Tax refund fraud affecting many innocent people

Donna Ray
Donna Ray
CBS News

(CBS News) On Tuesday night, at midnight, the deadline for filing federal tax returns hits.

The IRS said that as many as 25 percent of Americans wait till the last week, if not the last minute.

But con artists aren't waiting. They may have filed for you and collected your refund.

CBS News correspondent John Miller reports that for victims, dealing with tax fraud is hard.

Donna Ray
Donna Ray CBS News

The news was too terrible to bear for Donna Ray and her husband Jim. Their son, 23-year-old Sergeant Adam Ray, had been killed by an I.E.D. in Afghanistan.

"My big strong husband crumbled to the ground and told me that Adam died. And that was the hardest thing, hardest words I've ever heard," said Donna Ray.

There was another shock to come. Before the Rays could file his taxes, someone else had already done it, and collected $1,400 on a refund that should have gone to Adam's parents.

" How could someone do this? I mean my son gave his life for you and now you're going to steal what little few dollars he has left?" Donna asked.

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This military family was a victim of a growing crime wave - tax return fraud. Thieves steal Social Security numbers and other personal data - from the dead and the living - and then file a return in their name. According to the IRS, identity thieves tried to claim $6.5 billion last year alone.

"We see a lot of gang members who are now involved in tax refund identity schemes because it's easy. It's easy to do. It's less violent and it's very lucrative," said Wifredo Ferrer, a federal prosecutor in Florida.

It is easy to do, especially with electronic filing. And the IRS does not automatically cross-check all returns against employers' payroll records before a refund is issued.

U.S. Postal Inspector Tom Boyle has even seen cases where multiple returns were filed using one stolen ID.

"Right now, the IRS is so far behind in matching up the information, it's months before they even realize the money's been stolen," Boyle said. "There's multiple victims here. The first victim is whose social security, whose information is compromised. Also the victim here is the American taxpayers."

Boyle said frauds against taxpayers ultimately come out of the Treasury.

In most cases, criminals get the same penalties as anyone else filing a false return, about three to five years in prison.

"I want the people who did this to Adam and to all of those other families and anyone in the future, I want justice to be done," said Donna Ray, the mother of the Army sergeant killed by an I.E.D.

Thieves are getting the stolen IDs from black market lists, or by bribing an employee with access to a big database. They even troll internet sites to get information on the deceased. Puerto Rico is a hot spot, because social security numbers there are used for all kinds of identification. And Puerto Rican citizens don't pay federal taxes so it's harder for the IRS to spot a duplicate return.

  • John Miller
    John Miller

    John Miller is a senior correspondent for CBS News, with extensive experience in intelligence, law enforcement and journalism, including stints in the Office of the Director of National Intelligence and the FBI.