NBC-17 Investigates: Prisoners scamming the IRS for millions

NBC-17 Investigates: Prisoners scamming the IRS for millions (Added: February 02, 2012)

Thousands of prison inmates are making false tax refund claims, costing the government millions and ripping off taxpayers. (more)

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By: Jonathan Carlson | NBC-17
Published: February 02, 2012

Thousands of prison inmates are making false tax refund claims, costing the government millions and ripping off taxpayers.

The Treasury Inspector General's Office highlighted the problem in its most recent report. In 2011, the IRS flagged more than 63,000 prisoner tax returns for fraud. An increase year over year.

In North Carolina alone, at last count, more than $370,000 was wrongly issued to the state's 40,000 inmates.

While the majority of claims are caught in time, the IRS fails each year to stop millions from being paid out. And it can take years to re-claim the money.

The N.C. Department of Correction has been working over-time to catch up to the problem.

"Its really a team effort between the states and the IRS, and its a large task to undertake," said Joe Prater with the department's Division Of Prisons.

Since the report came out, the Blue Bag program began as a joint effort between prisons and the IRS to screen and divert fraudulent returns before a payment goes out.

"It's just a steady on-going effort to minimize this the best we can," Prater said.

The IRS refuses to say if the number of fraudulent claims has declined since enforcement was stepped up.

Although inmates are entitled to tax returns and some filers may be legit, officials say inmates with so much time on their hands are getting more sophisticated in scamming Uncle Sam. And the buck is eventually passed down to the taxpayer.

In response to the report, the IRS released a statement to media, which reads in part, "The IRS stops the vast majority of incorrect refunds before they go to inmates. However it is clear that more needs to be done."

In 2011, the IRS identified $1.9 billion in fraudulent refund claims, and prevented 97 percent of those refunds from being paid out.

To see the government's complete 2011 tax filing results, click on the link below:

http://www.treasury.gov/tigta/auditreports/2011reports/201140032fr.pdf