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While law-abiding citizens get slammed with higher taxes, incarcerated criminals who prepare fraudulent returns are getting tens of millions of dollars from the Internal Revenue Service (IRS) and the agency is doing little to stop the hemorrhaging.

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  

In April 2012, Judicial Watch learned that a former IRS employee had sued the agency for a quarter million dollars and expungement of his record after he was fired in October 2010.  After Anthony Yemoh Smith lost in court, Judicial Watch filed a Freedom of Information Act request seeking all records pertaining to accusations that Smith falsified travel vouchers he submitted to his supervisor for reimbursement as well as any other files uncovering similar instances of fraud by IRS employees.  The Treasury Inspector General for Tax Administration (TIGTA) on May 14, 2012 denied Judicial Watch’s request in full, stating that:

  • TIGTA did not possess any employment records for Anthony Yemoh Smith;
  • The agency could neither confirm nor deny the existence of an investigation into Smith’s misconduct;
  • A total of 1,720 pages comprising 15 Reports of Investigation (ROI) respecting the falsification of travel vouchers by other IRS employees were located for the period of August 1, 2010 through the date of the request.  However no part of them could be released because the privacy interests of the employees falsifying travel vouchers outweighed any public interest in the thefts they conducted in the course of their employment with the federal government.

On May 14, 2012, Judicial Watch administratively appealed TIGTA’s denial since the pertinent facts had all been aired in open court.  TIGTA affirmed its blanket denial on June 15, amending only its previous failure to acknowledge the existence of an ROI into Smith’s misconduct.  Additionally, in upholding its earlier decision to withhold all records in the 15 other fraud investigations identified, the agency – charged in part with supervising the IRS – said it had no way of distinguishing the guilty from the innocent because it was a separate entity from the IRS.  It also cited a statute designed to protect information submitted by taxpayers in filing returns each spring.

Nevertheless, according to court documents, Smith’s on-the-job misconduct was discovered in August 2010.  In the course of the investigation, TIGTA agent Kevin Davies also learned that Smith had been arrested in 2007 for obstructing a police officer.  Davies informed IRS Territory Manager Cindy Halpert and Group Manager Richard Ledger as well as Assistant United States Attorney Mark Crooks.  AUSA Crooks declined to prosecute Smith.  Ms. Halpert apparently fired him.  Because of TIGTA’s secrecy, it is not clear how much money the IRS has lost to travel voucher fraud among employees nor if any stolen funds have been recovered

Weeks after a government audit revealed that the Internal Revenue Service doled out $33 million in fraudulent electric-car tax credits, a separate probe says the agency paid out over half a billion dollars to “homebuyers” who didn’t qualify.It’s simply the latest of many blunders for the perpetually troubled government agency that’s awarded prison inmates tens of millions of dollars in bogus tax refunds in the past decade. Last year alone, more than a quarter of a million prisoners filed tax returns with the IRS and nearly 50,000 claimed more than $130 million in refunds without bothering to report wage information, according to the Treasury Inspector General.Last month the Treasury IG, the IRS’s watchdog, found that the Obama Administration’s aggressive push to reward consumers who buy costly “advanced-technology” vehicles resulted in rampant corruption because claims were automatically granted without scrutiny. In many cases the lucrative tax credit—worth up to $7,500—was awarded to gas-guzzling sports utility vehicles and even a bicycle. Some people got multiple tax cuts for the same vehicle and dozens of prisoners received nearly $50,000 in alternative vehicle credits even though they were behind bars.This month’s audit du jour says the IRS has dished out more than $513 million in credits to unscrupulous filers who claimed first-time homebuyer exemptions of up to $8,000 as part of Obama’s disastrous stimulus plan. A chunk of the money—about $326 million—went to nearly 50,000 people who already owned a home, the Treasury IG found. Nearly $8 million in credits went to more than 1,000 prison inmates and about $98 million to 13,400 taxpayers who never even bought homes.Even some IRS employees who didn’t qualify for the first-time homebuyer refund received it. In its report, the Treasury IG makes a rather simple suggestion that’s perhaps too common sense for the IRS; require taxpayers to provide documentation to support eligibility for all refundable tax credits. Here’s another good recommendation from the agency’s watchdog; that the IRS deny refundable credits when supporting documentation is not provided.

