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Prisons and Taxes: It’s a Steal

February 3, 2011 · 6 comments

My friend @CharlesThomas, a Pennsylvania defense attorney, once opined, when asked how to stay out of jail: Stop stealing sh*t.

Apparently, not everyone follows that advice.

For the past several years, inmates in federal prisons have been cheating taxpayers out of millions of dollars by claiming bogus tax refunds. Sen. Sherrod Brown (D-OH) puts the amount of improperly generated refunds at $124 million; the IRS has indicated that the total of fraudulently filed federal income tax returns by prisoners could total as much as $295 million. And despite some half-hearted efforts to put an end to the schemes, the number of fraudulent prison returns has tripled in the last five years.

So who’s to blame? Well, clearly the prisoners who, despite being in prison, apparently can’t stop breaking the law.

But there’s enough blame to go around. For years now, the IRS has not engaged in any kind of significant exchange of information with the Federal Bureau of Prisons. Even after a 2008 law gave the IRS the authority to turn over tax data to the Bureau of Prisons, the Bureau was worried about potential lawsuits by the prisoners and wanted to talk it over with the Justice Department (insert giant eye roll here at the notion that someone who is stealing from the government would have the gumption to sue on some kind of loss of privacy theory). That didn’t thrill the IRS because they felt it wasn’t appropriate to share information with the Bureau if the Bureau was planning on passing it along to any other party – even if the other party was the Justice Department. I know (insert second giant eye roll here).

Now, thanks to a “memorandum of understanding” signed by the two, there’s a new era of cooperation – we hope wish pray think.

One of the biggest supporters of the measure was Sen. Charles Schumer (D-NY). Sen. Schumer had been pressing both agencies to come to terms and announced the agreement, saying:

Last month, we made it clear to the IRS and the Bureau of Prisons that the impasse needed to end, and today it’s over. This agreement means that prisoners will no longer be able to bilk taxpayers out of millions of dollars. I appreciate the quick response on the part of the IRS and BOP.

I may quibble with the use of the word “quick” but otherwise, I appreciate it, too.

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{ 3 comments… read them below or add one }

1 Mary Kay Foss February 4, 2011 at 1:49 pm

I understand that many of the bogus refunds follow this pattern:

A paper filed tax return is snet in with a handwritten paper Form W-2 showing a lot of taxes withheld. It takes the IRS a long time to determine that there is no such employer, as shown on the W-2, and of course no taxes have been withheld.

This doesn’t work with electronic filing because IRS can verify some of the basic information before accepting the return or sending a refund.

If they just put a hold on all handwritten W-2 forms until the information can be verified with Social Security (the agencey that W-2 forms are sent to) I think the bogus refunds would not be issued in the first place.

I think it’s fine for individuals to continue to file their returns on paper but there should be some additional checking before refund checks are cut.

2 Oxnate February 5, 2011 at 12:18 am

I work for a tax office.

Filing a fraudulent return is surprisingly easy even with e-file. Since Company’s aren’t required to file their W-2 to SSA until Feb 28th, the IRS can’t check the withholding until much later. All you need is a real W2 from some company. Just copy the info and bada-bing, bada-boom. “Free” money.

We’ve seen a dozen fraudulent W-2s already this year. And these aren’t from prisoners. (Yet)

3 Charlie Thomas February 6, 2011 at 10:54 am

Thanks for the link!! I really appreciate it.

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