Brown to Call on Federal Bureau of Prisons and Internal Revenue Service to Crack Down on Fraudulent Activity that Has Doubled Over Last Five Years According to New Report

CLEVELAND, OH- At a news conference today, U.S. Sen. Sherrod Brown (D-OH) highlighted how prisoners who filed fraudulent tax returns have cost American taxpayers $123 million since 2004. Earlier this month, the Treasury Inspector General for Tax Administration (TIGTA) released a report finding that prisoners in both federal and state penitentiaries are filing fraudulent refund claims without consequences because the Internal Revenue Service (IRS) has not disclosed information with the Federal Bureau of Prisons (BOP). In 2009, there were 1,464 fraudulent tax returns filed by inmates- nearly half of those were inmates housed in Ohio’s London Correctional Institution, according to the IRS.

“Prisoners have bilked $124 million from Uncle Sam since 2004. Middle-class Ohioans who work hard and play by the rules shouldn’t foot the bill when convicted criminals commit tax fraud—from the very place they were locked up for committing a crime in the first place. That’s why I’m calling on the IRS and the Federal Bureau of Prisons to step up to the plate and work together to crack down hard on prisoners filing sham tax refunds,” Brown said. “With these fraudulent claims more than doubling in the last six years, these two agencies are compelled to do more to put a stop to this practice—and protect the working Americans that these prisoners are ripping off from their jail cells.”

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.

Brown, along with Sens. Charles E. Schumer (D-NY) and Amy Klobuchar (D-MN) sent a letter to BOP and IRS demanding that they immediately crack down on these fraudulent filings and begin sharing information as directed by Congress in 2008. The Inmate Tax Fraud Prevention Act of 2008 provides the IRS with the authority to share information on prisoners who have filed a false tax return with the head of the BOP and State departments of corrections. The law also requires TIGTA to provide Congress with a report on the IRS’s progress in sharing prisoner tax information.

In his letter to both the IRS and the BOP, Brown 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 federal and state 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 refuses to cooperate with IRS.

Brown is calling 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 route out fraud occurring in federal and state penitentiaries. Brown intends to call for oversight hearings over the poor handling of prison tax fraud if the agencies do not immediately begin sharing information and cracking down on the practice.

This month’s report found that the IRS may have understated the amount of prisoner tax fraud in a 2009 report to Congress. 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. During that same time period, the IRS reported that fraudulent claims rose from $68.1 million to $295.1 million. The IRS’s report, however, was limited to only those tax returns the IRS identified and chose to evaluate for fraud. TIGTA identified 540,984 tax returns that were filed by prisoners in 2009, of which 54,410 were not identified by the IRS as having been filed by a prisoner.   

A full copy of the letter can be found here.

Harley G. Lappin

Director, Federal Bureau of Prisons

U.S. Department of Justice

320 First Street, NW, Room 642

Washington, DC 20534


Douglas H. Shulman

Commissioner, Internal Revenue Service

U.S. Department of the Treasury

1111 Constitution Avenue, NW, Room 3241

Washington, DC 20224

Director Lappin and Commissioner Shulman:

I write today with great concern over information contained in the recent report issued by the Treasury Inspector General for Tax Administration (TIGTA), Significant Problems Still Exist with Internal Revenue Service Efforts to Identify Prisoner Tax Refund Fraud (Reference Number: 2011-40-009).

            As you know, according to the report, the number of fraudulent prisoner tax returns identified jumped from 18,103 in 2004 to 44,944 in 2009.  This amounts to a monetary equivalent of fraudulent refund claims quadrupling, from $68 million in 2004 to $295 million in 2009, of which some $123 million was actually refunded.  Even more troubling are the findings in the TIGTA report suggesting these numbers fail to identify the extent of prisoner tax fraud adequately.

Congressional action resulting with the Inmate Tax Fraud Prevention Act of 2008 (Public Law 110-428) and a portion of the Homebuyer Assistance and Improvement Act of 2010 (Public Law 111-198) sought to address this growing problem by providing the authority necessary to share prisoner information between your two agencies to prevent the filing of false and fraudulent tax returns.  Nonetheless, the TIGTA report asserts that the progress on developing a Memorandum of Understanding (MOU) on the sharing of this information has stalled due to conflicts over the concern of the redisclosure of tax information to prisoners and/or a prisoner’s legal counsel.  However, the Inmate Tax Fraud Prevention Act of 2008 explicitly restricts the redisclosure of tax information by the Federal Bureau of Prisons to anyone who is not an employee. 

Unfortunately, the authority afforded to your agencies by Congress to disclose prisoners’ tax information is set to expire at the end of this year.  Such inaction would not only cost the American taxpayer millions of dollars, but also provide felons additional resources to fund other illegal activity within our prison system.  I believe that you will both agree that such a result is absolutely unacceptable.  Therefore, I ask that you make this matter a top priority of both your agencies in the coming days and over the course of this year to meet the established deadline.

Thank you for your prompt attention to this matter.  I look forward to your response.