While the Internal Revenue Service is working overtime to send tax cheats to prison, officials at the tax service are discovering that a considerable portion of them are already behind bars.

During last week's hearings before the House Ways and Means Oversight Subcommittee, IRS officials confirmed that illegal tax return filing activity by prisoners in state and federal penal institutions has become a rapidly growing problem for the agency.

Calling the increase in prisoner tax fraud "dramatic," IRS Criminal Investigation chief Nancy J. Jardini told Congress that, although prisoners represent less than one half of 1 percent of all individual federal income tax returns filed in 2004, inmates now account for a whopping 15 percent of all fraudulently filed refund returns detected by the agency.

Worse yet, filing fraud by prisoners is rising at an alarming rate. In 2001 the IRS identified approximately 1,500 fraudulent tax returns filed by inmates, but last year the number detected reached 18,000, Jardini said.

The IRS told Congress that the service was able to identify 78 percent of the fraudulent filing in 2004 and stop refund checks before they were mailed. Even so, the agency concedes that about $15 million was erroneously refunded to prisoners last year.

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