NCPA - National Center for Policy Analysis

Tax Fraud -- in Prisons?

December 5, 2014

If you thought prisons were costing taxpayers a pretty penny, add tax fraud to the bill. Brianna Ehley, correspondent for the Fiscal Times, reports that tax fraud by prisoners has become a billion dollar problem.  One North Carolina inmate, who took in $4 million over 10 years through tax fraud, was quoted as saying it was one of the easiest things he had ever done. 

How does it work? Prisoners are filing fraudulent tax refund claims, and while it's not a new problem, Ehley reports that it has ballooned in recent years; while the fake refund claims totaled $166 million in 2007, they were over $1 billion in 2012. The IRS managed to catch $936 million of those 2012 fraud claims, though it still paid out $70 million fraudulent refunds.

The news comes from a report by the Treasury Inspector General for Tax Administration, which recommended that the IRS ensure that tax returns filed with a prisoner's Social Security number are given a "prison indicator," noting that returns that lack a prison indicator are not funneled through the agency's fraud detection filters aimed at combating prison tax fraud. According to the report, over 43,000 tax returns filed in 2013 were filed by prisoners but not assigned a prison indicator.

Source: Brianna Ehley, "Prisoner Tax Fraud Now 'A $1 Billion Problem,'" Fiscal Times, November 28, 2014.


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