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Identity thieves tap into lucrative tax fraud

Evangelos Soukas is perhaps not the most likely of consultants for the IRS, but he may be among the most qualified. NBC's Lisa Myers reports on how Soukas stole more than $43,000 in taxpayers' money.
/ Source: NBC News Investigative Unit

Evangelos Soukas is perhaps not the most likely of consultants for the IRS, but he may be among the most qualified. Currently serving out a seven-and-a-half year sentence in a California prison for various identity theft scams — including more than a dozen counts of false claims to the IRS — Soukas was brought Thursday before the Senate Finance Committee to testify about his fraud experience, and the simplicity with which he made off with more than $43,000 in taxpayers' money.

"This was an easy way to get money," he said. "And if I wanted to, I could hijack other people's identities and never get caught."

Soukas' scam involved using stolen, personal information to file fake online tax returns with the IRS. With the help of refund anticipation loans — which allow a taxpayer access to an anticipated refund within just a matter of days — Soukas was able to collect on the funds before the fraud could be detected.

"It was easier with the IRS than a bank, or even calling a department store call center for a credit card," said Soukas.

Using the online filing system, he testified, allowed him the leeway to manipulate the numbers and maximize the fraud with each tax return.

"Sometimes it would say, oh yeah you owe money," said Soukas. "Then I would go back and change numbers again to make it look like, for me to get a refund."

Michael Phillips, the Treasury Department inspector general for tax administration, testified that identity theft is, in fact, a growing problem associated with tax refund fraud.

"Of the almost 45,000 fraudulent refunds in 2006, nearly 18 percent involved identity theft," said Phillips.

Yoki Echols, of Fort Worth, Texas, was part of that 18 percent. After receiving a letter from the IRS in March 2007 that her 2006 tax return was undergoing a "more thorough review," Echols immediately called the agency to complain. Her complaint? She hadn't even filed her 2006 tax return yet.

"I thought they made a mistake," said Echols. "But when I talked to them, they informed me that someone had filed a return on January the 14th of this year, in my name, and with my Social Security number."

Echols was able to track down the tax preparer who had filed the return in her name, but the phone had been disconnected. The following day, she received a letter from a bank in Santa Barbara, demanding repayment for a $1,900 refund anticipation loan, also taken out in her name. Echols says she's been fighting an uphill battle to convince both the IRS and the Santa Barbara bank that both the tax return and refund application were fake.

"It was very surprising," said Echols. "There wasn't any kind of checks and balances as far as trying to see if the person who actually filed this was indeed me."

Chi Chi Wu, of the National Consumer Law Center, warns that tax preparers are often themselves part of the problem when it comes to perpetrating tax fraud.

"In this country I think there's a common misperception that if someone is a tax preparer, they're an accountant or CPA," says Wu. "Independent preparers range anywhere from someone who is a CPA to, you know, a guy on the street, literally. There is very little regulation in the taxpayer industry."

Sen. Chuck Grassley, R-Iowa, ranking member of the Senate Finance Committee, says that the IRS needs to implement more safeguards to not only authenticate taxpayer information, but properly vet tax preparers before they're authorized to submit returns.

"It's a buyer beware environment out there," said Grassley. "There's a lot of sharks in the water and the IRS ought to be doing more to go after those sharks."

The IRS says it has a "rigorous process in place" for tax preparers applying to file tax returns online. Applicants who are not certified public accountants submit a fingerprint for a background check. If that print fails to raise any flags with the FBI, an applicant is usually authorized.

But some experts say that authorization is not sufficient, given that only one individual in any given tax preparation firm needs to pass the background check, and can then allow his/her employees to use his authorization to file tax returns.

IRS officials tell NBC News that the authorized business is responsible for all returns it submits, and should be responsible enough to hire suitable and trustworthy tax preparers. The agency also says taxpayer privacy and identity theft are of major concerns for the IRS, and that the agency has new procedures in place to help resolve identity theft issues affecting taxpayer accounts.

IRS Commissioner Mark Everson today told the Senate committee that attempting to authenticate all suspicious tax returns that come through the agency each year could have a detrimental affect on innocent taxpayers as well.

"If you stop everything that you think is questionable, then you will be damaging the interest of some legitimate taxpayers," said Everson.

In his testimony, Soukas maintained that even a few checks and balances could have prevented him from stealing thousands of dollars from the IRS. Offering up his advice to the Senate Finance Committee, Soukas suggested adding a PIN code, or requiring a taxpayer's mother's maiden name could help secure the system.

"You know, those two together would be pretty foolproof to have, I think," he said.