Prison Tax Fraud on the Rise: IG Report

Last updated on January 22, 2013

A report by the U.S. Treasury Department’s Inspector General for tax administration says tax fraud of false tax returns filed by prison inmates have more than doubled in the last two years. In 2012, the IRS detected more than 173,000 false tax returns filed by prison inmates. In that same year, the IRS stopped prison inmates from getting away with $2.5 billion in false tax refunds.

According to a 2010 audit, the Inspector General’s office discovered that around 50,000 inmates claimed more than $130 million in false tax returns. The Inspector General discovered that nearly 1,300 prison inmates received around $9 million in home-buyer tax credits while in prison. Prison inmates usually e-file fraudulent tax returns from the prison, using stolen identities of the recently deceased and the identities of fellow inmates.

“Refund fraud committed by prisoners remains a significant problem for tax administration,” said J. Russell George, the Treasury inspector general for tax administration. The report congratulated the IRS for doing a better job at curbing tax fraud by prison inmates, but also mentioned that more needs to be done.

The IRS requires accurate information on prison inmates to block false tax returns. It is required to have information about every prison inmates in state or federal prison, but the Inspector General report found huge inaccuracies in the data provided by some prisons, with many closed prisons reporting an inmate population. Recent legislation aims to assist the IRS in getting that information from state and federal prison officials in order to curb inmate tax fraud.

The challenge before the IRS is huge. This tax season too, they will receive millions of false tax returns hiding behind authentic filings. How the recent measures to control tax fraud help in blocking fraudulent tax returns is yet to be seen.