The case of Krystle Marie Reyes of Oregon, who in 2012 filed a fraudulent tax return claiming a refund of approximately $2.1 million and received a prepaid debit card for that amount from the IRS, became one of the more striking illustrations of vulnerabilities in the federal tax refund system — vulnerabilities that tax fraud specialists had been documenting and warning about for years.

Reyes, whose actual income was a small fraction of what she claimed, submitted the fraudulent return and received the refund on a prepaid debit card that she then began spending. She had used roughly $150,000 before the IRS identified the error and stopped the card. She was subsequently arrested and charged with first-degree aggravated theft.

The case was notable primarily for the scale of the claimed refund, which was absurdly large, and for the fact that the automated processing system paid it. Tax fraud experts were not surprised. The IRS's "pay and chase" model — in which refunds are issued and fraudulent claims pursued after the fact rather than before — had been identified as a systemic vulnerability, particularly with the expansion of identity theft-based tax fraud schemes in which criminals file returns using stolen Social Security numbers.

The Reyes case differed from typical identity theft fraud in that she appeared to have used her own identity, simply fabricating the income and withholding figures on her return. That a claim of this implausibility was automatically processed and paid suggested that the IRS's filters for detecting anomalous returns were, at minimum, not catching everything they should have caught.

The case became a reference point in Congressional and IRS discussions about pre-refund verification improvements — a conversation that would continue for years afterward as identity theft-based refund fraud grew into a multi-billion dollar annual problem.