Father and Daughter Convicted for $100M Fraudulent Tax Refund Scheme | Hacker News Reader

Father and Daughter Convicted for $100M Fraudulent Tax Refund Scheme

justice.gov

125 pointsLagogarda93 comments

Earlier part of the story: https://www.justice.gov/usao-sdfl/pr/daughter-father-charged...

Submitted article was http://www.idahoreporter.com/2019/florida-man-got-3-4-millio... ("Man got $3.4M in tax refunds from IRS after claiming to win lottery he never won"). Changed via https://news.ycombinator.com/item?id=21873501.

Tax refund fraud is big business.

These two are not very smart. The smarter criminals steal someone’s identity, file a fraudulent tax form using their identity, steal the refund, and then let that poor soul deal with the IRS when it comes after them to get their money back.

If you ever try to file and get a notice that you already filed, jump on it right away because you may have been targeted.

Maybe that IS what happened?

Highly unlikely for a few reasons.

1. IRS and prosecution would've determined this and hence this case wouldn't've been brought forward. There's a case because both felt these were the ones that did it. Also, they were convicted, which is an even higher bar.

2. "Shortly after law enforcement left, despite warnings not to do so, K. Edmonson went to his bank to attempt to withdraw the funds from the account that received the fraudulent refund check."

Not something an innocent person, a victim of identity fraud, does.

3. Cheques were sent to them, presumably to the address on file, which was probably also their actual residence.

4. "D. Edmonson deposited this tax refund check into her bank account and used the funds to purchase a luxury vehicle."

I'd bet that vehicle was sitting in her driveway when law enforcement came.

You'd better be a Mother Russia citizen and have a way to transfer funds there since there's no extradition. Otherwise they'll spend 100X your fraud to get you.

But I guess, years pass by the time a human looks at it

Transferring funds is easy, use Monero or just ship some gold in small pieces.

And IRS is notably underfunded: https://www.accountingtoday.com/news/irsac-warns-about-irs-u...

My bet is that this type of activity will expand rather than contract.

I don't think you could buy $100M of Monero, or even Bitcoin, quickly without being noticed or causing market swings. There's not enough liquidity. And even if you could you'd have some issue cashing out that cryptocurrency into useful fiat afterwards. And eventually, assuming you were able to cash out $100M over some time, it wouldn't be worth $100M by the time you cashed it out.

You could buy $100m in bitcoin over a few weeks without causing >5% move in the price. (not as a single market order, obviously). Probably not even a 1% move in the price over 2 weeks.

Possibly. But you'd have to be using the larger, liquid exchanges with fiat support for these amounts. Surely you'd hit even the ID verified limits and they'd look into you manually if you're suddenly moving millions on their platform?

I remember seeing limits for withdrawing but not depositing.

1.File fraudulent tax return

2. IRS Computer doesn't catch it (at least in real time) and sends you $12.21 million in refunds. In fact, they might not catch it for years.

3. That is YOUR money as far as Chase, BOFA or whatever bank is concerned. Now transfers might the problem since transferring millions to Russia or any country will get the three-letter agencies talking to each other (after the bank files suspicious activity reports.) What...he got a $12.21 Million in tax refunds...???

Do smaller banks/credit unions tend to file these reports? My guess is that only Chase, Bank of America, etc. do this.

All transfers over $9999.99 are reported to the federal government.

That includes multiple transfers made within the same 30 day period that in the aggregate would exceed $9999.99.

Yes, and what you are describing is another type of report that is distinct from a “suspicious activity report”. The limit report you described is a hard threshold requirement. This is not the same report as the “suspicious activity report.”

As you know, the suspicious activity report is completely subject to the bank’s discretion.

do they report suspicious transfers--or all transfers around $10k as a matter of routine?

The latter is required; the former is also “required” but more nebulous (it’s only a problem if there is some incident and then during an investigation, look back and it turns out the bank didn’t file the report, creating a convenient scapegoat in an otherwise difficult case).

In the US, all banks (as well as other financial institutions) are legally required to file such reports (SARs) with FinCEN.

https://www.law.cornell.edu/cfr/text/31/1020.320#

There are brokers for larger sums.

I haven’t used them but I’ve heard good things about: https://cumberland.io/

Last I heard, you can buy millions of dollars at a time if you can pass a KYC.

It took 100m of fraud to get caught. Would they have gotten away with 1m?

Possible. Tax agencies open up random investigations, as well, all the time. They can open an investigation 5-10 years back, depending on type of return, country, etc.

