captioning funded by cbs and ford >> pelley: right here across the bridge you can see the black flag of isis flying over isis territory. to understand what isis is, where it came from and how it blitzed through two countries, we went to the front lines to see where some of the worst atrocities in the history of terror are happening to innocents who are in isis' way. >> we are going for you, hannahk obama. >> pelley: you'll hear from the soldiers battling isis, for a family that survived an execution by crawling out of a mass grave, and from this woman, whose sisters and mother have vanished. >> ( translated ): tell them i just want my mother. >> pelley: what's being done

to defeat the men who ride under the black flag? that's our story tonight. >> >> kroft: was this like a community of people doing this? >> more like nation of people. >> kroft: he's talking about a scam so simple you'd never think it would work, but for years people like corey williams have been filing bogus tax returns in order to collect billions in fraudulent refunds. >> by the year 2016, the irs will be hemorrhaging and losing $21 billion due to this type of fraud. >> kroft: it's only 2014. don't you think something can be done in the next two years to fix this? >> well, that is my hope. >> i'm steve kroft. >> i'm lesley stahl. >> i'm morley safer. >> i'm bob simon. >> i'm bill whitaker. >> i'm scott pelley. those stories tonight on the 47th season premier of "60 those stories tonight on the 47th season premier of "60 minutes."

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>> pelley: today america's top military officer, general martin dempsey, said the u.s. and its allies will attack isis from

many directions. "we want them to wake up every day realizing they're being squeezed," he said. american pilots have hit the islamic extremist group in iraq nearly 200 times now and soon the u.s. will be bombing isis in syria. america was drawn back into war when isis began to overrun part of northern iraq called kurdistan. kurdistan is semi-autonomous with its own military called the peshmerga. with american air support, the peshmerga are holding a tense front line against isis. earlier this month we started our reporting on that front line to explain isis-- what it is, where it came from, and how it blitzed through two countries. in june, the leader of isis declared himself ruler of a new nation which he calls the islamic state. of course, no country on earth recognizes that state, but if it

had a border, this would be it. these are kurdish peshmerga forces in northern iraq. and right here across the bridge you can see the black flag of isis flying over isis territory. all muslims know what's written there in arabic, "there is no god but god and mohammed is his messenger." but the true meaning of this banner is written in blood and it's up to another muhammad, first lieutenant hazhar muhammad, to make sure the flag never crosses this bridge. why is this bridge so important" this is the road to kirkuk," he told us. the city of kirkuk is ten miles behind us. and it's the gateway to iraq's northern oil fields. do you have orders to destroy this bridge if it comes to that" no," muhammad said, "the people need this bridge, no one's going to take my bridge." but he couldn't have said that last month.

in august, the peshmerga were falling back just 25 miles from their capital city, erbil. the u.s. had stayed out of it for two-and-a-half years but panicked leaders of kurdistan called the white house. and that's what triggered the air strikes. you were outgunned? >> barzani: we were outgunned, yes. >> pelley: masrour barzani knows isis better than just about anyone. he's head of kurdish intelligence and the kurdistan regional security council. >> barzani: i think everybody underestimated the strength of isis, especially with all the weapons they seized from the syrian army and the iraqi army. five iraqi divisions melted away and, you know, they just left their weapons, which fell into the hands of isis. >> pelley: weapons bought by american taxpayers were captured by isis as it paraded into cities that had been won by american troops. how many isis fighters are there? >> barzani: there are perhaps

