Sen. Bill Nelson, D-Fla., is pressing the Internal Revenue Service to do more to curb tax fraud by prison inmates, especially in his state, where the problem is the most prevalent.

Nelson wrote a letter last Thursday to IRS Commissioner Doug Shulman, following up on an earlier letter from January. The IRS signed an agreement with the Bureau of Prisons last February to share more information in an effort to curb prisoner tax fraud, in response to pressure from Nelson and several other senators who had also written to Shulman (see IRS Signs Deal to Curb Prisoner Tax Fraud). However, Nelson said the agreement does not go far enough, and the IRS needs to share information with Florida state prisons as well as federal penitentiaries.

Florida led the nation last year with the most prison inmates committing tax fraud, according to Nelson’s office. Several of the institutions in Jackson, Gulf, Washington and Gadsden counties, nearby the state’s capital city of Tallahassee, house correctional facilities containing some of the largest numbers of tax-cheating offenders in the state, according to an inspector general’s report last December.

Prisoners use basic tax forms to claim phony income or tax credits, often with no supporting documents. There were 2,911 such phony returns for refunds in state prisons in 16 counties in the Florida Panhandle in 2009.  Nationwide, inmates filed 44,944 false tax returns claiming $295 million in tax refunds—up from 18,103 false returns and $68 million claimed five years before.  
Refund checks actually issued to inmates in 2009 totaled $39.1 million, and ranged from a few hundred dollars to as much as $8,000 each.

“That’s just the ones they caught,” said Nelson, who helped create a new law aimed at stopping the scheme. “The bottom line is we don’t know the extent of prisoner tax fraud.  But we know it’s pretty big money.”

Nelson is pressing the IRS to reach an agreement with Florida state prisons to help combat the problem. The IRS has the authority under a recent law to share relevant information with prison authorities, but hasn’t been doing so out of fear of a lawsuit over privacy.

Congress gave the IRS the ability to share information about inmates who file false returns from federal prison in 2008 with the Inmate Tax Fraud Prevention Act, a measure Nelson supported. In an amendment to that law in 2010, which Nelson also supported, Congress gave the IRS permission to share similar information about inmates in state prisons. The law expires this year, and Nelson said he intends to file legislation to extend or make permanent the IRS authority to share information with both state and federal prison officials.

“I am concerned that more than eight months after Congress passed a measure to crack down on tax fraud by prison inmates at state correctional institutions, the Internal Revenue Service and Florida Department of Corrections have yet to reach an information-sharing agreement that will help state prison officials identify prisoners filing false tax returns,” he wrote to Shulman.

“A recent report by the Treasury Inspector General for Tax Administration found that nearly 45,000 fraudulent tax refund claims were filed in 2009 by prisoners in the United States, including 8,777 fraudulent claims by prisoners in Florida correctional institutions,” Nelson added. “The report also found the level of tax fraud in Florida prisons was higher than in any other state.  I urge you to quickly reach an agreement with the State of Florida Department of Corrections to facilitate the sharing of inmate tax information with state prison officials, so they can begin identifying and take action against those who file fraudulent returns.”

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access