Tax fraud scheme divides some Tampa neighborhoods

As honest people struggle to make ends meet in some of this city's most depressed neighborhoods, there is a growing resentment toward those who are stealing from the federal government and living it up.

Local and federal law enforcement agencies last week launched a crackdown on a kind of tax fraud authorities say has exploded in the last year involving stolen identities from both the living and the dead. The information is used to file phony tax returns to secure "refund" checks from the federal government.

Authorities say the fraud reaches into the hundreds of millions of dollars in the Tampa area alone, but they say this is just the tip of the iceberg for a nationwide problem.

The phenomenon has reverberated in local neighborhoods – rich and poor – and in the halls of Congress, where one senator is pushing legislation he hopes will both help prevent the fraud and, when it happens, better able law enforcement to arrest and punish the criminals.

Tampa Police Officer Debbie Boles, who works at a neighborhood outreach center in Sulphur Springs, said women in the area who are trying to raise their children to make the right choices are outraged by the rampant tax fraud they're seeing.

"They're struggling to pay their bills," said Boles, who works at the RICH house, which stands for Resources In Community Hope. "They're struggling to keep the lights turned on, food on the table and yet they see other people in the neighborhood – they're driving around in new cars, getting their hair done, nails done, nice clothes, jewelry ...

"They're having to explain why other families have so much and they don't have anything."

The fraud – known in street vernacular as "drops" or "Turbo Tax" after the online filing system -- is so pervasive that local police say it even had an effect on street crime, temporarily reducing the numbers of street-corner drug dealers, who found it easier to make money in front of laptop computers in their homes.

Boles said the fraud also resulted in a slight decrease in the number of people seeking help through the food bank at the RICH house.

And in a tony, gated community in New Tampa, one woman found herself on the receiving end of what appears to be someone else's fraudulently obtained debit cards from the IRS.

Sue Johnson said that when she moved into her sprawling home in April, she started receiving notices from the IRS with other people's names and her address. The notices asked the addressees to contact the agency with information about their tax returns.

Then, the debit cards started coming. Johnson said she tried to call the IRS, and was put through to an investigator who began interrogating her as if she had done something wrong. "I just gave up and I've been collecting" the cards, she said, showing reporters debit cards she received in the names of people she doesn't know: John Johnson, Melvin Wright, Rosa Balark and Ronald Hache.

Johnson said she has no idea why the cards and notices were sent to her house, and she didn't get any answers from the IRS.

"Nobody seemed to care, so I just held onto these," Johnson said.

"Everyone knows about" the fraud, Boles said. "I've even got teenagers that have asked about it. We have a local church that's very active up here, and the youth minister was in here two weeks ago and was asking, 'hey, are you familiar with the drops that are going on?' "

Boles and Police Chief Jane Castor said the fraud is even being committed by high school students. "They're learning these things from their family members who are doing it," Boles said. Their attitude, she said, is, "It's easy money, so why not?"

Some on Capitol Hill are trying to change that equation.

Sen. Bill Nelson, D-Fla., who earlier this year held a subcommittee hearing to look into the issue, announced Friday that he plans to introduce legislation to try to plug some of the holes in the system that criminals are exploiting, while making it easier for law enforcement to investigate and increasing penalties against those who commit the fraud.

At a news conference Friday, Castor said the current law makes it so difficult for law enforcement to tackle the problem, "we're asking them to go out and investigate these crimes basically with a blindfold and their hands tied."

Castor and other investigators noted that federal tax laws have privacy provisions that prohibit local law enforcement from obtaining tax return information even if the returns are fraudulent. So if a detective finds someone with hundreds of fraudulent obtained refund checks or preloaded debit cards from the federal government, the detective cannot match up those refunds with the return that was filed to obtain them.

Consequently, law enforcement spent months wrestling with how to tackle the problem and ultimately began charging suspects with identity theft, money laundering and credit card fraud. Castor said investigators could not charge tax fraud, even though that's what is happening.

Law enforcement representatives from numerous federal and local law enforcement agencies attended Friday's news conference. But no one from the Internal Revenue Service appeared, even though Castor said the agency was invited.

An IRS spokesman could not be reached Friday afternoon for comment.

Nelson said he hopes his legislation will allow the IRS to share information with local law enforcement.

"In this whole saga, we found out how difficult it was for the state and local law enforcement to work with the IRS and we've got to give the additional legal authority there for the IRS to share this information," Nelson said. "You change the law so that you can share this information. This has been the hindrance in the past."

At the same time, he said, the IRS has to be given tools to help prevent the fraud from taking place at all.

Among the ideas Nelson is pursuing is to allow taxpayers to opt out of electronic tax filing, so that criminals could not use their identities to file electronic tax returns. Another option would allow those whose identities have been stolen to obtain a personal identification number from the IRS that would be required to file taxes in their names.

Nelson said he has directed his staff to draft a bill that would make it a felony punishable by as much as five years in federal prison and/or a fine of at least $25,000 for using another person's Social Security number or other information to file a federal tax return. Nelson also wants to increase penalties for negligent or reckless disclosure of taxpayer information by tax preparers.

In addition, Nelson wants to prevent the disclosure of the Social Security numbers of the deceased – something that is readily available on the Internet.

And the senator wants the Treasury Department's inspector general for tax administration to investigate the role of prepaid debt cards and commercial tax software in facilitating fraudulent tax refunds.

Nelson said he doesn't have all the answers, suggesting this is something that will have to be learned.

"You know, we're going to have to go through this by trial and error," he said, "because in this day and age of electronic filing, once you get something done that makes it a lot more ease in administration, criminals find a way to get around it."