40,000 isis fighters who are carrying guns, fighting both in iraq and syria, maybe equally divided in two countries. >> pelley: and how many people collaborating with them? >> barzani: well, collaborating whether they believe in helping them or not or out of fear, i would say over 100,000. >> pelley: where does isis get its money? >> barzani: they generate their own revenues. and based on the information that we have, they generate something equivalent to $6 million daily by the selling of oil, wheat, taking taxes from people, ransoms and still getting donations. >> pelley: you talked about donations. >> barzani: many people who believe in this extremist ideologies believe that it's their duty to donate money to this organization. >> pelley: and that's been coming from where? >> barzani: different countries, actually. >> pelley: in the gulf states? >> barzani: some in the gulf states. >> pelley: $6 million a day? that'll keep them going forever. >> barzani: if they're not

stopped. >> pelley: u.s. air strikes have stopped the advance, but black flags fly from northern syria to mosul, one of iraq's largest cities. now more than four-and-a-half million people are ruled by something new-- a 7th century vision with 21st century reach. in digital depravity, isis uploads its atrocities to strike fear far beyond the range of its guns. >> ( speaking foreign language ) >> pelley: the beheadings of two americans and a briton were calculated to give isis global stature, and it worked. massacres on youtube, the slaughter of thousands, are designed to defeat resistance ahead of the advance. >> we are coming for you, barack obama. >> pelley: its sophisticated media department uploads recruiting videos in a host of languages. >> pelley: gunmen with cameras magnify the menace to make isis

appear larger than life. but what isis has shown only once is its leader. >> pelley: abu bakr al baghdadi appeared in july when he called on all of the world's 1.6 billion muslims to bow to him. >> derek harvey: we should be very careful about underestimating him. this guy is the real deal. >> pelley: derek harvey was in iraq for the beginnings of al- baghdadi. a colonel in u.s. army intelligence, he briefed president bush and top commanders. back then, baghdadi was a member of al qaeda in iraq and was imprisoned for a time by u.s. forces. when iraq's al qaeda leader was killed, baghdadi took over. >> harvey: when he became a key figure within the organization, he was targeted. and then in 2010 he had a $10 million bounty put on his head

and he became a top-tier target. >> pelley: but the target slipped away into syria where he used the chaos of the civil war to build his army. he began to refuse orders from al qaeda and in february, al qaeda's leader kicked him out. what does al baghdadi want? >> harvey: he wants power, influence, and authority and a return to the prestige of the islamic community, and he's going to start with syria and iraq. and his strategic vision is to expand into the gulf, jordan, from the mediterranean to pakistan. >> pelley: baghdadi preaches salafism. it is a tiny sect in islam that calls for a return to the origins of the faith 1,400 years ago. but baghdadi's interpretation injects lethal prejudice. under isis, those who reject salafism are non-believers, subject to execution. that applies to fellow muslims and their mosques.

and it applies especially to non-muslims. what happened in your village when isis came in? >> nadaya ( translated ): they told us, "wave the white flag, we won't harm you, you'll be free to go." >> pelley: nadaya lived with her large family, including brothers sayid and khalid, in a village of yazidis, a non-muslim ethnic group in iraq. she asked us not to show you her face and when you hear her story you'll understand why. >> nadaya ( translated ): they had told us, "you have until sunday to convert." but before sunday they came back and said, "we have been told you will not convert, so you are not forgiven." so we all were taken to the school. there, the women and kids were put upstairs and the men downstairs. >> pelley: in august, in a scene similar to this, the men were

loaded onto trucks and told they were headed to a refugee camp. but like these men, it turned out to be a short ride to a mass grave. nadaya's brothers sayid and khalid were on the trucks. >> khalid (.translated ): after taking us about 300 yards away from the school, they stopped by an open field and told us to get out and lay flat on your stomach, and we did. then after we laid flat about ten isis fighters stood behind us and started firing all types of guns. >> sayid ( translated ): one by one they said, no survivors, if any survivors they would come around and shoot them in the head. they shot us with all types of guns. i was shot five times. >> pelley: twice in the knee, once in the thigh, once in the back and a graze to the neck. from a window in the school

where the women were being held, a boy could see it all. what did the little boy say? >> nadaya ( translated ): he said, "i saw through the window they're killing the men, i saw from a distance." but we didn't want to believe him, we said he's just a little boy he might just be seeing things. we didn't believe him. >> pelley: do you have any idea how many men were killed in that massacre? >> sayid ( translated ): i think about 380. >> pelley: and how many survivors? >> sayid ( translated ): ten to 12. >> pelley: he told us as the isis fighters were finishing off the victims, a plane flew overhead and scared them away. he and his brother who'd been shot three times, crawled out of the mass grave. after the shooting stopped, what happened to the women? what happened to you? >> nadaya ( translated ): they told us to come downstairs. they took our i.d.s, phones, our gold, they even ripped the gold earrings out of some of the kids' ears.

