Alert Durham Resident Unearths Likely Tax Fraud

Phony Refunds From Maryland Sent to Area Retiree’s Address

From carolinajournal.com by Don Carrington, March 25, 2013

After receiving several pieces of mail addressed to four different persons at his home address on Sherron Road, and seeing strange people checking mailboxes on his street, a Durham resident concluded someone was using his mailbox in a tax-fraud scheme.

The letters, which arrived over a period of several weeks, were sent from state revenue agencies in Maryland and South Carolina. All were addressed to persons with Hispanic-sounding names, and each letter specified an apartment number at the address, which is a single-family dwelling with no apartments.

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The resident, a retiree, also has seen someone he does not recognize opening his mailbox and those of several neighbors, apparently looking for particular items of correspondence. The apparent tax-fraud scheme appears to be sophisticated and might not have been detected had the resident not been home and witnessed the mail being delivered and the strangers inspecting mailboxes.

Officials looking into the scheme have provided little information about their investigations. The resident asked not to be identified.

The resident told Carolina Journal that on March 1 he found correspondence from the South Carolina Department of Revenue in the mailbox on the road at the end of his driveway. He said he marked the envelope “return to sender” and placed it back in the mailbox.

On March 7 he received at his address correspondence from the state of Maryland’s Revenue Administration Division of the Comptroller’s Office. He decided to open this one, and he found it contained a tax return and a note from a state official saying that the return could not be processed because it did not include a W-2 form.

That’s when he became convinced that someone was using his address as part of a tax-fraud scheme, he said, and decided to shred those documents.

At approximately 3 p.m. March 8, while sitting in his house, he saw a woman he did not know open his mailbox and look inside. He had retrieved his day’s mail before she arrived. He said the woman continued walking up the street, looking into the mailboxes of three neighboring homes. She then stepped into a van that was waiting for her on a side street and she and the driver left.

The next day, he received two more mailings from the Maryland revenue division that appeared to be tax refund checks. One was addressed to Sherry D. Arozarena at his house number, but with “Apt B” added to the address. The other was addressed to Jessica B. Fonseca at his house number with “Apt 3” added to the address. There are no apartments in the resident’s home. He did not open the letters.

The resident discussed the situation with a friend, who then contacted Carolina Journal. A CJ reporter met the resident at his home on March 11 and witnessed him open the letters. One was a state income tax refund check for $1,651 for 2012, made payable to Sherry D. Arozarena. The other was a $1,746 refund check payable to Jessica B. Fonseca. Neither woman lives at the man’s address. CJ was unable to locate anyone living in North Carolina using either of those names.

The resident contacted the local office of the postal inspector, and a representative picked up the checks at the house on March 12.

Postal Inspection Service Team Leader Mike Carroll told CJ that his office works with the IRS and other agencies to combat this type of problem. In this case, he said, the primary enforcement responsibility would fall with the state revenue agency incurring the loss. “We need their assistance to work this backward to obtain documents that were filed to obtain these checks,” he said.

Former North Carolina State Auditor Les Merritt, a Certified Public Accountant, told CJ, “It is a safe assumption that false documents were created to pull off something like that.”

Mike Snell, a California-based tax accountant with clients in Maryland, North Carolina, and several other states, said pulling off such a scam would have been difficult. “It is not easy to do,” he said. “It has to be planned out ahead of time. This sounds like a sophisticated operation.”

He suggested it might require the perpetrators to reverse-engineer a tax return in order to make it appear a taxpayer living in one state was due a tax refund from a different state.

Snell speculated the scam could work something like this:

Using a phony Social Security Number and a phony name, “Sherry” creates a phony W-2 statement for the 2012 tax year from a company (real or fictitious) in Maryland. She files a state tax return in February indicating $4,000 was withheld from her wages and she was due a $1,651 refund. Maryland’s tax return processing system recognizes that it has never received any withholding payments from the company for Sherry, but it assumes the money actually was withheld from her paychecks.

Sherry claims to have moved to North Carolina and uses someone else’s mailing address to make the scheme harder to trace. Maryland processes Sherry’s return and sends her a check. Sherry checks the status of her refund by logging on to the Maryland tax return website by entering her phony Social Security number and the exact amount of the refund. The website lets her know when the check has been mailed. She then checks the mailbox at that address daily, hoping to retrieve her check before the homeowner notices.

Maryland officials try to track down the company to collect the money that supposedly was withheld. If the company was fictitious, the state will find no record of any business at the address on the W-2. If the company was real, the state will find no record that Sherry was employed there.

And since Sherry did not live at the address where the check was mailed, Maryland officials may have no way to find her.

In either case, it may be weeks before the state searches for Sherry or the company — most likely after tax filing and processing season has ended in April — so Sherry would have cashed the check and disappeared long before the scam was detected.

South Carolina, Maryland respond

CJ sent Maryland and South Carolina officials copies of the checks, but both commented only generally about tax-fraud enforcement, saying state law prevented them from making comments about these specific cases.

“I have passed along your inquiry and provided details to the DOR Audit division for further investigation into the matter. Due to S.C. Code of Law Section 12-54-240, we are unable to disclose any information as related to the address,” said Samantha Cheek, public information director for the South Carolina Department of Revenue.

“We have audit practices and procedures in place to prevent the issuance of fraudulent refunds, and new this year have put into place an additional safeguard measure that requires selected taxpayers to complete an ‘ID Verification Quiz’ before their refund is released,” she added.

Andrew Friedson, director of media services for the Maryland comptroller, told CJ that tax fraud schemes “get more sophisticated and unscrupulous with each passing year,” and they continue to be a serious national issue for the IRS and states throughout the country.

But his office has stepped up efforts to crack down on them, he said. So far this tax season, he said, his office has discovered more than $4 million in fraud.

“Thanks in large part to a substantial increase in dedicated human and capital resources, we’ve seen an exponential increase in fraud detection in recent years. The Comptroller’s Office uncovered 262 returns valued at $488,657 in fiscal year 2007, compared to 13,480 returns valued in excess of $28 million in fiscal year 2012,” he said.

“While we can’t comment on any particular case due to confidentiality requirements, we continue to work closely with the appropriate state and federal authorities including the IRS, the postal inspector, and in-state and out-of-state attorneys general to thoroughly investigate returns deemed suspicious through our sophisticated fraud detection efforts and from citizen tips,” he said.

The Durham resident said the mail he received on March 18 included letters from the Maryland comptroller addressed to each of the presumably fictitious tax filers. He said the envelope addressed to Sherry D. Arozarena was not sealed and he opened it. The letter asked Sherry to return $500 of the $1,651 she was refunded. The resident notified the postal inspector’s office, and a representative came to his house and picked up the letters.

Don Carrington is executive editor of Carolina Journal.

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Published in: on June 7, 2013 at 11:21 am  Leave a Comment  

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