crooked employees at retirement homes, hospitals, doctor’s offices, insurance companies, mortgage companies, workplaces, and even prisons. Some gangs get the information by breaking into homes, businesses, and cars and by stealing wallets and purses.

Thieves use the information to file online tax returns in the names of real taxpayers. They either collect the refund on a debit card, or get real US Treasury checks. Gang members have the refund checks sent to addresses that they control or have staked out. A postal carrier was allegedly murdered for his master mailbox key; the killer was waiting for refund checks.

The schemes are possible because the IRS doesn’t verify income via employer W-2s until after the refund is issued. Many people have criticized the IRS for making theft far too easy.

“It’s like the federal government is putting crack cocaine in candy machines,” said Detective Craig Catlin of the North Miami Beach Police Department.

Cashing the refund checks can be the most difficult part of the process for gangs, since members don’t have the IDs to match the names on the checks. Some have gotten around this problem by making fake IDs. Gang bosses also use low-level “mules” to do the risky job of check cashing in exchange for a cut of the proceeds — typically 30-40% of the face value of the checks.

In a sting operation, the Miami Dade Gang Task Force caught an 18-year-old “check mule” carrying $54,000 worth of fraudulently obtained income tax refund checks as he tried to sell them to an informant at a check-cashing store.

Identity theft tax fraud pays better than drug dealing, and it’s a lot less hazardous. Even if gang members are convicted, the sentences they face are light compared to sentences for drug dealing and violent crimes.

Although in some areas tax fraud has actually replaced traditional gang crimes, in other cases gangs use the money earned from tax refund fraud to fund other gang activities — including buying drugs for resale and guns to protect gang turf. One check-cashing store-front used the money to buy counterfeit goods to sell.

A consumer who’s been the victim of identity theft tax fraud can still get a legitimate refund from the IRS, but it can take a year or more — plus a great deal of hassle.

How to Protect Yourself

Consumers can protect themselves by taking the following steps:

1. Protect Your Children

About eight percent of people under 19 become victims of identity theft, according to the Federal Trade Commission (FTC). Often this isn’t discovered until they’re old enough to apply for credit cards or college loans.

Parents can request a copy of a child’s credit report and check with the Social Security Administration to find out if anyone’s used the child’s Social Security number to apply for a job.

2. Don’t Share Personal Info on Social Media

Half of all identity theft victims are between the ages of 20 and 39. People in this age range are also very active on social media websites.

Posting information about a home address, birthday, or college could help an identity thief obtain additional information about you. Some people have even been foolish enough to post pictures of their identification cards online.

3. Don’t Order a Fake ID

Underage teens who order fake IDs online so that they can buy liquor are handing over their personal information to sophisticated criminals who can use the information for identity theft purposes.

4. Don’t Respond to Emails Asking for Personal Information

People still fall for “phishing” scams – emails that appear to be from banks and government entities and ask for personal information, including Social Security numbers. No legitimate organization will ever request such information via email.

5. Keep Your Personal Information in a Secure Location

If possible, don’t carry around documents with your Social Security number on them. Keep all such documents in a secure location at home. Consider investing in a safe or a locked filing cabinet to make it harder for burglars (or people who work in your home) to steal your identity.

6. File Your Income Tax Return on the Earliest Possible Day

The earlier you file, the less likely an identity thief will beat you to it.

Nussin S. Fogel has been practicing law for over 25 years in the State of New York. Mr. Fogel handles slip and fall accidents, motor vehicle injuries, and other areas of personal injury law. Follow him on Twitter and Facebook.