EDITORIAL: Finding tax cheats sitting behind bars

Jan 24, 2013 (The Virginian-Pilot - McClatchy-Tribune Information Services via COMTEX) -- Here's a bit of tax reform that should quickly gain bipartisan support on Capitol Hill -- helping the Internal Revenue Service crack down on prisoners filing fraudulent returns.

The number of bogus returns filed from prison jumped from 18,000 in 2004 to 91,000 in 2010 to 173,000 in 2012, according to a recent report by the inspector general's office at the Treasury Department.

The report, which primarily focused on 2010 returns, found that $758 million worth of fraudulent refunds were claimed that year -- double the dollar amount in 2009. According to the inspectors, $35 million was paid on the 2010 returns before they were discovered to be fake.

The trend isn't improving. In 2012, the inspectors found that the IRS stopped $2.5 billion worth of fraudulent refunds -- with $1.1 billion of that from two especially ambitious prisoners. No figure was provided on how much was refunded last year before the IRS learned something was amiss.

And, of course, there's a looming unknown here: How many bogus returns from inmates -- especially ones involving stolen identities and co-conspirators outside prison walls -- are escaping IRS attention Despite the rapidly rising number of fraudulent filings, the Treasury Department reports that the IRS is making progress in combating fraud from behind bars.

Obviously, more needs to be done.

The inspector general's report said the IRS and the nation's prison system should continue ongoing work to improve the accuracy of the Prisoner File, a database of everyone incarcerated.

Some information is incorrect or incomplete. Only 82 percent of the records matched information from the Social Security Administration, according to the report.

The inspectors also raised concerns about tracking records for state or federal inmates serving out their terms at home or who have been assigned to local or regional jails.

The Treasury Department also recommends that Congress give the IRS the authority to share more data with prisons. Under current law, the agency is limited in its ability to report problems to prison officials.

Another priority should be a review of prisoner access to tax preparation sites on computers and to paper IRS forms. Some inmates are required to file returns -- for income earned in work-release programs or prior to incarceration, for instance -- but reasonable restrictions on access to computers and tax forms can be imposed without violating civil liberties.

An IRS official recently described fraud perpetrated by prisoners as "a serious threat to the integrity of the United States tax system." There are plenty of other threats -- by tax cheats from all walks of life -- but, with help, the agency should be able to shut down frauds who are already behind bars.

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