Last Month, Senators Urged Agencies to End the Bureaucratic Impasse

and Crack Down on Illegal Activity


Fraudulent Tax Returns Filed By U.S. Prisoners Doubled Over the Last Five Years; New Agreement Will Help Put End to Practice


WASHINGTON, D.C.—Today, United States Senators Sherrod Brown (D-OH), Charles E. Schumer (D-NY), Amy Klobuchar (D-MN), and Bill Nelson (D-FL) announced that after their public push, the Federal Bureau of Prisons (BOP) and Internal Revenue Service (IRS) have signed an agreement that will help end the fraudulent filing of tax returns by incarcerated prisoners that has cost American taxpayers $123 million since 2004. The agreement signed today covers federal prisons and paves the way for similar agreements to be signed between the IRS and prison systems in individual states. 

"This is a long-overdue, common-sense solution," Brown said. "This is about preventing convicted felons who break the rules to steal money from American taxpayers who work hard and play by the rules. Government agencies need to work together to prevent tax fraud wherever it occurs, but especially when we're being bilked from behind bars."

The Memorandum of Understanding between the IRS and the BOP will end the years-long impasse between the two agencies that has cost taxpayers more than $123 million.  In January, Brown held a news conference in Cleveland to highlight the issue and to call on the BOP and IRS to put an end to the practice. In 2009, there were 1,464 fraudulent tax returns filed by inmates—nearly half of which originated from inmates housed in London Correctional Institution, according to the IRS. Brown released a full report of Ohio prisons housing inmates that filed fraudulent returns.

A Treasury Department Inspector General Report in January found that prisoners in both federal and state penitentiaries are filing fraudulent refund claims from their jail cells without penalty due to an impasse between the BOP and IRS. Citing false privacy concerns for prisoners, the agencies had been at loggerheads over information sharing and were failing to take proper enforcement action.

In January, the senators publicly urged the IRS and BOP to end the standoff and finally begin sharing information so that the agencies could better respond to prisoners filing fraudulent returns. At the time, they noted that despite the agencies being given the authority by Congress in 2008 to share information to rein in the practice, little had been done and the cost of the fraud has doubled over the last six years.

The scams being executed by prisoners are twofold. In many cases, prisoners are filing false returns, under their own names, from prison cells. In other cases the prisoners file fraudulent tax returns with fake names and social security numbers from their jail cells and have refund checks sent to addresses where third parties then deposit the refund checks.

While Congress gave the IRS the authority to turn over tax information to prison officials to identify suspicious behavior and root out fraudulent activity, the BOP, citing privacy concerns, had declined to take enforcement action, such as restricting privileges, without first alerting prisoners and their counsel of the IRS information beforehand. The BOP claimed that by not disclosing information to prisoners provided to them by the IRS, they couldn’t take enforcement action, such as restricted visitation, use of the library, or access to email, because they would leave themselves open to possible litigation. The IRS would not share tax information to prison officials if they intend to provide it to prisoners.

The IRS reported the number of fraudulent tax returns filed by prisoners in the United States more than doubled from 18,103 in 2004 to 44,944 in 2009. The IRS reported during that same time period fraudulent claims rose from $68.1 million to $295.1 million.  While many of these fraudulent claims were uncovered by the IRS Criminal Investigation Unit, the number of fraudulent refunds claims issued over the last six years has more than doubled from $13.4 million to $39.1 million. In total, from 2004-2009, up to $123 million in fraudulent claims have been paid out to individuals incarcerated in the United States.

In their January letter to both the IRS and the BOP, the senators noted that under The Inmate Tax Fraud Prevention Act of 2008, the IRS was given the authority to release tax information on incarcerated individuals to corrections officials. Despite this authority, the BOP’s fear of litigation from not disclosing to prisoners impending enforcement actions has hampered enforcement. Even though federal law prohibits the Bureau of Prisons from sharing tax information with the prisoner, the agency had remained hesitant to cooperate with the IRS.

The senators called on both the BOP and the IRS to use the authority granted to them by the Congress to immediately begin sharing information so that prison officials can root out fraud occurring in federal and state penitentiaries.

Today’s agreement between the IRS and BOP will ensure that prisoners will be much more hard- pressed to file fraudulent tax returns and bilk taxpayers out of millions of dollars.