TIGTA: IRS Refuses to Take Steps to Cut Down on Prisoner Tax Fraud

The Treasury Inspector General for Tax Administration (TIGTA) released a new report about fraudulent tax returns from prisoners. TIGTA calls out the IRS for failing to take action on the tens of thousands of fraudulent tax returns filed by people who are currently incarcerated. While average taxpayers are being hounded for innocent mistakes, the IRS is just letting prisoners commit fraud without doing anything. This is simply absurd.

Check out a snippet from the report below.

The IRS has not shared prisoner tax return information with Federal and State prison officials to help combat tax fraud by inmates. ... The Inmate Tax Fraud Prevention Act of 2008, signed October 15, 2008 and amended in July 2010, provides the IRS with the authority to disclose information on prisoners who have filed a false tax return to the head of the Federal Bureau of Prisons and State departments of corrections. The law also requires TIGTA to provide Congress with a report on the IRS’s progress in sharing prisoner tax information.

TIGTA found that the IRS had not provided any information on prisoner returns to either the Federal Bureau of Prisons or State Departments of Corrections as of October 2010. Prison officials told TIGTA that receiving Federal tax return information on prisoners would help reduce both tax fraud and other illegal activity....

TIGTA also found that the IRS may have understated the amount of prisoner tax fraud in a 2009 report to Congress. In that report, the IRS identified 44,944 false/fraudulent prisoner tax returns during Calendar Year 2009. However, the IRS’s report was limited to only those tax returns the IRS identified and chose to evaluate for fraud. TIGTA identified 540,984 tax returns that were filed by prisoners in 2009, of which 54,410 were not identified by the IRS as having been filed by a prisoner.

In addition, TIGTA found that the process used by the IRS to compile its annual file of individuals in Federal and State prisons lacked managerial oversight to ensure accuracy and reliability. Even though the prisoner file is the IRS’s single most effective tool to identify potentially fraudulent prisoner tax returns before refunds are issued, key data in the 2009 prisoner file were inaccurate and/or incomplete.

Hat Tip: Tax Prof Blog

Millions of Tax Returns Filed Using Other People’s SS Numbers

In 2007 1.2 million people filed tax returns using someone else’s Social Security Number, according to the Treasury Inspector General for Tax Administration (TIGTA). During the investigation, TIGTA discovered that the IRS can’t identify cases of identity theft when people use Individual Taxpayer Identification Numbers (assigned to people who work and pay taxes but are not entitled to Social Security benefits) to file tax returns, and use someone else’s name and Social Security Number to work.

The issue was discovered when people using false Social Security Numbers for work had their wages garnished to satisfy tax debts of the legitimate Social Security Numbers owners!

TIGTA recommended that the IRS alert taxpayers their identity may have been compromised, match ITIN returns with their related reporting returns, such as Wage and Tax Statements (Form W-2), and most importantly, update their guidelines to handle collection issues associated with ITINs. The IRS was said to “generally agree” with TIGTA's recommendations.

Review the full TIGTA report and IRS response here.