The IRS has stated that one of their highest rates of tax return fraud comes from prisoners. In 2009 alone, prisoners got away with taking more that $39 million in phony refunds. Georgia, Florida and California had more that $19 million in fraudulent refunds. These 2009 figures are more than 3 times the amount prisoners claimed in fraudulent refunds in 2008.
How the Prisoners Execute the Fraud
Prisoners do not make enough to qualify to file a tax return, but some do have money from inheritances, business income, investment income, rental income, and other types of income. They must file tax returns on this income, but that often leads to many fraudulent returns being filed by the prisoners. The maximum penalty for tax fraud is imprisonment, so that’s probably not much of a deterrent for many who are already incarcerated.
Prisoners have found ways to hack into IRS databases and obtain Social Security numbers from unsuspecting taxpayers. They then use these social security numbers to file fraudulent tax returns and claim refunds. They have also been known to claim refunds on bankrupt companies. Once again, they find ways to hack into the database to look up lists of bankrupt companies and claim phony refunds under their names. They often make the tax returns look so genuine that the IRS doesn’t question them. Once they prisoner receives the refund, they enlist the help of friends or family members and have them cash the refund checks. The Treasury Inspector General for Tax Administration stated that the IRS needs to take action against this immediately.
Action against Prison Fraud
The IRS and lawmakers have taken strides to try to put a stop to these fraudulent tax returns. In 2008, a law was passed to make sure the IRS releases prisoner tax information to the Federal Bureau of Prisoners and other Federal and State Corrections departments. This law was put in place to help authorities keep track of tax returns filed by prisoners and keep them from filing false returns. Authorities are still in the process of reviewing the law to make it better so that confidential taxpayer information isn’t leaked. Until the entire system is stable, prisoners may be able to continue to get away with filing fraudulent tax returns and claiming refunds that belong to law abiding taxpayers.