It gets better; the number of fraudulent tax returns filed by prisoners—and the money doled out by the government—goes up every year because the IRS can’t seem to find an effective way to crack down on the scheme! From 2004 to 2010 the number of inmates that swindled the government increased from 18,000 to over 91,000 and the refunds claimed skyrocketed from $68 million to $757 million. The IRS pats itself on the back for blocking $722 million in tax refunds to inmates during 2010, but it still handed out more than $35 million.

While this may seem unfathomable to many, it’s all documented in a scathing federal audit released recently by the Treasury Inspector General for Tax Administration. Here is an understatement, as per the agency watchdog: “Refund fraud committed by prisoners remains a significant problem for tax administration.” Here is another one, included in the report; “controls used to ensure the IRS identifies fraudulent refunds on tax returns prepared by prisoners are not fully effective.”  

No kidding! Now that we got those enlightening assessments out of the way, let’s look at some of the reasons why this is happening. Parts of the report—including entire pages—were redacted to comply with “federal confidentiality laws,” but the bottom line seems to be finger pointing between the IRS and the Federal Bureau of Prisons and the State Departments of Corrections.

The IRS defends its incompetency by claiming that it does not have the authority to contact jail officials about prisoner-filed fraudulent tax returns because the information is confidential. When the IRS identifies records that don’t match those provided by the Social Security Administration its hands are tied. That’s because it doesn’t have the authority to resolve the discrepancies since it would violate an IRS code that specifically states tax returns and all associated information shall be confidential.

Furthermore, the IRS asserts that prisons don’t always provide it with accurate information or complete records and that not all facilities report inmates. This makes it impossible to adequately control the corruption because the agency must rely on information provided by prisons to identify inmate-filed tax returns. Nonetheless, the inspector general says, the IRS can do a better job of ensuring the files are accurate and complete by taking further steps to improve the validation and verification processes.

This is not the first time that the IRS gets slammed for doling out money to incarcerated criminals who are not entitled to it. For more than a decade, government investigators have exposed an epidemic of prison inmates illegally receiving tens of millions of dollars in tax refunds. Just a few years ago a federal audit revealed that more than a quarter of a million inmates filed tax returns with the IRS and nearly 50,000 claimed more than $130 million in refunds without bothering to report wage information  

The internal document was posted last week on the website of a group that provides electronic copies of thousands of federal government files obtained under the public-records law known as the Freedom of Information Act (FOIA). Because droves of information are available, juicy stuff often gets lost or overlooked. However, a congressional newspaper caught the scathing Treasury exposé and brought much-deserve attention to its findings.

It reveals that officials at the Treasury Department have been embroiled in a variety of transgressions, including violating conflict-of interest rules, accepting forbidden gifts from corporate executives, soliciting prostitutes and inappropriate personal relationships between supervisors and subordinates. One excerpt tells how an agency director in a romantic affair with a subordinate used his government-issued credit card to make “unauthorized purchases related to this relationship.”

Other portions tell about multiple incidents of sexual harassment and whistle blowers who faced retaliation for reporting illegal or inappropriate behavior. One Treasury official violated several ethics regulations by “accepting gratuities” and playing golf during work hours with employees of a bank and lying about it. Another unlawfully entered an agency office and stole a laptop computer, according to the report. The list goes on and on.

The investigation was conducted by the Treasury’s Inspector General and the report has most names and other incriminating details blacked out so the identities of the offenders aren’t revealed. Never the less, the probe exposes different episodes of misconduct and concludes that Treasury officials and employees definitely engaged in unethical and, quite frankly, criminal conduct.

This is alarming considering that the agency is the steward of the U.S. economic and financial systems, an influential participant the world economy. With these sorts of unscrupulous officials running it, how can taxpayers expect the Treasury to fulfill its duties of maintaining a strong economy, creating job opportunities and strengthening national security by combating threats and protecting the integrity of the financial system? …

This is hardly earth-shattering news considering the well-documented history of the $700 billion Troubled Asset Relieve Program (TARP), the president’s brilliant idea to rescue the nation’s ailing financial institutions. Instead, it’s turned out to be a troubling experiment of U.S. tax dollars with virtually no oversight.

In the last few years a variety of federal probes have documented that TARP is severely mismanaged and that its rife with waste and abuse. In fact, a 2009 TARP Inspector General report revealed that dozens of criminal investigations had been launched into the controversial bailout experiment and that the risk would only grow. The probes have centered on securities fraud, tax law violations, mortgage modification fraud and insider trading involving recipients of the federal money.

A separate audit—by the Congressionally-created panel charged with overseeing the Treasury’s actions—divulged that the government actually paid collapsed mortgage giants Fannie Mae and Freddie Mac $240 million to help “administer” TARP. Think about it! These are the scandal-plagued mortgage companies that were seized by the government in 2008 getting millions more from taxpayers to “administer” yet another fraud-infested federal program.

This week the Special Inspector General for TARP revealed that the monstrous bailout program’s losses stand at about $60 billion and that financial institutions owe Uncle Sam a whopping $118.5 billion. Furthermore, hundreds of small banks can’t afford to repay the federal bailout loans so taxpayers will get stuck with the exorbitant tab, according to the TARP inspector general. Just last month the Congressional Budget Office (CBO) estimated that TARP would lose $32 billion.

TARP’s IG disclosed the latest figures to Congress in a 330-page report that outlines the bailout’s monumental failures. “It is a widely held misconception that TARP will make a profit,” the IG writes in the report. It goes on to say: “While TARP and other government responses to the financial crisis may have prevented the immediate collapse of our financial and auto manufacturing industries, and improved stability since 2008, the trade-off is not without profound long-term consequences.” A significant legacy of TARP is increased moral hazard and potentially disastrous consequences associated with institutions deemed ‘too big to fail.”’

Judicial Watch has been a frontrunner in investigating the administration’s handling of the nation’s financial crisis and has sued the U.S. Treasury Department to obtain records related to evaluation procedures used by the government to determine which financial institutions get TARP funds. As a result of the ongoing probe, JW obtained documents involving a controversial $12 million bailout grant provided to an unqualified Boston bank at the behest of California Congresswoman Maxine Waters and Massachusetts Congressman Barney Frank.