Who better to scam the IRS than a bunch of criminals in Georgia's prisons with plenty of time on their hands?
In fact, more than 7,000 Georgia inmates filed fraudulent tax returns in 2009, receiving refunds to which they were not entitled. Those refunds totaled nearly $3.6 million, according to USA Today, and gave the Peach State the dubious distinction of being No. 2, behind only Florida, in the number of fraudulent returns filed by prisoners.
In some Georgia prisons, more than 300 inmates successfully fleeced the IRS in 2009, according to a U.S. Treasury Department audit.
Nationwide, nearly 45,000 prisoners in municipal, county, state and federal detention facilities took in $39.1 million of tax refunds they shouldn't have gotten, the audit revealed. In some cases, inmates received as much as $50,000 in refunds by claiming tax credits for alternative-fuel vehicles they didn’t own.
"The IRS takes prisoner fraud seriously,” IRS spokeswoman Michelle Eldridge said Wednesday. “We stopped the vast majority of prisoner refunds fraud. We give special scrutiny to prisoner returns.”
In 2009, Eldridge said the IRS caught 87 percent of prisoner fraud, keeping $256 million in government coffers. Some prisoners file legitimate tax returns, she said.
Nevertheless, the fraudulent returns, which have grown dramatically since 2004, led Georgia tax watchers to question what the state is doing to prevent abuse.
“Has the state of Georgia, with the [second] highest number of prisoner fraudulent returns, launched an investigation by its Department of Revenue?” asked Virginia Galloway, president of the state chapter of the taxpayer advocacy group Americans for Prosperity. “It seems if prisoners are stealing from the IRS, they may be filing fraudulent state tax returns also.”
The State Department of Corrections refused to make any of its leaders or prison wardens available to answer that or other questions Wednesday. The agency issued a statement saying that it reports any tax fraud it uncovers to the IRS.
"During tax season especially, staff members remain cognizant of any inmate activity that appears to be tax-fraud related," the statement said. "This includes inmates in possession of multiple tax forms, other person's social security numbers and birth dates, etc. Disciplinary action is taken against inmates when such articles are found."
According to a report by the office of the U.S. Inspector General for Tax Administration, J. Russel George, tax refund scams by prisoners typically involve the use of stolen identities and help from co-conspirators outside and inside the prisons.
"When you consider the amount of drugs and other illegal items that find their way into a prison, it's not surprising," George told the Atlanta Journal-Constitution. "There are always jailhouse lawyers and jailhouse accountants. And in some instances, you have lifers, and they have nothing else to lose."
Nationally, the average refund to prisoners was about $870.
In Georgia, only 60 instances of refund fraud were reported in local and county-level jails, and the federal prisons in Atlanta and Jesup had no reports of falsified tax returns for 2009. State prisons accounted for the bulk of the offenses.
Macon State Prison in Oglethorpe led the way with 402 bogus returns. Smith State Prison in Glennville, and the privately owned D. Ray James Correctional Facility in Folkston tied for second-worst in the state with 323 reported cases apiece.
D. Ray James officials did not respond to a request Wednesday for an interview.
The problem of tax return thefts began with a federal law that was designed to protect taxpayers' identities, authorities said. The law also prevented the IRS from sharing information with other agencies such as the U.S. Department of Justice, the Federal Bureau of Prisons or the myriad of public and private agencies that run prisons.
George, the Treasury Department auditor, said his office pointed out this oversight nearly five years ago, but it wasn't until 2008 that Congress acted.
The Inmate Tax Fraud Act of 2008 was supposed to fix the problem by allowing the IRS to share information with certain agencies, specifically for the purposes of rooting out tax fraud by prisoners.
But it took nearly two years for the nation's overburdened taxing agency to establish an intergovernmental sharing agreement with the Federal Bureau of Prisons, and the IRS has just begun to reach out to state prison agencies.
To further compound things, the 2008 legislation will expire this December.
"Congress passed legislation that was supposed to address this issue," George said. "We decided to follow up and see what the IRS had done. And five years later, the IRS hasn't done what it was supposed to do."
Eldridge, of the IRS, said the law allowing the IRS to share information just changed six months ago to permit sharing with state prison officials.
“But there’s nothing that forces them to share with us,” she said.
In the Treasury report, IRS officials pointed out that they have repeatedly requested Social Security numbers and other critical personal prisoner information from state and local prison officials, but no law compels those agencies to cooperate.
A proposal is in the Obama Administration’s 2012 budget would require state and local prisons to share information with the IRS, Eldridge said.
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