isis used the local villagers' trucks, started loaded up 16 to 20 women at a time and taking us away. the final destination was a little town. >> pelley: and when you got there, what happened? >> nadaya ( translated ): there was someone at the front door, he would take off our head scarves and rip open the front of our dresses. and he would touch us, sexually abuse us. >> pelley: later, nadaya was imprisoned in a house where she says women were given away as prizes. >> nadaya ( translated ): the very next morning a sheik from tel-afar came and picked up three girls for himself, two were my friends. he had the right to take three, and an isis militant had to right to take one. a friend of mine who was taken by an isis commander and returned had told us, they're doing everything they please with us, raping us, sexually abusing us, and that the isis men would tell them if you do not convert we will rape you all, and sell you all to isis militants in syria where a young

girl could be sold for about $800. >> pelley: when she heard that, nadaya took advantage of a blackout and escaped from the building. now, all the family has of life before isis is this video of the wedding of a friend. hard to watch. they told us nearly everyone in the video is dead. what about the other members of your family? >> nadaya ( translated ): my sisters, two of them whom i speak with at times who somehow snuck a phone through have no idea where our mother is. i don't know anything regarding my mother. tell them "i want my mother." my friends are captive, i have no idea where my other brothers are, i want them all to return but most of all i just want my mother.

tell them "i just want my mother." >> pelley: how was the black banner carried so far? a third of iraq gone in a matter of weeks, ground hard won by the united states in what was known as "operation iraqi freedom." the american people sacrificed 4,475 lives, ten years, and a trillion dollars building a government and an army for iraq. how did all of that crumble so fast? >> leon panetta: it's a tragic story. >> pelley: leon panetta was defense secretary when the u.s. walked off the iraqi stage in 2011. back when you watched the stars and stripes being lowered for the last time in baghdad, were you confident in that moment that pulling out was the right thing to do?

>> panetta: no, i wasn't. i really... i really thought that it was important for us to maintain a presence in iraq. the decision was that we ought to at least try to maintain 8,000 to 10,000 u.s. troops there, plus keeping some of our intelligence personnel in place, to be able to continue the momentum in the right direction. and, frankly, having those troops there i think would've given us greater leverage on maliki to try to force him to do the right thing as well. >> pelley: nouri al maliki was the elected prime minister. he didn't want the u.s. troops. a paranoid man of the shia sect of islam, he nursed a grudge against the sunni branch of the faith. he'd been a thorn in america's side for eight years. president bush, in an off-camera conversation with us in 2007, said, "that maliki is a son of a bitch, but we have to deal with

him." >> panetta: prime minister maliki, who had the opportunity to kind of hold all of this together, just turned on the sunnis, fed into the historical sectarian divisions that have centuries, and basically undercut and undermined the security force in iraq and created, i think, the very ingredients that led to what we see today in iraq. >> pelley: maliki, in your estimation, dismantled what we built? took the sunni military officers out and replaced them with shias? >> panetta: we gave them a chance. i mean, you know, nobody can guarantee that iraq would be able to go in the right direction. but we gave them a chance. we gave them the tools. but instead, he turned to vengeance. and vengeance never pays off. >> pelley: but it paid off for isis. isis conquered with a relatively small force because it was welcomed by the oppressed sunnis in iraq.

