Feds End Prisoners' Bogus Tax Refunds

A new agreement has finally been reached aiming to stop federal inmates from claiming millions of dollars in bogus tax refunds.

From the Associated Press:

Pressure from U.S. senators in New York, Ohio, Minnesota and Florida in January led to an agreement signed Wednesday between the Internal Revenue Service and the federal Bureau of Prisons to break down bureaucratic and regulatory barriers to end the practice. The memorandum of understanding struck between the two agencies overcomes legal obstacles that hindered their own efforts and paves the way for states to make similar agreements that apply to their prisons.

"The impasse needed to end, and today it's over," Sen. Charles Schumer of New York said Wednesday, adding that the agencies responded quickly. "This agreement means that prisoners will no longer be able to bilk taxpayers out of millions of dollars."

Sen. Amy Klobuchar of Minnesota said the agreement effectively cuts through unnecessary red tape to "stop felons from scamming the system."

"It's shocking that inmates are ripping off the taxpayers right under the government's nose," said Sen. Bill Nelson of Florida.

Sen. Sherrod Brown of Ohio said the case shows "government agencies need to work together to prevent tax fraud wherever it occurs, but especially when we're being bilked from behind bars."

The senators pushed the agencies to cooperate after a federal audit showed the practice continued, despite a 2008 law aimed at stopping it.

Read more here...

Prisoners cashed in on homebuyer tax credit

During many of my tax season interviews, I warned taxpayers claiming the first-time homebuyer credit to beware of IRS audits—even back then it was common knowledge that the IRS would be paying extra close attention to every tax return claiming the first-time home buyer credit. Of the fraudulent tax credit request found by the IRS were made by state and federal prisoners—and the numbers are astounding!

According to a Treasury Department report released Wednesday reported by CNNMoney.com, the inmates defrauded the government of $9.1 million in tax credits reserved for first-time homebuyers.

4,608 state and federal inmates tried to file for the first-time home buyer tax credit. 1,295 of them actually received the fraudulent refunds. 241 of those inmates were serving life sentences!
The Treasury’s inspector general also found that thousands of people filed multiple claims or made claims outside the allotted time period. In all, more than $28 million was given out improperly.

The problem was particularly bad in Florida: 61% of the “lifers” who received credits were incarcerated in the Sunshine State.

"It is possible for an inmate to buy a house while in prison," said Jo Ellyn Rackleff, spokeswoman for the Florida Department of Corrections. "…Many of the inmates have families with children who live outside." She said that one of the reasons why Florida inmates feature prominently in the Treasury report is because the Florida prison system is transparent in providing inmate information to the IRS.

However, it wasn’t just prisoners filing faulty homebuyer credit claims, the report found that the IRS awarded $17.6 million to 2,555 filers who had bought their homes before the credit program kicked in. The inspector general also identified 206 filers who claimed the credit for multiple addresses; these fraudulent filers were awarded a total of $1.4 million.

The report also found that improper filers included 34 employees of the IRS! This is in addition to 53 IRS employees that the inspector general identified last year as improper filers.
More according to CNNMoney: the report included a response from the IRS, which highlighted the huge scope of the program, with $12.6 billion in claims awarded to 1.8 million participants. The IRS said it had ramped up efforts to crack down on criminal activity and would continue to review claims and "recapture" pay-outs determined to be fraudulent.

The IRS claims to be working on finding the identities of the agency employees who are at fault for questionable or fraudulent claims.

Read the full article here:

10 Tax Preparers Plead Guilty of IRS Fraud

A scheme to file false tax returns yielded millions of IRS dollars before the tax return preparers involved were caught and convicted. Here’s the scoop:

In an elaborate scheme to file false returns, operators of two tax preparation businesses (Seguros Internacionales and Poz Servicios Para Hispanos) in North Carolina defrauded the IRS of about $13 million between 2006 and 2009. Within these three years, the ten preparers made approximately 10,000 filings of income tax returns that sought more than $22 million in refunds. The IRS paid approximately $13 million of the fraudulently claimed refunds before investigators caught on to the scheme! The two businesses are no longer in operation.

The preparers plead guilty to charges of mail fraud and illegal entry into the U.S. All of them are facing a lengthy prison term of anywhere between 5 and 20 years, and of course, will then be deported to their country of origin after they have served their jail term. It turns out, federal agents arrested even more people in connection with this tax scheme last week—all in all, it is believed that about 20 people were involved.

The IRS has made it clear they are increasing enforcement efforts and are working closely with the Justice Department to increase legal actions against dishonest tax return preparers. The IRS has used investigative measures such as having agents pose as taxpayers to seek out and stop dishonest preparers from filing inaccurate returns. The IRS claims to have conducted 230 undercover visits to various tax return preparers and as a result, dozens of search warrants have been issued.

The IRS is not messing around. The IRS warns it will continue civil and criminal action as appropriate. The increased efforts will ultimately make a difference for taxpayers nationwide and will help protect the many tax professionals who play by the rules.
In January, the IRS has proposed new regulations regarding the registration, testing and continuing education of tax return preparers. You can see the press release here:

Let me end by saying, it is not only the responsibility of the tax preparer but also a responsibility of the taxpayer to choose carefully when hiring a tax professional.

The full article, "10 Illegal Immigrants Plead Guilty of Tax Fraud” can be found here.