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.