in an austere intelligence agency lockup, we met the kind of man who joined isis. we didn't know what to expect. but it turned out he wasn't a young fanatic, he was a middle- aged real estate agent from mosul-- one of the fed-up sunnis. when isis first came in, did people support them? were they welcome? >> saleh ( translated ): the iraqi army was hurting people, even the governor and the local government were hurting people. people thought something good was going to happen. they thought there was going to be an islamic state, a caliphate, that they would help people and rid them of oppression. >> pelley: then they learned what the black flag really meant. >> saleh ( translated ): you either join them, or they would consider you an infidel. >> pelley: and what did that mean to you? >> saleh ( translated ): if they declared you an infidel, that means they kill you. >> pelley: president obama

refused to engage in a new campaign until iraq dumped nouri al maliki. well, two weeks ago a new prime minister took office promising to unite his people. but first, he'll have to get his country back. in a moment, the advice mr. obama got two years ago that might have headed off isis. >> cbs money watch update sponsored by lincoln financial. calling all chief life officers. >> glor: good evening. air france will operate just 41% of its flights tomorrow as a pilot strike enters its second week. microsoft offer nod reason why they delayed the releasing of xbox one in china. a successful launch today of the space-x dragon set to resupply the international space station. i'm jeff glor, cbs news.

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>> pelley: president obama's plan hinges on arming and training moderate syrian militias to defeat isis. the president has been criticized for not doing that sooner. you're about to hear from two men who saw the threat early-- former defense secretary leon panetta and abdullah ii, the king of jordan. jordan is a moderate american ally nearly surrounded by war, with the israeli palestinian conflict to its west, syria to its north, and iraq to the east. today we spoke to king abdullah in new york before this month's u.n. general assembly meeting. for hundreds of years his family ruled the holiest shrines in islam. and the king was nearly at a loss for words today when we asked him about the head of isis who claims to lead all muslims.

>> abdullah ii: i hate to use the word heretics-- whatever the words of those types are-- but to even call himself a muslim is to me, just words that i don't want to use on this program. >> pelley: you just used the world heretic. is he an islamic heretic? >> abdullah ii: i think to use the word islam and him in the same sentence is not acceptable. that he even speaks in the name of islam for me is so horrendous and so shocking. >> pelley: the kingdom of jordan has borne the burden of the syrian civil war even though it has no oil wealth and precious little water. we went to the border where, for three years, refugees from that war have risked death in the desert in the hope of reaching jordan, where they are welcomed. we caught up with this group of refugees inside syria as they made the last mile to the berm

that marks the border with jordan. there are hundreds just like them every day, thousands every month. jordan is now host to vast refugee camps which have become cities in the desert. >> abdullah ii: it's the right thing to do. i mean, where else would the syrians go? they're in dire straits. that's why today we have more than 1.4 million syrian refuges in our country-- 20% or slightly more of our population. >> pelley: 20% of the population are refuges from outside the country? >> abdullah ii: equivalent of probably 60 million refugees in your country as we speak. >> pelley: how long can you manage that? >> abdullah ii: i think we are at the limit, actually. and with the difficult economic conditions we're in it's a tremendous burden on our country. >> pelley: have your troops been engaged with isis? do you think of your borders secure? >> abdullah ii: we have retaliated to several contacts over the past several months to

those who have come across our borders or tried to come across our borders. so we have been somewhat aggressive to make sure our borders are defended. >> pelley: are your borders secure? >> abdullah ii: our borders are extremely secure. >> pelley: king abdullah told us forcing isis out of iraq is the easier part. but he estimates digging it out of its base in eastern syria could take two years. he supports u.s. air strikes as essential to overpowering isis. >> abdullah ii: the difference with isis, i think, compared to any other organization is that they are self financing. they can produce within a year, in a year cycle, up to almost a billion dollars worth of oil derivatives that they are obviously selling at a low price, about 30 dollars barrel, which means they can pay a lot of foreign fighters to come to their country. they can buy weapons. >> pelley: would a billion dollars a year give them a seat in opec? >> abdullah ii: you would imagine if you had that capability, which i... what they have to have is about a third of the production of the united arab emirates. in a way, technically, they'd be

