Inmates Register as Tax Preparers

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Many inmates have jobs while serving time in prison. However, we typically imagine inmates in jobs supporting the prison, such as working in the laundry facilities or the kitchen or performing maintenance duties. We probably don’t imagine prisoners registering with the Internal Revenue Service (IRS) to serve as tax preparers, but that’s exactly what is happening according to a recent USA Today story.

The article reports on a recent audit from the Treasury Inspector General (IG) for Tax Administration, which notes that 331 inmates were ”serving prison terms when they got active or provisional tax preparer tax identification numbers from the IRS.” (I doubt that these fine citizens were providing services for the underprivileged.? Of that total, 43 were serving life sentences. (Bet they are really afraid of the sentencing for tax fraud, yeah…right.)

The audit discovered that 962 applicants for tax IDs, who had been in prison within the last 10 years, received at least provisional tax preparer ID numbers. Three out of four ”didn’t disclose their convictions.’? (Shocking!? For its part, the IRS has said it will suspend the ID numbers already issued and ”deny any future applications from inmates.’? (What an excellent idea!)

Not surprisingly, the problem of prisoners registering as tax preparers is tied to the larger issue of tax refund fraud. In fact, the IG audit noted that $39.1 million in ”unmerited federal tax returns” were sent to inmates nationwide in 2009.

The article raises two key questions? 1) why were the IDs issued to prisoners? And 2) why are prisoners receiving refunds? Public records certainly documented that the inmates were in prison, but the agency needed the information and the ability to analyze it in order to find the fraud. So…how can agencies avoid repeating these same mistakes? The answer is simple? leverage public records data, analytics and technology to verify information and prevent fraud. Or risk losing another $39 million to prisoners…

Source: Today’s ”Fraud of the Day” is based on an article entitled, ”Inmates register with the IRS as tax preparers” by Kevin McCoy, published by USA Today, January 3, 2012.

Hundreds of prison inmates have found new careers behind bars — by registering with the IRS as income tax preparers.

A total of 331 inmates were serving prison terms when they got active or provisional tax preparer tax identification numbers from the IRS, according to an audit issued Thursday by the Treasury Inspector General for Tax Administration.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.