U.S. Sen. Pat Toomey used his stop Monday in the Lehigh Valley to bring attention to a form of identity theft and tax fraud he says is a major problem, both in the region and across the state.
The crime, which Toomey said Lehigh County District Attorney Jim Martin first brought to his attention, involves people obtaining legitimate Social Security numbers and filing false tax returns.
This allows them to then deliberately claim a refund they are not entitled to, the Republican senator said during a news conference Monday in Martin’s office at the Lehigh County courthouse.
“Some folks are making serious money at this,” Toomey said, standing beside Martin.
To help combat these crimes, the Internal Revenue Service expanded a pilot program to eight states this year, including Pennsylvania and New Jersey, which Toomey and Martin said will help improve communication between the federal government and law enforcement officials.
Previously, such cases were difficult to prosecute because the law forbade the IRS from fully cooperating with police and investigators due to security regulations about individual tax return information.
Under the pilot program, an individual whose identity is stolen could voluntarily allow the IRS to share their information with police, making the investigation process easier, Toomey said.
Martin said he is aware of small businesses that have engaged in this tax fraud scheme and profited in amounts up to $23 million.
Martin could not comment on specific cases or businesses because many of those cases are still being prosecuted. However, he said check-cashing agencies are often involved.
“You’ve probably noticed a proliferation of check-cashing agencies in Allentown. Those are the type of businesses that are processing the refund checks obtained by the IRS,” Martin said. “I would say they are a knowing participant.”
Martin said he knows of a case in Catasauqua involving a small business that made $500,000 this way. He could not provide specifics because the matter has been referred to the U.S. Attorney’s Office.
Toomey added there have been instances, in Allentown and elsewhere, where police have performed drug busts and learned drug rings were performing in this tax fraud activity.
“They have concluded this is perhaps more lucrative and certainly safer than the drug trade,” Toomey said. “The danger is it helps to finance those illegal activities.”
IRS spokesman David Stewart referred all inquiries to a previously-prepared press release about the pilot program, which first launched April in the state of Florida.
As of last month, more than 750 waiver requests had been received from about 50 state and local law enforcement agencies in Florida participating in the pilot.
Due to the success of that program, it has since been expanded to Pennsylvania, New Jersey, New York, Alabama, Georgia, Oklahoma and Texas, according to the IRS.
Toomey, who wrote a letter to the IRS in August seeking information about how they were addressing the tax fraud, praised the pilot program Monday.
But he also said further measures should be implemented to prevent the problem in the first place, including stronger verification of identities to ensure a tax return filed is legitimate.
“We think this is a very constructive step in allowing us to crack down on this problem,” Toomey said Monday. “But I will tell you very candidly this is not the only solution.”
Toomey said when Social Security numbers are stolen under this form of tax fraud, they are obtained sometimes from elsewhere in Pennsylvania, but sometimes from as far away as Puerto Rico.