Crackdown on 1,300 Cases of Suspected Identity Theft in Colorado

November 21, 2008

Chris Casey and Mike Peters

Weld County, Colorado authorities this month unleashed a large-scale sting they hope will net about 1,300 suspects who may have used false identification to receive millions of dollars in U.S. tax refunds.The arrests for ID theft or criminal impersonation are expected to snare hundreds of suspects. Authorities said two years worth of federally approved tax refunds from suspects' jobs — they work in agriculture, corporations and small businesses across northern Colorado — could total $2.7 million.The sweep follows the August 13th arrest of Servando Trejo, who was linked to a Texas man who told local authorities that someone working in northern Colorado had been using his Social Security number.

Trejo, a native of Mexico, told a Weld County Sheriff's Office detective that he bought the ID in Texas after he crossed the border in 1995. He used the ID to get jobs, obtain loans, get a Colorado driver's license and pay taxes, which in recent years he filed through Amalia's Translation and Tax Services, 1501 9th St. in Greeley.

Weld sheriff's deputies on Wednesday launched what they're calling "Operation Number Games." The round-up of suspects were identified through other suspicious IDs found in an October 17th search of Amalia's office. Thirteen suspects were arrested Wednesday and Thursday, and teams will work Friday and through this weekend to pick up more suspects they believe were living here with stolen identities. Authorities plan arrests for the rest of the year and much of 2009.The sting will likely have wide ramifications:
- A measure of long-sought justice for many victims — people who for years have fought the IRS over mysterious reports of underreported income in tax filings.
- A high-profile example of the national stalemate on the immigration issue. The sting brings to light the inability of government agencies to share information that would lead to the enforcement of current law.
- Backlash from the Latino community, which remains raw to the federal raid at Swift & Co. meatpacking plant in 2006. That early morning raid, which picked up 262 workers suspected of committing identity theft, left scores of households without a breadwinner as the workers were jailed and most deported.

On Thursday, one local Latino businessman called the investigation into Amalia's Tax Service "racial profiling" and a "fishing expedition."John Bach, the founder and membership director of Colorado HUG, a Greeley-based nonprofit that serves the Latino community and businesses, said the records search at Amalia's is an invasion of privacy and could result in a class-action suit."Something like this, if it continues, there will be a revolt on a local level," Bach said.Each of the suspects will be booked into the Weld County Jail, and also placed on an "ICE hold," which means they will be investigated by Immigration and Custom Enforcement agents to determine if they're living legally in the United States.Meanwhile, the governmental inter-agency stalemate is born out in the investigation's methodical pace.

Weld County District Attorney Ken Buck said his office receives a "steady stream" of complaints from out-of-state victims of identity theft.Local authorities redoubled efforts to combat identity theft around the time of the Swift raid, reflected in their successful push to get the federal government to open a local ICE office.Whether this sting puts a large dent in the identity theft problem is uncertain, considering authorities don't know how many of the local tax filings will turn up invalid Social Security numbers.Of the roughly 1,300 Social Security numbers being investigated, the Social Security Administration is, per regulations, granting only 10 names a week to the DA's Office."The only thing they'll tell us is if it's valid or fictitious. They won't tell us who the owner of the valid Social is," Buck said of each number. "It will take us 2 1/2 years to find out if these 1,300 numbers are valid or fictitious, much less find victims involved.

"Four-step system"
Weld sheriff's detective Josh Noonan began the investigation months ago, when he got a call from Jose Lopez, the man in Texas.The resulting investigation brought search warrants for Amalia's Translation and Tax Services. Authorities said owner Amalia Cerrillo prepared the irregular tax returns for more than 1,300 undocumented workers.According to investigators, the system had four steps:
- A new illegal alien arrives in the country and buys a Social Security number from someone on the street, or from criminals that specialize in obtaining ID from legal citizens.
- When the immigrant gets a job, he or she uses the Social Security number for withholding taxes from his or her paycheck. Many times in these cases, the worker claimed to have numerous children, which lowered the amount of taxes that would be owed.
- At Amalia's Translation and Tax Services, the owner would use the alien's stolen Social Security number under a phony name, secure a legal tax identification number, then fill out forms, which would result in a large tax return.

According to the DA and sheriff's investigations, many of the illegal immigrants would pay only a few hundred dollars in withholding taxes, but would receive an average of $2,000 in a tax refund.If the 1,300 suspects total about $2.6 million in refunds over the 2007 and 2006 tax years, authorities said, the amount they paid in income taxes is estimated to be less than half of that, about $1 million.

Internal Revenue Service Records show the transactions are legal, because the illegal immigrants used tax identification numbers to file for refunds and claiming children under the child tax credit system."She knows (the clients seeking a tax identification number) are illegal, but the IRS is saying we want to know everybody who is working in this country," Buck said. "They're getting a boatload of money back (in refunds), more than they're even paying (in taxes)."

