Senators Work to Block U.S. Prisoners' Bogus Tax Refunds

Over the last five years, prisoners doing time in America's correctional facilities have received more than $120 million in tax refunds they applied for from their jail cells. According to the Associated Press, four Senators are now working to close the loophole and protect the nation's taxpayers from such fraud:

Sens. Charles Schumer of New York, Sherrod Brown of Ohio, Amy Klobuchar of Minnesota and Sen. Bill Nelson of Florida said the Federal Bureau of Prisons and the Internal Revenue Service have failed to cooperate and comply with a 2008 law aimed at stopping the practice in federal and state prisons nationwide.

Prisoners use their own names or the names of friends and associates to submit false claims to receive and cash refund checks.

“It is outrageous to think that convicted felons are able to fleece taxpayers from a jail cell,” Schumer told The Associated Press. He said the federal agencies’ “failure to share information has not only allowed this fraud to continue to occur, but has allowed it to more than double since 2004.”

IRS and Bureau of Prisons spokeswomen say they are working to end gaps in what is already substantial enforcement against the practice. But the IRS says congressional action is needed to require prisons to report their tax status to the Bureau of Prisons.

“We have the ability to put an end to this fraud and save taxpayers millions of dollars, but government bureaucracy has gotten in the way,” Klobuchar said. “It’s time for the IRS and the Bureau of Prisons to work together to stop felons from scamming the system.”

“Middle-class Ohioans who work hard and play by the rules shouldn’t foot the bill when convicted criminals commit tax fraud — from the very place they were locked up for committing a crime in the first place,” Brown said.

Nelson called it “prisoners ripping us off.”

The IRS and Bureau of Prisons say they’re already on the case.

“The IRS is very successful at detecting and stopping incorrect refunds, including criminal refund fraud, and prevents the vast majority of refunds from fraudulently going to inmates,” said IRS spokeswoman Christina A. D’Amico.

“Our systems provide special scrutiny to reviewing prisoner refunds, and we continue to increase our efforts,” she said.

Prisoners either file false returns in their names or file fraudulent tax returns with phony names and Social Security numbers often using accomplices outside prison to receive and cash refund checks.

But D’Amico said prisons aren’t required to provide all the needed tax information on prisoners.

“This information is provided by federal and state prison systems on a voluntary basis,” she said. “Federal law covering taxpayer privacy prevents the IRS from providing tax return information to state and local prison officials … without congressional action to require state and federal prisons to report the status of inmates to the IRS, there will be gaps.”

The senators disputed there are any remaining privacy obstacles beyond the 2008 Inmate Tax Fraud Prevention Act to overcome and said fear of lawsuits by prisoners is thwarting action. The senators threaten to hold hearings on the issue if the agencies don’t work out a way to stop the practice fast.

The issue was the topic of a recent Treasury Department inspector general report. It found refund fraud by prisoners “is increasing at a significant rate.” Overall, the report found that $123 million in fraudulent refunds were paid to prisoners from 2004 to 2009.

The analysis also found that 12 percent of prisoners in 2009 who filed had missing or inaccurate data, including Social Security numbers, questionable dates of birth. Much of the same data was found missing or inaccurate in a 2005 report.

According to the IRS, fraudulent tax returns filed by prisoners in the U.S. rose to almost 45,000 in 2009, up from 18,000 in 2004. Between 2004 and 2009, as much as $123 million more in fraudulent claims were paid to prisoners.

The senators were to release letters to the bureau and IRS on Sunday.

“If these two agencies fail to put corrective action in place immediately, then I intend to call for oversight hearings to compel them to,” Schumer said.