Laura Hankins knew something was wrong when she filed her daughter's tax return and it was rejected hours later: An identity thief already had sent in a return using the 19-year-old's personal information.
"This is the first time in her life she has ever filed income taxes, after earning all of $1,800 stocking products on grocery store shelves," Hankins said. "I did her taxes for her online, but immediately she got the rejection."
Thieves have claimed billions of dollars in bogus tax refunds from the IRS by swiping the Social Security numbers and identities of schoolchildren in Florida, prisoners in Pennsylvania, teachers in Washington state and soldiers deployed in Iraq and Afghanistan.
Hackers and employees with access to thousands of names stored in company databases have tapped into reams of personal information, allowing them to submit hundreds of fraudulent returns by computer and receive refunds within days. Five people in Cincinnati were sentenced to prison late last year for using the names of employees at nursing homes and hospitals to file tax returns.
It all adds up to a lot of frustration for legitimate taxpayers who face more paperwork and months of waiting for their tax refunds.
Hankins was told her daughter Claire, a college student from West Milwaukee, Wis., would get her refund in about six months. But Hankins first had to spend about 20 hours filling out forms, gathering information and photocopying documents because she couldn't file electronically after the tax identity theft was discovered in February.
"Some kids get to go to Florida for spring break, but she got to go the West Milwaukee police station to file a theft report," said Hankins, who added that her daughter is worried about what will happen next now that her personal information is out there.
The IRS paid out nearly $4 billion to people using stolen identities in 2012, according to a government report. Since identity theft fraud exploded over the past three years, the agency has made stopping it a priority, but thieves are becoming more aggressive and still finding ways to get around increased scrutiny.
"It's like that game of Whac-A-Mole. When you're attacking one scheme, they come up with another," said Wifredo Ferrer, the U.S. attorney in south Florida, a hotspot for the schemes.
Fraudulent filers have evaded detection lately by getting refunds loaded onto prepaid debit cards instead of receiving them by check. Others have robbed postal workers to get refunds and even recruited mail carriers to take part, Ferrer said.
A former records clerk in Alabama's prisons department was charged in January with selling inmates' personal information to claim over $1 million in refunds. Three others were sentenced to prison for taking part, including a mail carrier who stole the refunds from the mail.
"They're getting very creative by using people in the inside," Ferrer said. "They're creative and brazen. They're using the IRS like their own ATM."
The IRS said Thursday that it has started more than 200 investigations into identity theft and refund fraud schemes this filing season and that enforcement efforts are taking place nationwide. It said investigators are especially focused on the misuse of specialized identification numbers assigned to firms that electronically file tax returns.
But the ease of the schemes means no one is immune. The best steps to reduce the chance of refund fraud are to protect your Social Security numbers and other personal information.
The practice has spread to the most unlikely of places. Even employees and volunteers within the Archdiocese of Seattle became victims last month in a case that's still being investigated.
Because the goal of the IRS is to get refunds out quickly, it often sends them out before verifying wages and other income from employers and financial institutions. Victims don't know they've been targeted until they file their taxes.
Dallas radio host Ed Wallace said he found out just over a year ago that someone filed a return using his name. What surprised him was that it got through even though his name was misspelled, his address had been changed and his wife's name wasn't on the form.
"I can't believe there wasn't a field in the IRS computers to alert them," Wallace said. "They must have so many they can't keep up."
He spent about $2,700 on attorney fees to straighten out the mess.
Among the biggest frustrations is the amount of time it takes victims to resolve the issue with the IRS and get their refunds.
The average wait for identity theft victims to clear their cases had been about 10 months but is now down to three months, according to the IRS.
Agency Commissioner John Koskinen said the IRS has more than doubled the employees dedicated to working on identity theft and improved its screening to catch suspicious returns.
The IRS stopped more than $12 billion in fraudulent refunds from going to identity thieves in 2012, compared with $8 billion the year before, according to an inspector general's report released in November.
—By The Associated Press