Report: Prisoner tax fraud on the rise

Prisoner tax refund fraud is now “a billion dollar problem” for the Internal Revenue Service, according to a new federal audit.

{mosads}Treasury’s inspector general for tax administration said that the problem of prisoner tax fraud has exploded in recent years, with the amount in refunds claimed increasing from $166 million in 2007 to $1 billion in 2012.

The number of returns also increased more than threefold over that time, from 37,000 to 137,000.

“Refund fraud committed by prisoners has grown to become a billion dollar problem,” J. Russell George, the tax administration inspector general, said in a statement. “More needs to be done, as is explained in our report. It is incumbent upon the IRS to act aggressively to prevent tax fraud wherever it occurs, particularly behind bars.”

That report found several improvements the IRS can make to battle the prisoner refund fraud problem. For starters, the inspector general said that the IRS isn’t yet sharing relevant information with either federal or state prison officials.

IRS reports to Congress are late and don’t address all the relevant points, the report added.

But the IRS said the inspector general overstates the problem. The agency, for instance, did not agree with a recommendation from the inspector general to boost its efforts to single out returns that look similar to confirmed fraudulent prisoner returns.