There's a chance they could've had such a random investigation and been caught. There's also a chance no investigation would be opened and they could've gotten away with it. I don't know why they pushed it so hard, though. At that point you're begging for a targeted investigation.

The IRS generally will not go back more than 3 years, 6 years in extreme cases.

Unless they've already found something suspicious, in which case for certain things they can go back forever to rack up the criminal charges.

That's part of why it's important to destroy documents when you are legally able to. If you keep those documents longer, they are a risk to you in case of a "every tax return ever" investigation. If all evidence has gone, as you were legally allowed to do, there is very little chance they'll convict you for that stuff.

Even if you aren't a criminal, some innocuous things you do today might become illegal in the future as tax law is refined through case law.

Are you suggesting that things that are legal now, subsequently deemed illegal in the future, could then be retroactively brought against you? That sounds... incorrect.

He's not saying the law will change retroactively. Just that future interpretation of tax law via case law could change what was previously thought to be legal.

Everything about what they did was not well thought out. The way to do this scam with far less risk is with a stolen identity. They had the fraudulent refunds deposed into their own personal accounts and even tried to take the money and run after they knew for a fact the IRS had already caught them.

That said on $100mil of claims, the IRS only paid out 2.4% of that. At that rate, a $1mil claim nets you only $24K. I don't think I would fuck with the IRS for any amount of money (easier ways to steal I think) but for the risk a $2.4mil payout sounds a lot more plausible of a motivation than $24K does.

The question is whether the 2.4% was smooth across all filings, or whether it was 100% of the first million, 50% of the next million, etc as the computer system flagged things as unusual.

That would be the stupid variant. In Europe, tax refund fraud uses your real name:

https://en.wikipedia.org/wiki/CumEx-Files

And the most successful tax refund scammers claim to have invented Bitcoin, claim to have spend a hundred million buying a non-existent supercomputer, then claim $54 million in tax rebates related to their "research and development".

When the authorities catch on, they then pivot to pre-selling their embargoed "bitcoin fortune" in a advanced fee fraud[2] and use the victims to pay a settlement with the tax authority. Which in AU, like the US, is surprisingly forgiving of outright fraud so long as you give them money.

Best of all, because printing obviously false speculation about Bitcoin's creator sells more paper than a story about an audacious but fundamentally boring conman, even the media barely takes notice of the crime.

[1] https://www.reddit.com/r/Bitcoin/comments/4htw3t/how_to_stea...

[2] https://www.reddit.com/r/Bitcoin/comments/4cdsna/craig_wrigh...

I'm surprised at the large sums of money the IRS was willing to send out with essentially zero validation.

These people were claiming they had paid the IRS millions of dollars and were due massive refunds, but there is nothing in place to check what the IRS has actually received from individuals before cutting 6-7 figure checks?

Especially since... how long did it take them to notice?

Hypothetically someone could get these funds into their account, transfer them offshore, flee the country, and probably live out their life in a low cost of living area without extradition.

They seem to assume if there's an error they can drag the person into court, but if you have ~3 million you've changed into gold/diamonds/cash it'd be very hard to catch you...

The alternative is a system like Google's infamous autobanning. Being jailed because the IRS AI / software says you owe them millions and have refused to pay. All due to some software bug.

Great read:

https://idiallo.com/blog/when-a-machine-fired-me

The alternative is we better fund and support the IRS. If ever there was a government branch that would clearly return more money than invested, it is obviously the IRS.

USA: Issues convoluted tax code so that the only way to do it right is use software. Doesn’t validate results.

Everyone else: Just have the government handle tax filing

USA: loses 3 million to scammer

Everyone else: ...

USA: the only other way is auto-banning using AI

USA: makers of tax software donate millions to help politicians run for office

Everyone else: don’t allow unlimited donations by corporations to political offices

Actual solution: don't allow any donations by corporations (or anyone) to political offices.

No the alternative is to fund and allow the agency to be competent. States manage to be much better.

There are lots and lots of legitimate refunds of this quantity. IRS doesn't have enough resources to look too hard at each one of them, as the wait time for refunds would then be unacceptable.

Sure. But a computer can check/crosscheck this. If someone wins a lottery, for example, I imagine the lottery provider has to send an IRS form. A computer can easily crosscheck to see if a form exists with that amount. If not, manual review.

Similarly, a simple cross-check to see if the refund is feasible considering the other filings by the same individual/entity.

Certain refunds cannot be cross-checked as easily by a computer (eg reclaiming VAT on purchased goods). But basic refund fraud on lotteries? That shouldn't really be a thing in almost 2020.