asking for a seat in opec. >> pelley: now, according to the king, all countries in the region face a choice. >> abdullah ii: isis, i think, has triggered an understanding that it's time for all of us to make up our minds on the fight of good against evil. and this brings all of us together from all religions on different sides of the divide. are we going to fight the good fight? >> pelley: could the rise of isis have been prevented? >> abdullah ii: they could have been prevented if the international community worked harder together to make sure funding and support to the original groups in syria were not allowed to get to the extent that they were. >> pelley: the international community-- the united states intervened too late? >> abdullah ii: i think we could have done a better job in making sure that earlier on it was identified who the bad people were and action by the international community was

taken not to allow that to happen. >> pelley: it turns out president obama was urged to intervene in syria much earlier. in a new book, "worthy fights," former defense secretary leon panetta writes that in a meeting in the fall of 2012 he, secretary of state hillary clinton, the director of the c.i.a., and the chairman of the joint chiefs all urged the president obama to arm moderate syrians who had started the revolution against the dictatorship to begin with. that might have left no room for isis to grow. >> panetta: the real key was how can we develop a leadership group among the opposition that would be able to take control? and my view was to have leverage to do that, we would have to provide the weapons and the training in order for them to really be willing to work with us in that effort. >> pelley: but with virtually his entire national security team unanimous on this, that's

not the decision the president made. >> panetta: i think the president's concern, and i understand it, was that he had a fear that if we started providing weapons, we wouldn't know where those weapons would wind up. my view was, "you have to begin somewhere." >> pelley: in retrospect now, was not arming the rebels at that time a mistake? >> panetta: i think that would've helped. and i think, in part, we pay the price for not doing that in what we see happening with isis. >> pelley: now isis has forced mr. obama to reverse himself. the new policy depends on local forces to win on the ground but many of the available partners are dubious. syrian rebels fight each other. and the pentagon figures only about half the iraqi army is reliable. but, at the same time, isis has problems of its own. its advance is running into heavy opposition now.

in the north, we found kurdish troops holding the line backed by u.s. air strikes. >> thank you america, thank you obama, thank you american military. >> pelley: to the east and south isis has come up against the opposing shia population. most of baghdad is shia. if isis has reached its borders, the concern for america now is what will isis export. when we see these isis soldiers on these videos say, "we're coming for you, america." is that idle boasting? or are they a threat here at home? >> panetta: i think they are a threat. i think they're as dangerous, as fanatical as terrorist as al qaeda was. and they have a large number of foreign fighters with foreign passports that make them particularly dangerous to the safety of this country.

>> pelley: how long does it take to destroy isis? >> panetta: i think it's gonna take a long time. and i think the american people need to know it's gonna take a long time. >> pelley: it's been a long time already. u.s. forces attacked iraq in 1991 and were engaged on the ground or in the air for 21 years. the latest effort begins where lieutenant mohammad is holding the bridge to kirkuk. each american campaign began like a journey on a bridge, straight, narrow, clearly defined, until it reached the enemy. >> to see our producer's diaries from the from the lines in iraq, go to 60minutesovertime.com. [ sighs ] [ inhales ] [ male announcer ] at cvs health, we took a deep breath... [ inhales, exhales ]

