Oregon Woman Gets $2.1M Fraudulent Tax Refund on Debit Card

June 12, 2012 — -- Oregon's Attorney General's office says a woman will be charged with obtaining a fraudulent $2.1 million tax refund on a debit card, the biggest fraud refund case in the state's history.

Krystle Reyes, 25, allegedly faked her 2011 income tax return with over $3 million in made-up wages from a fake employer. The Oregon Department of Revenue, the state's tax agency, issued a $2.1 million refund to Reyes via a debit card. The agency said human error let the bogus refund go out.

The debit card was issued to Reyes through TurboTax as a service that the company provides to filers receiving a tax refund.

The state of Oregon only issues refunds by paper checks or electronic funds transfers.

"Our office has been working with TurboTax on prosecution related matters and how this could have happened," said Derrick Gasperini, spokesman for Oregon's Department of Revenue. "I have lots of remaining questions myself."

Julie Miller, a spokeswoman for TurboTax, said because this is an ongoing criminal investigation, the company is unable to comment. She said the company is cooperating with law enforcement officials.

Oregon's Attorney General's office will file formal charges on Tuesday against Reyes, according to a spokesman for the attorney general. Reyes' court date is July 5.

Reyes was arrested by the Marion County Sheriff's Department in Salem, Ore., on June 6. She was charged with aggravated theft and computer crime after using TurboTax to file her fake tax return on Jan. 31, 2012.

In a probable cause statement filed with Marion County police, she was issued a $2.1 million tax refund on a Visa debit card and spent over $150,000 from February through May 6. Among Reyes' purchases was a 1999 Dodge Caravan for over $2,000, and $800 worth of tires and wheels. Reyes was seen driving the vehicle over the last 30 days before her arrest, the filing, first obtained by The Oregonian, stated.

The filing states that "the fraud was discovered by the issuer of the debit card May 7th after Reyes reported a second card lost/stolen."

Through video surveillance, Reyes was seen swiping the debit card during all transactions, according to the police filing.

Reyes could not be reached for comment.

Gasperini said the agency usually stops fraudulent claims throughout the processing year, but human error allowed Reyes' claim to be processed.

Among tax returns filed after January 1, the agency stopped about $1 million in questionable claims on nearly 1,000 tax returns.

Normally the department will catch claims such as overstated reductions or math errors leading to a larger refund than the taxpayer is due, Gasperini said.

"We don't have the resources nor does the Attorney General to prosecute 1,000 inappropriate claims or every fraudulent claim we have," he said.

"Our first job is to protect the state's interests and process appropriate refunds," Gasperini said. "We have a fiscal responsibility to administer tax refunds. In this case, the process we used to stop fraud didn't work. It had a human error and we inappropriately approved the refund."

Gasperini declined to describe how the agency catches fraud to protect its methods.

"It's typically done in smaller amounts than $2.1 million," Gasperini said, which does not always prosecute the cases and instead informs and fines the individuals.

Gasperini confirmed that this was the largest individual fraudulent claim and refund issued by the state.

Since the agency realized a human error led to the fraudulent refund, it reviewed all 108 issued refunds over $50,000.

"We've looked at all of them and we have not approved inappropriately any of those refunds," he said.

In 2010, there were 114,272 full-year Oregon residents who received tax refunds averaging $205, compared to 119,293 filers that received an average refund of $201 in 2009.

According to national data from the Internal Revenue Service, there were 166 investigations initiated for abusive tax schemes in the 2011 fiscal year. Of those there were 140 prosecution recommendations and 86 indictments. There were 95 cases of sentenced cases and an incarceration rate of 76.9 percent. The average time served was 30 months.