There’s a new, quickly growing scam favored by thieves, drug dealers and violent criminals.

And it has to do with the old fraud favorite of identity … and your tax return.

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Huh? Aren’t credit cards a more lucrative way to make a killing with identity information? Not when it comes to tax refunds that could put pure cash in the thieves’ wallets.

The New York Times reports that criminals are filing thousands of false tax returns … and then harassing postal workers to get refunds from those fraudulent returns.

Could you be at risk? We’ll explain how it works, who is targeted and the steps being taken to shut it down.

How It Works

Armed with only a name, birthday and social security number, such a scammer can file a return, invent an income and withholding information for the identity they’re using, and then receive a refund from the unknowing IRS using a prepaid debit card. While such cards are meant to ease the way for taxpayers without bank accounts, they are utterly untraceable and easy to steal.

It’s a bigger deal than it seems–the false refund costs taxpayers hundreds of millions of dollars annually, because sometimes the IRS issues two refunds: one to the criminal, and one to the rightful recipient who often has to wait a year as the IRS verifies his or her claim. To put it in perspective, in 2010 the IRS correctly identified and vetoed 940,000 fake returns, for which thieves would have received $6.5 billion in refunds … but that’s only the ones they caught. They estimate that they missed another $5.2 billion worth of false returns.

There’s also a safety issue. Postal workers are being harassed and in some cases even robbed by thieves wanting to steal refunds before they’re delivered to the taxpayer.

The scam is especially appealing to violent (or formerly violent) criminals because of its low penalties. The Times writes that these thieves are repeat offenders, making more money than they might through other illegal avenues. In and out of jail in short stints, they can seen around town in luxury cars. And the scam is spreading—the Broward County Sheriff’s Office explains that thieves are holding “parties” where they distribute laptops and teach others how to file fraudulent returns, for a fee.

Who Is at Risk?

Residents of South Florida are at particular risk because of the large population of Baby Boomers. The FBI says that Boomers are easy targets because they often have considerable savings, they were raised to be more trusting than later generations and they often don’t report fraud, either because they’re too proud or they’re worried that their family will take it as a sign that they are losing their mental capacity. South Florida has the highest overall rates of identity theft in the country.

But it’s not just the Boomers. The Times reports that two dozen police officers in Tampa–one of whom investigates identity-theft fraud as a career–were victims this year.

Anywhere Social Security Numbers are stored are particularly high risk: health care facilities, assisted-living centers, schools, insurance companies, pension funds and large stores that issue credit cards, where employees will steal the information and sell it. 

You might think that this perfect storm of scam (South Florida, Baby Boomers and taxes) would mean the IRS would be able to pre-empt significant damage. But in fact, filing taxes has become so easy, and identity theft has become so common, that the agency simply can’t keep up technologically. Their ability to detect a fraudulent claim is hampered by the fact that they receive 100 million tax returns every year in a short period of time–and most are legitimate.

What Is Being Done to Stop It?

On the IRS side, the agency has invested $300 million to increase the number of investigators, institute technology that flags more returns, distribute personal ID numbers to victims for next season and hire more workers to deal with refunds. They’re also working with the local police force, which enables them to get information on tax returns (with permission of the actual taxpayer) to help with their investigations.

Florida’s Congress members have also introduced legislation that would impose heavier penalties for tax-fraud identity theft and strengthen protection for victims by securing Social Security Numbers and facilitating collaboration between law enforcement agencies.

On a personal level, the FBI published a comprehensive guide to different senior scams (and another to internet scams) and how to prevent them. Credit.com presents a nice list for MainStreet of ways to protect your older relatives from scams and what to look out for, and we’ve looked into how you can create the most secure password possible to keep your information safe.

There are also sites like Experian’s Protect My ID, which (for $15 per month) will send you a text or email alert if someone tries to open a new loan or credit card in your name, change your address or sell your personal information on the Internet.