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>> kroft: there have been lots of stories over the past few months on identity theft, and how the information can be used against you. you may have heard something about stolen identity tax fraud, you may even have been a victim of it, it's the biggest tax scam around now. this is how it works: someone steals your identity, files a bogus tax return in your name before you do, and collects a refund check from the i.r.s. it's so simple, you would think it would never work, but it does. its been around since 2008, and you'd think the i.r.s. would have come up with a way to stop it, it hasn't. instead the scam's gone viral, tripling in the past three years. the i.r.s. estimates that it sent out nearly three million fraudulent refunds to con artists last year. and according to a new report from the government accountability office out

tomorrow, it cost taxpayers $5.2 billion. the treasury department believes the numbers are much higher than that, proving once again, what every con man already knows: there is no underestimating the general dysfunction and incompetence of government bureaucracy. >> ferrer: it's a tsunami of fraud that we have been encountering. the vast number of fraudulent tax returns was something that i don't think the i.r.s. ever really was ready for. >> kroft: wilfredo ferrer is the united states attorney for the southern florida and george piro the agent in-charge of the miami field office of the f.b.i. together they run a federal task force operating at the epicenter of largest tax scam in the country. >> ferrer: florida has been for the third year in a row on the top... number one in terms of i.d. theft complaints. and miami is also number one in terms of metropolitan areas that suffer from identity fraud. >> kroft: don't-don't take this the wrong way-- is there any

scheme that miami is not number one at? >> ferrer: we have very sophisticated and good criminals, steve, who know how to... how to, you know, defeat the system. >> kroft: for decades now south florida has been the silicon valley for scam artists, drawn here by the weather, the beaches, and the opportunity to make lots of money without actually doing much work. there's medicare fraud, mortgage fraud, securities fraud, and now what the justice department calls stolen identity tax refund fraud, a tax preparation scheme epitomized by an over abundance of questionable-looking establishments that have sprung up here over the past few years. but this scam is so easy, you don't even need an office. >> ferrer: for this fraud, all you need is a laptop, someone's social security number, date of birth, not even their name. they can do it from their kitchen table. they can do it at a fast food chain restaurant. or they can do it on the beach, as long as they have wi-fi access.

>> kroft: actually corey williams says you don't even need a laptop. you can file phony returns on your cell phone, if you have the right app. he used to be a legitimate tax preparer until his boss turned him on to the scam. before he was arrested and sentenced to 40 months in prison he had made millions and millions of dollars. >> corey williams: anybody who knew about it, you'd be a fool to not-not try to get involved with making some money. i could wake up in the comfort of my own home, and just get on a laptop, do about 15 returns a day. fifteen times $3,000 a return, that's $45,000 a day. >> kroft: so you had a home office? >> williams: yeah. i used to work in... i would work in my boxers and a t-shirt, yeah. >> kroft: it as easy as one, two, three. williams gave us a demonstration. one: you collect or buy a list of stolen identities that are readily available in miami if you know the right people. two: you go to one of dozens of

tax preparation sites online, and using the stolen social security numbers and dates of birth you fill out a completely bogus w-2 form, claiming a modest refund of a few thousand dollars. >> williams: it has given us a refund of $4,834. >> kroft: three: you tell the i.r.s. where to send the money, your house, your bank account, or loaded onto a prepaid debit card. do you have any idea how many returns... how many bogus returns you filled out? >> williams: has to be like in the thousands, maybe. >> kroft: did the i.r.s. pay all of it? >> williams: on a percentage range, you'd say they would pay out 40% of the tax returns. >> kroft: once you hit send, how long did it take you to get a check? >> williams: seven days. >> kroft: seven days? >> williams: yes. >> kroft: so you'd send in these returns, and seven days later, you'd get a check? >> williams: yes. >> kroft: forty percent of the time? >> williams: forty percent of the time. >> kroft: where would you have them send the check? >> williams: you can send the

checks to an address, any address. i've seen cases where 25 checks came to one address, and the mailman delivered it. >> kroft: it sounded so outrageous, we wanted to run it by the federal task force. so you just put down a name and a social security number, and you can make up an employer, or the amount of money that was earned and withheld... >> ferrer: that's it. >> kroft: ...and send it off to the i.r.s. and they'll send you a check back for the refund? >> ferrer: they will pay, most of the time, unless they catch that there's some fraudulent, you know, information. and then it's our job to chase. >> kroft: i'm still amazed that you don't need to provide any documentation when you file your tax return. >> piro: there are no supporting documents when you are filing electronically. and that's the ease or the convenience that was created for the benefit of the innocent taxpayer, which is now being exploited by criminals. >> kroft: you would think that the i.r.s. computers would notice that they were sending thousand of checks to a handful of addresses, but they didn't. and you might expect that the i.r.s. would match taxpayer returns with legitimate w2 forms filed by employers.

