Cyber thieves out to pocket your tax refund

Mark my words: We're going to be hearing a lot more about cyber-crooks stealing tax refund money.

How do these con artists hurt everyday taxpayers? Well, the real taxpayer ends up having to clear a bunch of hurdles and must wait months longer for the legitimate refund.

"It is just hard to believe that this could happen," said Leah White of Swartz Creek, Mich.

Her 49-year-old son had a heart condition and died unexpectedly in January 2011. A month later, someone in Boca Raton, Fla., e-filed a tax return using the son's name and Social Security number. The refund was deposited into an account in Boca Raton.

But the mother didn't know of any issues until March, when her accountant tried to file the return for her son, who was single and had lived and worked in Michigan.

They tried to file the legitimate return electronically, but the return would not go through. They then submitted a paper claim.

By June, still no refund.

So the mother, dealing with the grief of losing a son and all the paperwork involved with a death, had to call the IRS. She found out about the fraud only after she called.

After much persistence, including driving to an IRS office in Flint, Mich., she finally got the refund in December.

"I just couldn't believe somebody could do that," she said. "How does someone open an account in Boca Raton in my son's name and Social Security number?"

Tax-related identity theft is a hot spot for quick cash - and the national taxpayer advocate says it's now one of the top problems facing taxpayers.

Taxpayers must keep ID theft in mind as they gather paperwork and prepare tax returns.

It can be too easy for a fraudster to use that information to pocket your fat refund.

Many everyday taxpayers can't imagine how a crook could use numbers to cook up a fake tax return to steal their tax refund. How would the con artist get all of your tax data unless you were super sloppy?

But the trick of this scheme is that phony returns can be created out of phony numbers - if the con artist has stolen a real name and Social Security number.

You or a loved one who passed away might not qualify for a $1,700 refund, but the ID thieves know how to get one.

In January, the IRS and the Justice Department announced a nationwide crackdown that targeted 105 people in 23 states allegedly involved in identity theft and tax refund fraud.

A federal grand jury, for example, charged three women from Dayton, Ohio, with conspiring to defraud the IRS by using stolen identities belonging to adults with mental disabilities in order to obtain phony tax refunds for $170,000 between March 2008 and March 2009.

"This unprecedented effort against identity theft sends a strong, unmistakable message to anyone considering participating in a refund fraud scheme this tax season," IRS Commissioner Doug Shulman said in a statement.

"We are aggressively pursuing cases across the nation with the Justice Department, and people will be going to jail. This is part of a much wider effort under way at the IRS to help protect taxpayers."

In addition to the law-enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity-theft refund schemes.

Typically, the fraud is discovered when a family member files a legitimate return in March or April.

The legitimate return can be initially rejected by the Internal Revenue Service because an earlier return using that ID already was processed. Detroit court documents stated that an analysis of six bank accounts showed attempts to deposit 746 tax refunds in excess of $1.8 million.

The IRS caught a chunk of the fake returns but was bilked out of $800,000 in refunds at one point. Court records indicated that almost $475,000 had been retrieved by the government after seizure warrants were issued.

The quirks of electronic filing itself show that the fraud has the potential to grow.

"Identity theft is a growing problem as we disclose more personal information on the Internet," Barbara L. McQuade, U.S. attorney for the eastern district of Michigan, said in a statement.