Treasury Inspector General for Tax Administration
January 4, 2011
TIGTA - 2011-1
Contact: Karen Kraushaar
WASHINGTON Ė The Internal Revenue Service (IRS) has not shared prisoner tax return information with Federal and State prison officials to help combat tax fraud by inmates, according to a new report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).
The Inmate Tax Fraud Prevention Act of 2008, signed October 15, 2008 and amended in July 2010, provides the IRS with the authority to disclose information on prisoners who have filed a false tax return to the head of the Federal Bureau of Prisons and State departments of corrections. The law also requires TIGTA to provide Congress with a report on the IRSís progress in sharing prisoner tax information.
TIGTA found that the IRS had not provided any information on prisoner returns to either the Federal Bureau of Prisons or State Departments of Corrections as of October 2010. Prison officials told TIGTA that receiving Federal tax return information on prisoners would help reduce both tax fraud and other illegal activity.
ďThis new law was passed to improve the IRSís ability to share information with prison officials to fight the growing problem of tax fraud by inmates,Ē said J. Russell George, the Treasury Inspector General for Tax Administration. ďThe IRSís legal authority to provide this information to prison officials expires on December 31, 2011. In order to comply with the Act, the IRS must complete its agreements with prison officials without delay,Ē he added.
TIGTA also found that the IRS may have understated the amount of prisoner tax fraud in a 2009 report to Congress. In that report, the IRS identified 44,944 false/fraudulent prisoner tax returns during Calendar Year 2009. However, the IRSís report was limited to only those tax returns the IRS identified and chose to evaluate for fraud. TIGTA identified 540,984 tax returns that were filed by prisoners in 2009, of which 54,410 were not identified by the IRS as having been filed by a prisoner.
In addition, TIGTA found that the process used by the IRS to compile its annual file of individuals in Federal and State prisons lacked managerial oversight to ensure accuracy and reliability. Even though the prisoner file is the IRSís single most effective tool to identify potentially fraudulent prisoner tax returns before refunds are issued, key data in the 2009 prisoner file were inaccurate and/or incomplete.
TIGTA made five recommendations to the IRS, including that it work with the Department of the Treasury to seek legislation to extend the period of time the IRS has to disclose prisoner tax return data to Federal and State prison officials. The IRS agreed with this recommendation and to a second recommendation to develop a process to assess the reliability of data received from Federal and State prisons.
The IRS disagreed that it had understated the amount of prisoner tax fraud in its 2009 report to Congress. In response to other TIGTA recommendations, the IRS said it has taken steps to help ensure that all tax returns filed by prisoners are identified when tax returns are processed and to work with prison officials to help ensure that prisoner information is as accurate and complete as possible.
To review the report, including the scope, methodology and full IRS response go to: http://www.treas.gov/tigta/auditreports/2011reports/201140009fr.pdf.
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