The state taxation division stopped the issuance of $1.5 million in what were fraudulent personal income tax refunds in 2009, a figure sure to grow for 2010 as the prevalence of e-filing increases along with the computer skills of the average taxpayer, tax officials say.
Peter McVay, associate director of revenue services, and Susan Galvin, chief of tax-processing services, including the six-member e-government unit at the R.I. Division of Taxation, said preliminary indications are that 2010 results will show more fraudulent state income tax returns than the year before. “It’ll be easily as much as 2009,” Galvin said. “It’s a cottage industry out there.”
Most taxpayers in Rhode Island file returns electronically, with 73 percent of all personal income tax returns e-filed in 2010, an increase from 65.5 percent in 2009, according to McVay. The increase in e-filing is one key reason for the hike in fraud, McVay and Galvin agreed. E-filing makes it “a lot easier to be anonymous,” Galvin said, because no personal checks are involved. Thieves can “hit and run,” she said, filing returns and accessing refunds with a couple of clicks on the computer.
Another factor, she said, is “people are getting more tech-savvy. E-filing doesn’t necessarily encourage fraud, it just makes it a little easier.” Of course, fraudulent returns come in on paper, too, but Galvin said those are easier to catch.
In September, the division pulled off something of a coup when it stopped the issuance of $75,000 in refunds because the related returns were fraudulent, all submitted by the same New Jersey preparer and listing the same or similar Social Security numbers and names. “Those just happened to come in on the same day, they were very obvious, they all looked alike,” Galvin said.
She has worked 31 years for the tax division and six years in fraud so “you get a sense of it [fraud] after you’ve been dealing with it for a while,” she said. “We’re obviously suspicious of anything that comes in offshore. Little of it [fraud] originates in Rhode Island,” she added. For a while, places like Cyprus, the Dominican Republic and Kenya seemed to be sources of fraud, Galvin said, but such centers can change rapidly. Refund thieves are “dynamic,” Galvin said, “quick to exploit” any new weakness they find in the system.