Stupid IRS Tricks-Tax Refunds Given To Jailed Convicts With No Income

Here's another example of government waste that makes you want to go in a room close all the windows and doors so no one hears you and just scream bloody murder. According to a new report released by the Treasury Inspector General for Tax Administration-TIGTA (see below) Nearly 50,000 prisoners claimed more than $130 million in refunds without bothering to report wage information. I always thought you had to pay witholding to get a refund...

In addition, TIGTA found that the majority of tax returns the IRS identifies as being filed by prisoners are not being sent to screening to assess fraud potential. Our review identified 253,929 (88 percent) of the 287,918 tax returns filed by a prisoner as of March 24, 2010, were not selected for screening. Of those tax returns not screened, 48,887 individuals had no wage information reported to the IRS by employers. These 48,887 prisoners claimed refunds totaling more than $130 million including Earned Income Tax Credit (EITC) claims of $78.5 million. Some of these refunds may have been stopped by other compliance activities. For example, TIGTA determined that the IRS prevented the issuance of nearly $18.1 million in EITC claims for 4,532 of the 48,887 prisoner tax returns.

In other words, the IRS had the technology to easily look at those returns. But there is more, you see, five years ago the IRS was warned by the TIGTA that prisoner returns were a problem.

In Fiscal Year 2005, the Treasury Inspector General for Tax Administration conducted an audit to determine the effectiveness of IRS procedures for detecting potentially fraudulent prisoner refund tax returns. Our review concluded that there may be other fraudulent prisoner tax returns of which the IRS is not aware. The total number of tax returns screened is based on two factors: 1) the likelihood that fraud is present and 2) the availability of resources to work the cases. Each refund tax return is given a “data mining score” based on certain criteria. The higher the score, the greater the chance the refund could be fraudulent. The Criminal Investigation Division also used other criteria to screen tax returns. The number of tax returns screened is based on these criteria and the resources available. If a tax return filed by a prisoner does not meet these criteria, it will not be reviewed to determine if it is fraudulent. The IRS continues to identify tax returns filed by prisoners during tax return processing. However, the IRS has established selection criteria that result in the majority of these tax returns never being sent to screening to assess fraud potential.

OK, maybe its me, but one would think that it makes sense that when the IRS decides which tax returns should be looked at more closely jailed criminals should be near the top of the list (right behind politicians).  This the third time in recent years the TIGTA has pointed out that prisoner fraud is a growing and expensive problem (the 2005 report that the prisoner tax refund problem had been reported as early as 1995 under a different inspector general). As we look at where to find government waste, it seems that the TIGTA recommendations should be implemented as soon as possible.

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