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.

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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.

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