News 4 Investigates: Using tax credits to steal tax refunds - KMOV.com

News 4 Investigates: Using tax credits to steal tax refunds

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ST. LOUIS, Mo. (KMOV.com) -

News 4 has seen an explosion in complaints about tax return fraud and News 4 Investigates dug into how the crooks are getting big fat refunds using tax credits.

Just last week, a local tax preparer pleaded guilty in federal court to paying finders' fees to people who recruited low-income residents. The phony returns filed by them claimed piles of tax credits, a scam that was built on the promise of "free money.(KMOV.com) - It's the type of scam News 4 has seen over and over again.

In 2014, tax fraudster Jennifer Walter ran out of luck, eventually going to prison for claiming tax credits for clients who weren't entitled to them. Her scam resulted in the payment of $114,000 in unjustified refunds, just one of countless cases of tax fraud that federal investigators predict will cost U.S. taxpayers $21 billion in 2015.

Steve Wigginton, the U.S. Attorney for Southern Illinois, says the scams are built around simple formulas.

"False W2s, coupled with false number of dependents, coupled with false claims for tax credits," said Wigginton.

Wigginton says the IRS does a good job of investigating cases, but part of the problem facing prosecutors is that Americans expect to receive their refunds quickly, which he says has created a pay and chase approach to tax fraud.

"We pay first whether it's a good return or not, then we learn that the return was fraudulent so we have to chase the individual down," said Wigginton.

The IRS insists it has filters that detect tax credit fraud, and that prevents more refunds from reaching the pockets of criminals who file them.

"I won't get into all our filters in details but we have filters that knock out a lot of refunds for further investigation that raise flags that make it look like there's no way that's a correct return," John Koskinen, the IRS Commissioner told News 4.

"The filters do work but the IRS can do significantly more to prevent fraudulent tax refunds from being issued," says Justin Gelfand, a former federal prosecutor.

Gelfand previously told News 4 the IRS is approaching the epidemic of tax fraud backwards.

"And it's not a problem you can prosecute your way out of, it's a problem the IRS needs to stop at the front end by not issuing fraudulent tax refunds," said Gelfand.

He says the IRS should add another filter to its system that red flags multiple returns from the same IP address, and a filter that would also detect repeated returns being sent to same prepaid debit card. Gelfand said nothing has changed.

The IRS commissioner refused to say what specific steps are being taken to fix the weaknesses identified by critics Gelfand. Wigginton says one of the biggest challenges to reducing tax fraud is the push to get refunds out as soon as possible.

"The politicians want to make it easier for people to get their tax refund and I don't blame them, but the easier they make it to get a refund, the more difficult they make it to prosecute the criminals," said Wigginton.

In 2013, the IRS estimated that one out of four payments for earned income tax credits were issued improperly and that the improper payments for that one tax credit alone could have cost taxpayers as much as $15 billion a year.

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