Multimillion-Dollar Tax Fraud Scheme Used Info Stolen From Kids


You Won't Believe Who Stole It! Remember that “13 Investigates: IRS tax loophole” video that went viral? This one?

People went nuts about this supposed loophole that allowed tax credits for undocumented workers to use to beef up their refunds. I said, at the time:

This is not a loophole. It’s tax fraud. Those are two totally different things.

This week, Preet Bharara, United States Attorney for the Southern District of New York, Thomas E. Bishop, Acting Special Agent in Charge of the New York Office of the Internal Revenue Service-Criminal Investigation (“IRS-CI”), and Mark Peters, Commissioner of the New York City Department of Investigation (“DOI”), announced the arrests of seven individuals in connection with a tax fraud scheme involving this exact sort of thing: filing tax returns claiming false credits. The seven individuals who are alleged to have participated in the scheme are Noel Cuello, Luz C. Ricardo (a/k/a/ “Lucy” as in “Lucy Ricardo” and no, I’m not making that up), Francisco Abreu (a/k/a “Seyayin”), Arismendy Cuello (a/k/a “Cheito”), Jonathan Orbe (a/k/a “Jigga”), Catherine Ricart (a/k/a “Cathy”) and Joel Vargas (apparently, not everyone gets a nickname).

Under this particular scheme, Abreu, who worked at the time as a fraud investigator with the New York City Human Resources Administration (yes, he was a fraud investigator allegedly committing fraud), sold identifying information of minors, including names, dates of birth, and Social Securitynumbers. That information was then used to file thousands of fraudulent tax returns, resulting in millions of dollars of losses to the Treasury.

The stolen information was used to prepare fraudulent returns claiming certain tax credits, including the Earned Income Tax Credit (“EITC”). The EITC – long a magnet for tax fraud – is available to qualifying low and moderate income working individuals and families. Generally, the more dependents you claim, the larger the allowable credit. Other tax credits related to dependents include the Child Tax Credit and the Additional Tax Credit (as featured in the video).

Armed with this information, Noel Cuello and Ricardo opened a tax business in the State of New York. With the assistance of Arismendy Cuello, Orbe, Ricart and Vargas, the pair allegedly sought out taxpayers willing to lie about their dependents in exchange for cash and then prepared fraudulent returns using the stolen information.

According to the prosecution, the business filed thousands of these kinds of returns, bringing in refunds worth millions of dollars – and they got away with it for years. According to Bharara, the scheme began sometime in 2009 and lasted through spring 2014.

The scheme continued even after IRS-Criminal Investigation executed multiple search warrants on the business. To confuse authorities and escape detection, Orbe and Ricart established new e-file accounts and opened new bank accounts.

How did it manage to go on for so long despite the focus from IRS-CI and other agencies? For the most part, minors don’t file tax returns. So long as their names and personal information do not appear on other returns for their parents or guardians, they remain off the radar – making the fraudulent use of their data more difficult to discover. It’s a grim reminder that identity theft can happen to anyone.

Bharara referred to the scheme as “alleged massive fraud.” Bharara went on to indicate that the fact the fraud was committed with the assistance of a city agency fraud investigator added “an element of galling irony.”

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Source: Forbes

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