What is the Puerto Rican Tax Refund Scam?

Recently a Puerto Rico tax refund scam has cost the Internal Revenue Service almost $2 billion and jeopardized the identity of thousands of Puerto Rican adults and children. This scam has been in existence for around five years, and its perpetrators come from across the United States and Latin America. In many cases this scheme has been highly successful due to the cooperation of mail carriers, tax preparation specialists, and in some cases bank tellers.

The basis of the scam was that thieves stole (or purchased on the black market for around eight to ten dollars) the Social Security numbers of Puerto Rican citizens, and once this information was obtained, it was then used to file fraudulent documents from companies purporting to withhold taxes. Once those documents were filed, a fake return was then structured and filed to ensure that the filer would be owed a refund.  Next, in many cases the thieves would then partner up with U.S. mail carriers to intercept the refund checks that were mailed to the addresses on the fraudulent documents and deliver the checks to them. Finally, in some cases, bank tellers or employees at money service locations were then given bribes in exchange for cashing the fraudulent checks, which often amounted to five to seven thousand dollars.

Thus far, numerous mail carriers, tax preparers, and other participants have been apprehended and convicted for their participation in the scheme, but none of the major participants (particularly the members of the group, based in the Dominican Republic, which developed the scam) have been captured. The reason so many fraudulent tax returns had been filed before the issue garnered the attention of the Internal Revenue Service and the Federal Bureau of Investigation is that Puerto Rican citizens are issued social security numbers but do not have to pay federal taxes. This has made it hard for the IRS to spot fraudulent returns since they have to do more than identify a social security number with a duplicate return, but now that the IRS and FBI know what they are looking for, hopefully this scam will become a thing of the past.


Sources:
Albergotti, Reed. “Billions Lost in Tax-Refund Scam.” The Wall Street Journal, 30 Mar. 2012. Web. 7–28
2012. <http://online.wsj.com/article/SB10001424052702303404704577309854181227634.html>.
“Tax-Refund Scheme Exploiting Social Security Numbers of Residents of Puerto Rico Leads to 57-Month
Sentence.” The Federal Bureau of Investigation, 20 May 2009. Web. 7–28 2012. <http://www.fbi.gov/newyork/press-releases/2009/nyfo052009b.htm>.
Wendy Clay

Wendy Clay

Wendy Clay is a Virginia Community College System graduate and a current undergraduate at the University of North Carolina. She is pursuing a degree in public health with a minor in exercise and sports science and plans to attend medical school upon the completion of her degree. She has diligently served those around her for many years as a tutor for rural school children and as an advocate in the fight against hunger in her community and around the world.

At The University of North Carolina Wendy plans to actively participate in a student group, Health Focus, which will enable her to use her knowledge and love for health and nutrition to educate youth in the Chapel Hill/Carrboro area. She also hopes to promote voter registration amongst her fellow students.
Wendy Clay