> Similarly, a simple cross-check to see if the refund is feasible considering the other filings by the same individual/entity.

I presume that it's how they ultimately caught them.

Overall, I think that while your suggestions obviously make sense, it's probably pretty hard to theorize like this without knowing the reality on the ground. Maybe implementing systems like this is very slow and very expensive (like everything US government does), so we'll need to wait a few more years. Maybe it would result in too many false positives, which would seriously degrade its value. Maybe people who could implement this simply don't care, because it's not their money being stolen.

No matter the quantities and amounts, any system or process where “I payed you X give it back” results in performing a payment without checking the assertion is fundamentally flawed.

If you can’t prove the assertion don’t make the payment, no matter how many months that means people might have to wait.

Eh, I see this as a form of eventual consistency.

The IRS is starved for funds. The powers at be (wealthy) wouldn't benefit from aggressive enforcement of tax law.

https://www.propublica.org/article/how-the-irs-was-gutted

The most insane part, for the alleged "fiscal conservatives" who push for gutting the IRS, is the crazy ROI on IRS funding. Estimates range $4-$8 revenue per dollar spent. At that rate of return, basically every company would be frothing at the mouth to invest.

Source for the $4-$8 revenue per dollar estimate? Don't forget that there's a difference between average return, and marginal revenue. More funding should be given if the marginal revenue is larger than the funding. The average revenue takes no part in this decision.

Thanks for making me look, the numbers are even more extreme in some cases:

https://www.finance.senate.gov/ranking-members-news/irs-budg...

> IRS Research Division estimates in the 2003 GAO report, however, placed returns for activities such as tax enforcement at more than ten – and in some cases more than 20 – dollars collected for every dollar spent. Phone calls to follow up on tax debts owed were estimated to return 13 dollars for every dollar spent. Audits by mail returned as much as 11 dollars for every dollar spent. Using the overall rate of a four to one return, this year’s $100 million budget cut translates to a $400 million loss.

Imagine 20 dollars per dollar spent, that's the type of unicorn investment that basically every VC hunts for.

I would imagine that tax enforcement would be one of those things with diminishing returns.

Obviously we can afford to diminish a 20.0 BCA and still make tons of money, but I wonder what the actual limit of this would be.

There are two schools of thought:

1) The fiscal conservatives should argue that as long as revenues increase more than expenses (better than 1:1), we should increase funding to the IRS. After that, the expense outweighs the direct reward.

2) There's a huge moral hazard when we don't enforce tax laws. People become more emboldened to cheat on taxes. Increased funding should also rein in future frauds. So even if you spend $2 to collect $1, if that deters future fraud it is possibly worth more than the $2 spent

There’s also a cost to honest taxpayers who are false positive audited that must not be ignored. Having been through it last year for tax year 2015, I and my Enrolled Agent spent close to 75 hours combined for a net result of around $500 increase in 2015 tax owed and a corresponding offset of the same amount in 2016 because I got the timing wrong on a payment that hit Jan 2016 instead of Dec 2015.

That likely cost the IRS a comparable, if not greater, amount of hours. Increasing the funding is not beneficial when it results in more audits like mine.

Taking money by fiat is obviously profitable, so this is not a particularly noteworthy metric. In fact, it stinks of the same myopic overfinancialization that has contributed to the mess over on Wall St.

If the IRS wants to increase compliance and reduce their workload, the straightforward way is to stop dancing around this illusion that their system is in any way optional, and start creating straightforward prescriptive systems rather than just issuing a myriad of disparate prohibitions with steep penalties for making a mistake. The current philosophy requires the IRS to do the work to interpret all these privately-defined systems, allows rent-seeking companies to nickle and dime captive middle-class taxpayers, and practically begs wealthy people to hire lawyers to come up with novel interpretations to skirt the intent.

Larry Summers wrote about this last month at Washington Post https://www.washingtonpost.com/opinions/yes-our-tax-system-n...

Sorry, but it's not the "wealthy" who are robbing us blind. There are tax cheats across all socio-economic levels.

For example a full 50 percent of people who took the "first time home buyers tax credit" did so fraudulently:

See: https://www.npr.org/templates/story/story.php?storyId=114008...

"In a recent audit, George's office highlighted nearly $500 million in homebuyer tax credits claimed by people who don't appear to qualify."

and

https://media.npr.org/assets/news/2009/10/22/tigta.pdf

People in prison who didn't even own houses were applying for and getting the credit:

https://www.npr.org/templates/story/story.php?storyId=128053...

https://www.eitc.irs.gov/tax-preparer-toolkit/frequently-ask...

