Tax Season Emboldens Scammers, But More Being Caught Each Year

Feb. 10—Espiridion Adrian Lugo set up a shell company in Arizona and filed about three dozen bogus tax returns in 2008 and 2009 for people who had been dead for years, bilking the federal government of thousands of dollars in refunds.

Federal investigators caught up with Lugo, 41, in January 2012 when he moved to Verona. He pleaded guilty that October to tax fraud and identity theft, and will be in a federal prison until 2017.

Lugo's lawyer said he had a drug problem.

"I'm sure he wasn't clearly thinking. It's not going to work when you're dealing with the IRS," said attorney Stanley M. Slonaker of Phoenix.

As tax season gets into full swing, the Internal Revenue Service says it's watching for the kind of fake returns Lugo filed.

The agency says it stopped 3 million fake returns in 2011, 5 million in 2012 and 6.7 million through November, valued at nearly $16 billion.

Yet a good number get through. In 2012, the IRS sent out $4 billion in fraudulent tax refunds to people who used stolen identities to file bogus tax returns, according to a Treasury Inspector General for Tax Administration report last year.

The inspector general said 1.2 million taxpayers were victims of identity theft in fiscal year 2012, and 1.6 million more were affected as of June 29, according to an audit of the agency.

Social Security numbers are "the keys to the kingdom," said Eva Velasquez, president and CEO of the nonprofit Identity Theft Resource Center in San Diego.

"It's out there when you're applying for credit and on your medical records. Even if you do everything right, you can't secure it 100 percent," she said.

IRS Commissioner John Koskinen last week told the House Committee on Ways & Means that the agency added identity theft filters that flag multiple returns that go to a single bank account or single address, and it is locking accounts of 24 million deceased taxpayers.

It has more than 3,000 employees assigned to spot identity theft and has trained more than 35,000 employees to recognize cases and provide taxpayer assistance, he said.

The IRS expects to issue special six-digit personal identification numbers for 1.2 million people with resolved tax fraud cases, up from 770,000 the previous year, as an alternate to their Social Security numbers, which can be used to file taxes.

A Pittsburgh couple discovered someone used their 8-year-old child's Social Security number to claim the youngster on a 2011 fake tax return, said the couple's accountant, William Stunkel, who did not identify the parents for privacy reasons.

Stunkel said he doesn't know how the fraudster got the Social Security number, but the effects linger for the family.

"I think they radically changed their habits," he said. "They had done a lot of stuff online, and now they shy away from that as much as possible. They're concerned about it."

A weak spot came with the release of the Social Security Administration's master death list, containing more than 83 million names of people who had died. It is used by financial institutions, insurance companies, pension companies, state and local governments, and others to match records to prevent identity theft. It was made public as a result of a 1980 lawsuit. Its release made people more vulnerable.

Scammers, for as little as $10, could buy the record of an individual and use it to file a fake tax return.

"For a lot of Americans, it's probably stunning to learn that for $10, you can steal an identity and both cause trouble and steal a lot of money," said Sen. Bob Casey Jr., D-Scranton.

The IRS said December's budget agreement directs the Commerce secretary to limit access to the list to those whom the agency certifies. U.S. Attorney David Hickton said his office in Pittsburgh is investigating several tax-related identity theft cases, although he declined to say how many. Nor would he say how many cases his office has prosecuted.

"It's a national problem, and it's increasing here," Hickton said. "I'm particularly concerned about our senior citizens. They are the most vulnerable among us."

With refund season approaching, some scammers call or email people pretending there's an issue with their tax return, said Joe Peters, a spokesman for state Attorney General Kathleen Kane. The scammer will ask for personal information, including a Social Security number, to solve it.

"They become opportunistic around tax season," Peters said.

A grand jury indicted Frank Smith of the Hill District on wire fraud conspiracy and identity theft charges in April, saying he conspired with five others to file fake returns using identities stolen from Georgia state prisoners and others. Smith pleaded guilty to one charge in October and is scheduled to be sentenced in March.

"Identity theft doesn't have to be located where the victim is located. It can be across the country, or not even in the United States," IRS spokeswoman Jennifer Jenkins said.

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The Associated Press contributed. Bill Vidonic is aTrib Total Media staff writer.

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