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Tax refund fraud on the increase behind bars

Tax refund fraud is an ongoing known issue that the IRS finds it hard to stamp out.

For several years, the IRS has been trying to do a better job of filtering out false refund claims. But identity theft that is linked to refund fraud remains a pervasive problem. We discussed it most recently in our May 7 post, regarding a spike in tax refund fraud against doctors.

In today's post, we will take note of another front in the refund-fraud battle: false claims by prisoners.

A recent report by the Treasury Inspector General for Tax Administration (TIGTA) found that in 2012, fraudulent tax refunds paid to prison inmates exceeded $1 billion. The number of inmates who filed these fraudulent claims was nearly 138,000.

The IRS did not leave the barn door completely open. The agency was able to catch most of the false refund claims. But it still paid out about $70 million to offenders serving time.

Identity theft was one of the drivers of the fraud. TIGTA found that prisoners often steal personal information from other inmates, and then use it to file bogus tax returns.

But there were other causes as well. Sometimes prisoners submit inflated income figures on their returns, making them seem eligible for refunds - at least in terms of the income they claim. Why the IRS has not done more to verify that a refund is really warranted is another matter.

Though the overall number of false refund claims in 2012 was less than the year before, TIGTA is rightly concerned about the big increase in such claims by prisoners.

Source: CNN Money, "Prisoners got $70 million from fake tax refund claims," Katie Lobosco, Nov. 25, 2014

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