In 2009, prisoners in Florida, Georgia and California stole $19 million in IRS refunds while still in prison through bogus refund claims on phantom jobs. In the entire country, the figure was $39.1 million in 2009, an almost 300% jump from the amount of $13.4 million only five years earlier.
And the IRS is not certain how much (if any) of the stolen refunds in 2009 has been recovered. According to them, the recapture process could take ‘several years’.
Normally, the amount paid as wages to prisoners in their prison jobs would not be high enough for them to qualify for tax withholding. However, some prisoners legitimately own inheritances and investments that generate income for them, thus may qualify them for tax refunds. But the IRS does not always check for fraud in tax returns submitted by prisoners, so the actual amount of fraudulent claims could well be higher.
In 2008, Washington passed legislation aimed at cracking down on this crime, but the enforcement of it has been impeded by legal factors. In that year, Congress authorized the IRS to disclose prisoners’ tax information to state departments of corrections and the Federal Bureau of Prisons. But this information sharing has not been implemented as of October last year because the IRS and Department of Justice is looking into whether prison officials could legally disclose the IRS data to prisoners and their attorneys.
The Treasury Inspector General for Tax Administration (TIGTA), J. Russell George has been pushing for more forceful measure to be taken to address this problem. “If the IRS does not take action, the problem will only worsen and more taxpayer dollars will be lost,” he said. Furthermore, George also warned that, “prisoners continue to find new ways to exploit weaknesses in the system in order to receive refunds to which they are not entitled.”
A TIGTA audit in February revealed that 29 prisoners received nearly $50,000 in tax credits for electric and alternative motor vehicles they falsely claimed in their tax returns.
The scam is usually done by prisoners who gain access to Social Security numbers and identifying information of other people and use this information to make false claims. Another strategy used is scouring the internet for listings of companies that have gone bankruptcy. Then they list these bankrupt companies as their employers in the tax returns. Often the relatives or friends of prisoners help them by receiving and cashing the refund checks, then depositing them into prison accounts.