IRS has data that 26 percent are, to put it nicely, claimed "in error". No wealthy people are doing this. It's impossible.

$500 million is less than 2 dollars per person. If I forget to declare the 6 dollars that my neighbor paid me to feed his dog one day last week, I have committed more tax fraud than you have just brought up.

You either have no capacity to understand economics at the scale of the US government, or you're intentionally misrepresenting it.

Each individual committing this fraud has stolen between 2 and 8 thousand dollars. I don't think that's OK.

All of the data indicate that the wealthy commit the bulk of tax fraud. They are less honest per capita, and defraud the government of much more money overall, than the poor do.

I'd like to see your data. By percentage compliance, the IRS estimates about 60% of self-employed and small businesses underreport. Mom and pop shopowners, hairdressers, bodegas, repairmen, etc, are grossly underreporting. We shouldn't look the other way at this. All of us and every income level, should comply with the law.

Those people taking "first time home buyers" tax break are not the same ones lobbying to throttle IRS funding. Follow the money.

Still paid out with no other corroborating anything. Makes you wonder how often this happens with people that actually have money, and could turn around and say woops.

"According to the affidavit, K. Edmonson filed a fraudulent tax return in September 2017 seeking a refund of approximately $725,111. The return contained false and fraudulent claims that K. Edmonson had paid a substantial amount of withholding taxes. The IRS did not receive corresponding forms to support the claimed payments. Despite the false nature of the tax return, on January 28, 2018, the Department of Treasury mailed a tax refund check to K. Edmonson for $734,266.27 (including $9,036.27 in interest). Shortly thereafter, K. Edmonson deposited this tax refund check into his bank account."

Could the IRS have done this to get a larger conviction based on him actually taking the money?

Rather than just a charge of committing fraud on the tax returns, it’s also now an added charge of stealing the money.

It will never cease to amaze me that the US DOJ and media publish full names. In The Netherlands, only the first name and the first letter of the last name will be made public—and the full name could remain a secret for many years.

That amazes me too, especially since people might still be innocent.

They do this in other countries too. Like Belgium, where after the Zaventum airport bombings the wrong guy was arrested as 'the terrorist with the hat that got away'. His full name published all over the place. His life destroyed now, lost girlfriend, friends, job, etc. Plus Belgium police keeps arresting him to nail him for something, anything really, to make good for their initial blunder.

It has to do with the concept of government transparency. In the US, from what I understand, the founders of the country feared secret courts issuing secret sentences for secret reasons.

So the idea is that almost all government stuff is public information. It's why FOIAs are so powerful. Literally anyone can ask the government to open up it's docs on virtually anything as long as national security isn't involved (and this is abused, but to a degree only) it has to comply.

Now, such a tool will inevitably have good and bad. Just as having private court cases will also.

Personally I think we need to create a privacy reform similar to the Civil Rights act of 1964 to address this and many other concerns. I'm simply explaining the thought process where our current tradition came from.

Florida actually has much broader public information laws than the rest of the country. That's why you see so many 'Florida man' stories. My understanding is FL takes it a step further than just being public, they publish much of it by default, making it easy for reporters to sift through and find headlines.

The Florida laws are colloquially known as the sunshine laws. And it's not just public records. It also includes pretty much all meetings between officials, even informal ones. And it also includes judicial records, which is why Robert Kraft's defense cares so much about suppressing the video from his case.

https://en.m.wikipedia.org/wiki/Freedom_of_information_legis...

They are already convicted and awaiting sentencing, so I don’t think this is similar to Belgium case you’re talking about.

Wait, so they report earning some large amount of money, and claim they overpaid taxes on that? And then get a refund?

... is that seriously all it took?

The IRS accepts most statements made regarding facts on return unless there is clear error, in particular because refunds are due (per statute) much faster than the IRS is able to gather all relevant information on whether it is factually owed or not in some edge cases.

The backstopping function is that stealing from the IRS is a really bad idea because you'll probably be interacting with them the rest of your life and because you probably want access to the US financial system at some point.

> The backstopping function is that stealing from the IRS is a really bad idea because you'll probably be interacting with them the rest of your life

Unless you are a foreign criminal stealing a US citizen's identity, in which case you don't care a hoot about their future relationship with the IRS.

It's one thing for them not to know what is owed. But surely they know what's already been paid? No amount of errors on a W-2 or 1099 or whatever will make me eligible to receive a refund of taxes I never paid.