Treasury Inspector General for Tax Administration
January 17, 2013
TIGTA - 2013-02
Contact: David Barnes
WASHINGTON – Despite increased efforts by the Internal Revenue Service (IRS) to ensure that it identifies fraudulent refunds on tax returns prepared by prisoners, its controls over the information are not fully effective, according to a new report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).
“Refund fraud committed by prisoners remains a significant problem for tax administration,” said J. Russell George, the Treasury Inspector General for Tax Administration. He noted that the number of fraudulent tax returns filed by prisoners and identified by the IRS has increased from more than 18,000 tax returns in 2004 to more than 91,000 tax returns in 2010, with the refunds claimed on these returns increasing from $68 million to $757 million. “While many of the problems our auditors found are beyond the control of the IRS, the IRS must take steps to improve its validation and verification processes,” he said.
The overall objective of the audit was to assess the reliability of the IRS Prisoner File. The Federal Bureau of Prisoners and State Departments of Corrections collect and record the information on prisoners. The majority of the inaccuracies identified are due to misinformation on individual prisoners. The accuracy and reliability of the Prisoner File affects the IRS’s ability to stop fraudulent refunds.
The IRS does not have the authority to disclose to the prisons information related to prisoner-filed fraudulent tax returns, limiting the prison officials’ ability to curtail prisoners’ abuse of the tax system. As a result, controls used to ensure the IRS identifies fraudulent refunds on tax returns prepared by prisoners are not fully effective.
TIGTA found that of the 2.8 million records on the 2012 Prisoner File, 2.3 million (82 percent) matched the information on the Social Security Administration’s records. About 260,000 records had information missing, and 240,000 records did not match information maintained by the Social Security Administration.
TIGTA recommended that the IRS compare prison and prisoner files to ensure that all facilities that house prisoners reported them. Additionally, legislation is needed that would permanently authorize the IRS to share data with the prisons.
IRS management agreed to continue to assess the effectiveness of the validation activities performed on the Prisoner File. However, management stated that new programming and procedures will be deployed for Calendar Year 2013. TIGTA believes the new programming and procedures are unrelated to the Prisoner File validation process and will not ensure the reliability and accuracy of the Prisoner File.
Read the report.
Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.
A special plugin is required to view PDF documents. To obtain the free PDF reader, please visit the Adobe web site.