IRS Gives Prisoners Millions in Tax Returns

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