'Haven't done anything wrong'
In 1996, the IRS launched the Individual Tax Identification Number program to track resident and non-resident aliens' income derived in the U.S. from sources such as investments and interest-bearing bank accounts. The number is issued to people ineligible for Social Security Numbers — more than 12.4 million ITINs were issued from 1996 to 2006 — enabling them to open bank accounts and report taxable income.By law, a person can't have both an ITIN and Social Security number.In the case of the Greeley tax preparer, the returns, typically showing both numbers, were processed and refund checks were delivered.

Cerrillo, 36, said she processes tax returns in accordance with IRS rules. She said the ITIN is issued to individuals, and their spouses and dependents, who are non-resident or resident aliens and not eligible for a Social Security number. She said it's commonplace nationally for tax preparers to process ITIN applications and subsequent tax returns. She said clients know their current Social Security number isn't a valid match to their name, so they seek an ITIN for tax purposes. Cerrillo sat behind a desk in her office Thursday morning. Nearby were some of the 49 boxes of records taken by police last month."I'm open because I haven't done anything wrong," she said. "I will continue to help these people until the IRS says something different. If I'm breaking the law, the IRS is making me break the law. I'm just doing what the IRS directions say."Bach, of Colorado HUG, stopped by Cerrillo's office Thursday morning, soon after she was contacted by the Tribune. He said the federal government devised ITINs as a "profit maker" to generate tax revenue from undocumented workers."Everybody knows the federal government says one thing and does another, and this (arrest sweep) is a prime example," he said. "The federal government says if you are an undocumented immigrant, an illegal immigrant, you don't have a right to work in the United States. But if you are (working), here's a number so you can file your tax return. That's very convenient."Cerrillo feels her 10-year-old business was targeted because she's Latino."I think (authorities) came here because of my (Latino) name," she said. "They must have thought, 'Well, a lot of these people go here.' But it's not something I'm doing that's illegal. It's something that people who do taxes do because it's an IRS thing."She said she understands authorities' desire to clean up identity theft cases, but "why don't they get their records from the IRS? That's where they're from — not just (my records)."Bach said he suspects that tax returns involving ITINs would be in greater numbers at other local tax preparers such as H&R Block and Liberty. He said the investigation into Amalia's amounts to "profiling."The search warrant presented to Cerrillo in October gave officers authority to search for 2007 and 2006 tax records, Bach said, but they took records of more than 4,000 clients dating to 2000. About half of those, according to Cerrillo, are filings by legal permanent residents."That's flat-out invasion of privacy," Bach said.Buck said Cerrillo's business was targeted because that's where the paper trail led when the Sheriff's Office looked into Lopez's complaint. When police began searching for a "Jose Lopez" in northern Colorado, they found Trejo using that identity as an employee of Five Star Cattle Co., a Kersey feedlot."He used her to file a tax return so we had probable cause based on our interview with her," Buck said. "We didn't have probable cause on other tax preparers."Buck added, however, he believes similar cases occur at other tax preparation offices. "Absolutely, I think this is a widespread problem. But (Cerrillo) was interviewed and indicated this is what the IRS wants, and she does it for a number of people. At that point we had probable cause to conduct a search at her office." He said Weld authorities will likely investigate other tax preparers, but it will be a lengthy period before that happens."We probably have 1,300 cases now," Buck said. "We're absolutely overwhelmed, as is the court system, as is the jail."Buck said the officers acted within protocol on the search warrant. The deputies began their search for only 2007 and 2006 records, but expanded their seizure of information based on the "plain view doctrine.""In looking there, they found other returns that violated the law, in their opinion, so that allowed them to take other returns as a result of them being in plain view," he said.

Tax refunds pile up
The DA's office calculated the tax filing information of 23% of the 1,300 suspected invalid Social Security numbers taken from Amalia's Tax Service. The average refund was $1,986, of which $1,309 came through child tax credits. Other averages found in the returns:
- Earned income, $27,771.
- Taxable income, $5,343.
- Number of deductions claimed, 4.8. In one instance, a client earned $51,548 and claimed eight exemptions. The suspect had $3,864 of federal income tax withheld, and received a $5,205 refund. Another client reported $33,341 in income with six exemptions. That suspect had $756 of federal income tax withheld and received a $4,062 refund ($3,306 through the child tax credit).

Jean Carl, spokeswoman of the IRS's Colorado office, said she's unfamiliar with the case in Weld County. But, she said, instances of a tax preparer handling hundreds of ITIN applications and subsequent tax returns has occurred elsewhere."It's happening all over the country," she said. "These scams are out there and people have to understand when they sign the return they're responsible for whatever's reported, not the preparer."She said the IRS is bound by law to process returns as quickly as possible, so it's typically not until after the refund goes out that inconsistencies are discovered. Electronic filing has made curbing identity tampering even more difficult, she said.Previously, when the IRS accepted paper-only forms, the data-entry person could freeze the return if a name/number mismatch appeared."A lot of these things don't come to light until after (initial processing) when we do our record matching," Carl said. Even then, it's difficult to pin down an undocumented worker to collect the fraudulent refund."It becomes a very difficult job to do when you're talking about people who are here illegally and not supposed to be working," she said. Adding to the problem is the fact that IRS code restricts the agency from disclosing tax return information. The law, which provides that tax returns and tax return information be kept confidential, was enacted as part of the Tax Reform Act of 1976.