it doesn't do that either because the law requires refund checks to be sent out within six weeks and employer w2s are often not available until months later. so if a bogus return is received before a legitimate one, the check will go out to the crooks. >> ferrer: the way that you learn that you become a victim of this is when you go and try to file your return, the i.r.s. tells you, "oh, you've already filed." you're like, "no, i haven't." well, like, "yes, you have." well, it wasn't you, it was the fraudster who used your identity to file the return. >> kroft: and it's not an easy problem to get fixed. many of the people in this line outside the i.r.s. office in plantation, florida, are victims of the fraud, waiting to prove their identity and claim their rightful refund. they will eventually be reimbursed but it can involve massive amounts of paperwork, multiple visits to the office, and months and months of waiting. >> ferrer: and this is where i call the sort of the nightmarish process, of clearing up your

identity. i have seen cases of individuals who have almost lost their businesses because they did not get their refund check in time. i've seen individuals who have lost their place in a nursing home because they needed their refund to pay for that year's worth of services. and it's a real shame and it's a real shame. >> kroft: so, did you know about this before you got this job? >> john koskinen: i had no idea about this before i started getting briefed last fall. >> kroft: john koskinen is the commissioner of the i.r.s.-- its fourth commissioner in just two years. it's become a high-turnover position in part because the agency has been beset by a number of embarrassing problems- - including stolen identity tax fraud-- that have led people to question its competency. >> kroft: i mean it looks to me like the i.r.s. got really outsmarted by some people who were not all that bright, were not that ingenious. >> koskinen: what happened was a lot of people discovered that social security numbers are, a, either easy to steal or find or

buy and then, b, you can file a false return. >> kroft: why didn't anybody anticipate that? >> koskinen: well, i think it goes back to the fact that people don't anticipate social security numbers were gonna be so readily available. the assumption was until fairly recently was a part of your identity that you protected and took great care of, so that no one actually expected they would be this easy to get a hold of. >> kroft: but there were plenty of warnings. the senate finance committee held hearings on stolen identity refund fraud way back in 2009 when then-i.r.s.-commissioner douglas shulman testified. >> shulman: i discussed the issue of identity theft with the senior leaders of the i.r.s. my first day on the job. >> kroft: there were more hearings in 2011, and another in 2012 with deputy i.r.s. commissioner steve miller. >> miller: we cannot stop all identity theft however we are better than we were and we will get better still.

>> kroft: in those ensuing years, the number of cases of stolen identity refund fraud has risen from 51,000 to nearly three million. >> ferrer: in the year 2012, the department of treasury's inspector general predicted that by the year 2016, irs will be hemorrhaging, and losing $21 billion dollars due to this type of fraud. >> kroft: it's only 2014. don't you think something can be done in the next two years to fix this? >> ferrer: well, that is my hope. >> kroft: but it will not be easy. the entire i.r.s. system uses social security numbers as its primary means of identifying taxpayers. even though they are now ubiquitous in public, private and corporate files are just waiting to be stolen by thieves. >> ferrer: the key to this is to have somebody in the inside, or someone who has access to our social security numbers, to our date of births. and a lot of these individuals are insiders in big institutions-- in banks, hospitals, schools, clinics.