Nearly a year after Congress passed a law to stop incarcerated criminals from fraudulently receiving millions of dollars in tax returns, the Internal Revenue Service (IRS) hasn’t bothered creating a system to catch the offenders.For more than a decade, government investigators have exposed an epidemic of prison inmates illegally receiving tens of millions of dollars in tax refunds. Last year alone, more than a quarter of a million prisoners filed tax returns with the IRS and nearly 50,000 claimed more than $130 million in refunds without bothering to report wage information, according to the Treasury Inspector General.To tackle the problem, last summer Congress expanded a 2008 law (Inmate Tax Fraud Prevention Act) aimed at federal prisoners to include those in state facilities, where the swindling is also pervasive. The measure gives the IRS authority to disclose information on inmates who file a false tax return to the federal and state agencies that run prisons.More than eight months later the IRS has yet to reach an information-sharing agreement that will help state prison officials identify those who file fake tax returns, according to a U.S. Senator from Florida, the state with the highest number of incarcerated tax scofflaws.Nearly 20% of the all the fraudulent tax refunds received by prisoners nationwide go to Florida, according to the Treasury Inspector General. In 2009 around 9,000 incarcerated criminals in the Sunshine State filed fraudulent tax returns by using basic forms to claim phony credits, usually with no supporting documents. Many Americans may wonder why the feds aren’t being more aggressive in combating the crisis which annually cheats the government out of millions.Florida Senator Bill Nelson is wondering the same thing. In a letter to IRS Commissioner Douglas Shulman, the veteran Democratic lawmaker urges the agency to quickly reach an agreement with the state’s department of corrections to facilitate the sharing of inmate tax information. That way they can begin identifying and take action against those who file fraudulent returns.The request seems simple enough. After all, government audits have long exposed the perpetual problem over the years and the IRS has failed to act. As far back as 2005 the Treasury watchdog ordered the IRS to stop the millions of dollars in fraudulent refunds paid to prisoners. That year a probe determined that refund fraud committed by prisoners increased at an alarming rate of 318% from the previous year and that the crisis had been well-documented for a decade.

As if government wasn’t bloated enough, the Internal Revenue Service (IRS) will hire more than 1,000 new employees to monitor the implementation of Obamacare and the agency will spend an extra $93 million just to promote compliance in the first year.That’s because Obama’s hostile takeover of the nation’s healthcare system has created a “major challenge” for the IRS and the “largest set of tax law changes in more than 20 years.” At least that’s how the agency is justifying the costly additions in its 2012 budget request to Congress.The healthcare law will require additional resources to, among other things, build new information technology systems, modify existing tax processing systems and provide taxpayer outreach and assistance, according to the IRS budget request. There will also be other expenses for things such as resolving taxpayer “issues” in a timely and accurate manner and conducting “focused examinations to encourage compliance.”If this seems a bit murky, the detailed budget request provides some examples of what some of these things mean. For instance, the agency needs $34.4 million to hire 100 full-time staffers that will perform “new health coverage information reporting” and $22.2 million so that 150 employees can assist taxpayers in understanding the new provisions. It seems that these new divisions fall under taxpayer outreach or perhaps the innovative issue resolution department.A staff of around 84 will be hired at a cost of $9.9 million to “strengthen oversight of exempt hospitals” and $11.5 million will help create a tanning salon taskforce with 81 employees. Under Obamacare indoor tanning businesses must pay a 10% excise tax and the new division will assure that 25,000 facilities around the nation are complying. These appear to fall under “focused examinations to encourage compliance,” though it’s hard to say.The IRS also needs to hire more than 200 new agents to handle other tax law changes related to Obama’s catastrophic $787 billion stimulus, according to its budget request. As for Obamacare compliance requests, they can expect to grow since the law won’t even be fully implemented for several more years.

The government agency that’s showered prison inmates with millions in fraudulent tax refunds over the years has been cheated out of $33 million by thousands who “erroneously” claimed credits for alternative and plug-in electric vehicles.In automatically granting the bogus tax credits the Internal Revenue Service (IRS) was simply following an aggressive Obama Administration plan to reward consumers that purchase the costly “advanced-technology” vehicles. The president is on a mission to get 1 million of the environmentally friendly cars on the road by 2015.As a result of that push the IRS failed to appropriately scrutinize claims, even when they clearly didn’t meet the criteria. In the first six months of 2010 alone, 20% of such federal tax credits were “erroneous,” costing U.S. taxpayers more than $33 million. Details of this latest IRS gaffe are laid out in a report released this week by the Treasury Inspector General for Tax Administration.It reveals that the IRS granted the lucrative tax credit—worth up to $7,500—to gas-guzzling sports utility vehicles and even a bicycle. Among those who cheated Uncle Sam are jail inmates and even IRS employees. Some people got multiple tax cuts for the same vehicle and 29 prisoners received nearly $50,000 in alternative vehicle credits even though they were behind bars.Speaking of jailed convicts, the IRS has for more than a decade cut checks to incarcerated criminals who clearly didn’t qualify for tax refunds. In 2010 over a quarter of a million prisoners filed tax returns and nearly 50,000 claimed more than $130 million in refunds without bothering to report wage information.In a report published just a few months ago, the Treasury Inspector General found that 88% of the 287,918 returns filed by prisoners in 2010 were not selected for screening by the IRS. Investigators found that the agency seldom screens the returns of those most likely to commit fraud.Previous inspector general probes have exposed the perpetual problem over the years and the IRS has failed to act. As far back as 2005 the Treasury watchdog ordered the IRS to stop the millions of dollars in fraudulent refunds paid to prisoners. That probe determined that refund fraud committed by prisoners increased at an alarming rate of 318% from the previous year.

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