'Could be total zero'
Marti Dinerstein, a fellow at the Center for Immigration Studies in Washington, D.C., said ITINs are used as a way to get undocumented workers onto the income tax rolls. In a 2002 report "Giving Cover to Illegal Aliens:" Dinerstein said it's a laudable goal for the IRS to collect taxes from the broadest population base possible, but problems arise when the IRS determines resident alien state based on "substantial presence" in the United States, not legal residence. "Thus, illegal aliens who file tax returns are treated in the same way as legal foreign residents and receive the same tax benefits, such as spousal exemptions, child and education tax credits," her report said. And she believes the child tax credits — which bring in the largest amounts of the tax refund — amount to "invisible welfare."In a phone interview with the Tribune, Dinerstein said the government began scaling back welfare programs in the 1990s, while driving up the income tax credits for dependent children."Everybody thinks it's so wonderful that illegals are paying taxes," she said, "but what they don't understand is filing taxes is not the same as paying taxes." She said that because undocumented workers typically have low-income jobs and numerous dependents, they end up drawing more from the income tax system than they pay in."It could be a total zero (in tax revenue for the government)," Dinerstein said. "It could be a minus, if they're paying no taxes and yet they have children and they qualify for the child credits. Then the government transfers money to them."She said getting false Social Security numbers "opens the door" to undocumented workers getting employment "and almost everything a U.S. citizen can do."ITINs, meanwhile, are not valid for ID outside the tax system, but several states — not Colorado — allow their use to get a driver's license. Dinerstein said she suspects that undocumented workers, generally struggling with English, are often steered toward buying a Social Security number by a fellow immigrant. In some of the cases, "an immigrant has put an awful lot of faith in someone they know who doesn't do the right thing," she said. Rounding up sellers of the gateway identification — a Social Security card — is a difficult task, Buck said. He said when individuals with fraudulent cards are asked where they got it, the answer is often a physical description of someone who met them in a far-off city."It's difficult for Weld County law enforcement to track down the information," he said. "The information is often vague and almost always outside of Weld County." Also difficult is getting at a key player in the problem — employers who hire the workers with false ID. Buck said employers are accepting workers' documents that look valid. "Unless we can prove their state of mind" knew the documents were fraudulent, it's difficult to make a case against an employer. He noted it's important to look at employers and not just the employees in these cases. "When we start to see some patterns (with employers), we'll get into that and start making more interviews," Buck said.

Employer accountability
About 12,000 companies nationwide currently use E-Verify, a worker identity verification system. JBS Swift & Co., which had 262 employees arrested on suspicion of identity theft in December 2006, was using an employee identification system, Basic Pilot, prior to the raid and now uses E-Verify. No charges have been filed against Swift officials in the wake of the raid by Immigration and Custom Enforcement agents. Mark Everson, Commissioner, Internal Revenue Service, in July 2006 spoke Before the House Committee on Ways and Means on immigration issues. He said, " If an employer asks a worker for an accurate Social Security number or ITIN, he has performed due diligence under IRS code and is free of penalty." He told the committee that mismatched identifications on tax forms tend to occur among the lowest wage earners who have little tax liability. Based on an IRS' analysis of tax year 2004, he said, about 75% of all mismatched W-2s reported wages of less than $10,000. About 2 percent of W-2s with invalid Social Security numbers that year reported wages greater than $30,000. The average wage for all mismatches was about $7,000 annually. But, he said, many employees receive more than one W-2 in a tax year, so their gross incomes could be higher.Dinerstein, the fellow at the Center for Immigration Studies, said identity theft is a growth industry that has homeland security implications."It gives documents to people who could be a real danger to the United States, and it gives cover to people who are living here illegally," she said. "It's a very dangerous thing to be able to get fraudulent documents. You can do a lot of harm. And why should they be taking advantage of tax rebates that are meant for American citizens?"

"People broke law'
In the arrest affidavit on Trejo, an agent with the Colorado Department of Revenue said Amalia's Tax Service is conducting business according to IRS guidelines and has not violated any laws. Buck said he can't speculate on whether Cerrillo, the tax preparer, will face any charges. He said the arrests could spark another wave of backlash in the community. He said some people will be upset that potentially millions of dollars were refunded to illegal residents. Others will be angry that families are again being broken up by deportations."The bottom line is people broke the law," Buck said. "At the end of the line, people will realize you can't use another person's identity or a false identity in this county."

In other Weld identity theft cases involving illegal immigrants, Buck said, an "overwhelming number" of victims have Latino surnames. Bach and Cerrillo were upset to learn about this week's sting operation. They said tax filers seeking ITINs generally got the Social Security numbers assuming they were fictitious and made up. The workers had no intent to duplicate another person's identification, they said. Cerrillo brushed away tears as she thought about the arrests of clients she believes did nothing wrong. "I don't know how many of these people will be deported or have legal issues," she said. "Why? Because they came to Amalia's Tax Service."— Tribune reporter Andrew Villegas contributed to this report.

FamilySecurityMatters.org Contributors Chris Casey and Mike Peters write for Colorado’s Greeley Tribune

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