>> williams: we would approach anyone who worked at like a dental office, anybody who worked in a medical field. you would tell them if they get you 100 names, you would give them $1,000. >> kroft: these people easy to find in miami? >> williams: very easy. very easy. >> kroft: 'cause you would think if you went in and started knocking on doors and asking people that worked at hospitals, and doctors' offices, and dentists' office, somebody would call the cops. >> williams: no, they needed the money more than they wanted to call the cops. everybody was with it, everybody was with the scam. >> kroft: was this like a community of people doing this? >> williams: more like a-- a nation of people doing this. ( laughs ) >> kroft: it's gone from hundreds of people filing hundreds of fraudulent returns to thousands of people filing millions of fraudulent returns, and it's become much more organized.

u.s. attorney ferrer says some people are even setting up franchises. >> ferrer: we have had defendants, masterminds of these schemes, engage in filing parties. and what they do is that they invite their friends to a hotel room or to an apartment and then they tell them how to do it in return for a cut of these tax returns. >> kroft: you make it sound like amway or tupperware. >> ferrer: that's what we've seen. >> kroft: even ferrer's own boss, u.s. attorney general eric holder, has had his identity stolen in an i.r.s. refund scam. and a number of members of the task force have been victimized, including north miami beach police officer rocky festa, who says local police departments have been hit hard. >> festa: aventura had nearly their entire department, which was 50-some-odd officers got hit. davie fire and davie police, it was in the hundreds. they were all victims of tax return fraud. >> kroft: festa and his partner craig caitlin now work exclusively on tax refund cases and were among the first to discover the breadth of the scam five years ago when they began finding tax documents and stacks of pre-paid debit cards when

they pulled over suspicious vehicles. >> caitlin: here is a wire plastic with a card. >> kroft: you can get one of these prepaid debit cards almost anywhere, usually without providing identification. you then deposit and withdraw money from it as needed. it's like a bank account, for people who don't have one. now is that a visa-- a real visa card? >> caitlin: it's a real visa card and you can buy... >> kroft: so you can go in a convenience store and buy a visa card? >> caitlin: right off the shelf. >> kroft: if you want, the i.r.s. will electronically deposit tax refunds directly onto these cards no questions asked, eliminating the need for crooks to ever actually set foot inside a bank or try to cash a refund check. they can spend the money in stores, or withdraw it from a.t.m.s. so is this kind of like a throwaway phone? >> caitlin: yes, sir. yeah, once the money goes on the card, you empty the money off on a.t.m.s and you put the card in the garbage. it's pretty good. >> kroft: the prepaid cards are now used by millions of americans to collect $142

billion in government entitlements like social security and medicare payments. i.r.s. commissioner koskinen thinks its an invitation to commit fraud. >> koskinen: the prepaid cards are the currency of criminals. our problem is you can't distinguish the number of a prepaid card from a legitimate bank account. >> kroft: almost impossible to trace, right? >> koskinen: it is almost impossible to trace. >> kroft: why doesn't somebody put an end to that? >> koskinen: there are significant percentages of the population that were unbanked, as it were called. if you don't allow them to use a prepaid card, they are going to have to get a check and they'll have to pay someone a lot of money to cash that check. so you are disadvantaging a significant amount of the population. >> kroft: and empowering a criminal network? >> koskinen: and you are empowering a criminal network. >> kroft: five years into the scam, most of the time the i.r.s. still cannot not tell if the person filing the return and claiming the refund is actually the real taxpayer. by comparison the credit card

companies are much better at flagging suspicious charges before they are paid out. credit card companies don't have that much of a problem with this. why can't the i.r.s. do that? >> koskinen: so that's the direction in which we're going. it's a significant move into the what i call the 21st century. we're still kind of in the late 1900s. but this is... it's still a big problem that, while we are making great progress, we've got a lot of work to do. >> kroft: i.r.s. commissioner koskinen says the agency does catch a lot of the fraud but the enforcement efforts have been hampered by cuts to its budget. a number of fixes are under consideration, some of them obvious, including delaying the payment of refund checks until they can be matched up with w2 forms filed by employers. the house passed legislation recently increasing the penalties for tax refund fraud and the senate finance committee has scheduled yet another round of hearings.

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