As inmates rake in hundreds of millions of dollars by filing fake tax returns from behind bars, the IRS continues to resist calls from the Treasury Inspector General for Tax Administration to share its information with state and federal prison systems, a new report said.
Between 2007 and 2012, fraudulent refunds claimed with tax returns that used a prisoner’s Social Security number jumped from $166 million to $1 billion.
Prisoner tax fraud has seen “alarming growth” since TIGTA began documenting the issue in 2010, the report said.
Such fraud occurs when inmates use the identities of themselves or others, often fellow prisoners, and inflate their incomes to obtain tax refunds.
Despite a series of reports highlighting the need for the IRS and prison facilities to swap information about fake prisoner tax returns, the agency still hasn’t forged agreements with prison systems, the latest report said.
As of January 2013, the IRS had been given full authority under the law to share tax information with state prisons, the report said.
But IRS officials are still finalizing agreements with them, blaming the delays on “leadership changes and the review process.”
A 2008 law requiring the IRS to submit annual reports to Congress on prisoner tax fraud has gone ignored, TIGTA found. Some reports have been submitted as late as two years after the de facto deadline, while no report has been filed for any year after 2011.
In an analysis of prisoner tax fraud’s potential reach, TIGTA found individual bank accounts that had been listed on thousands of tax returns from both inmates and non-prisoners and claimed millions in refunds without drawing attention from the IRS.
Once such bank account had been used with a prisoner’s Social Security number to obtain a refund — then was listed on 7,645 additional returns to net more than $30 million in fraudulently-obtained tax refunds, the report said.
Even so, the IRS rejected TIGTA’s recommendation that the tax agency begin screening prisoner tax returns that are similar to those implicated in known fraud schemes.
“Inmates are frequently also victims of identity theft, which can lead to an overstatement of fraudulent returns filed by prisoners,” the agency said in defense of its current method of oversight, which reports only confirmed cases of inmate tax fraud.
In addition, the IRS doesn’t track which Social Security numbers belong to prisoners. TIGTA found more than 43,000 tax returns filed in 2013 with an inmate’s information that were not identified as prisoner returns, the report said.
A 2012 TIGTA report claimed inaccurate and missing information in the agency’s “Prisoner File” — the “cornerstone” of IRS anti-fraud efforts, according to the agency watchdog — could hamper efforts to tamp down the abuse.
Go here to read the full TIGTA report.
