The Tax Fraud Tsunami In Florida

Tax season means Florida residents – who do not have an army of lawyers and accounts to help them legally reduce their income – must go through an entire year’s worth of records and receipts to prepare and file an income tax return.

Tax season is equally a time for tax fraudsters to get busy. When they are not filing fraudulent returns, tax fraudsters assume someone else’s identity to scam Uncle Sam.  

According to reports from the Federal Trade Commission, Internal Revenue Service, the Department of Justice, and the Federal Bureau of Investigation, Florida leads the country in fraud complaints and investigations.

This revelation is unsurprising as the Internal Revenue Service and the Department of Justice more or less declared Florida as the epicenter of a national trend in tax fraud in 2012.

In correspondence with Reuters in 2012, Wifredo Ferrer, former US Attorney for South Florida, pointed out that the Department notice the increasing trend of tax fraud in every state except North Dakota and West Virginia. Florida, he said, was in a tsunami of tax fraud, particularly Miami and Tampa.

News reports over the years have confirmed this report. Maimi and Tampa are indeed home to the most audacious tax fraudsters and identity thieves. Miami reportedly had 46 times the per-capita rate of false tax refund claims.

Why the high rate of tax fraud in Florida?

An examination of hundreds of reported incidents to the Federal Bureau of Investigation and the Federal Trade Commission indicates that Florida’s high population of older residents, who are vulnerable to fraud, stirs the whirlpool of tax fraud.

Another cause is the massive scale of identity theft in the Sunshine State. Fraudsters reportedly bribe employees at reputable institutions, like schools, hospitals, and law firms, to leak clients’ names and tax ID numbers. If they can get the victim’s social security number and personal information, the fraud becomes easy. Otherwise, the fraudster can just as easily make up fictitious data to complete the background data required by IRS and file fraudulent tax refunds electronically.

Speaking of electronic tax filings, tax fraudsters in Florida have reportedly learned to game the system. The IRS introduced the e-file option, which now accounts for 80 percent of tax returns, to speed up refunds. However, this automation has also left the system more vulnerable to fraud. The IRS reportedly lost $26 billion to fraudulent refunds between 2012 and 2016 – Tampa and Miami were red on the map.

For instance, Ramon C. Blanchett, a Tampa resident, submitted a self-prepared electronic tax return in 2016. His W-2 forms misrepresented his total earnings as a freelancer and claimed nearly $1 million in income tax withholding credit. The IRS responded with a refund check for $980,000. He had only spent $51,617 on a Lexus when the IRS caught up with his fraud. The federal agency promptly began forfeiture proceedings against Blanchett. The result was a 34-month prison sentence, recovery of the remaining balance, and seizure of the Lexus he splurged upon. The court also ordered him to pay $59,768 in restitution to the IRS. Blanchett also had to file the correct income tax from 2016 through 2018.

But Blanchett was only one of many tax fraudsters. Florida residents get indicted for their involvement in tax fraud schemes often. 

In 2012, Rodney Saint Fleur worked at a law firm where he stole the names and social security numbers of 26,000 inmates by exploiting his access to a LexisNexis research service account at the law firm. He then sold the sensitive information to a gang member who used the ill-gotten information to file fraudulent tax refund claims worth millions of dollars. While the gang member reportedly made off with $11 million before law enforcement caught up with him, prosecutors estimate the true impact of the tax fraud fueled by identity theft as over $100 million.

Impersonating employees of the Internal Revenue Service is another way scammers defraud taxpayers and the government. Using VoIP to spoof their numbers or going through overseas boiler rooms, fraudsters frequently extort US citizens of several millions of dollars annually.

A typical scam call begins when the scammer impersonates local law enforcement and informs the victim that the IRS has a warrant for their arrest over unpaid taxes. Expert at sensing trepidation in their victim, scammers quickly demand payment in the form of cryptocurrency and gift cards to make the arrest go away. These payment methods are largely untraceable, which means the money is gone for good.

Another form of tax fraud leverages social engineering and happens as tax season approaches. Here, the fraudster joins a large social society with impressionable or trusting members, e.g., a church. The fraudster takes time to profile individuals with a simple knowledge of taxes or finances and develop a rapport. During the tax season, the fraudster convinces the victim to take out a considerable mortgage from a creditor bank like Wells Fargo or Chase. Convincing the individual that since the bank uses their money, they are entitled to a tax benefit if they file a return with a fake form 1099. The scammer even goes up and above to recommend a tax preparer who they claim has helped them out before – of course, the preparer is involved in the ruse.

Typically, the cooked book shows that the taxpayer received income from their bank, and the mortgage creditor withheld taxes. Consequently, the taxpayer’s total reported income is so low that they get a large refund from the IRS. Per a pre-arrangement, the fraudster is entitled to a portion of the refund.

When the IRS eventually picks up on the misrepresentation, the unwitting taxpayer has spent the refund. Likewise, the fraudster and their tax preparer have vanished.

Yet another type of tax fraud involves using the details of deceased taxpayers. The fraudster assumes the deceased’s identity and files a tax refund in their name. Fraudsters particularly target dead people who do not have a date of death on the Social Security Administration Death Master File (DMF).

Reports of tax fraud also increased during the pandemic-induced lockdown of 2020. The IRS reported it identified over $10 billion in tax fraud schemes and other financial crimes in 2020 – tax fraud alone accounted for $2.3 billion.

Although Florida remains a hotbed for tax fraud, fiscal reports from the US Sentencing Commission revealed a national downtrend in tax fraud since 2016. Tax fraud is a criminal offense, and convicted offenders face prison time and fines.

Individuals under investigation for tax fraud must immediately contact a reputable tax fraud attorney for help.