New legislation from Senator Pryor

U.S. Senator Mark Pryor today introduced legislation to prevent prison inmates from fraudulently collecting tax refunds, a practice among prisoners that is increasing at a significant rate.

Pryor said the tax code explicitly prohibits prisoners from receiving tax credits such as the Earned Income Tax Credit, yet the Internal Revenue Service (IRS) mistakenly pays out millions of dollars in refunds to inmates. According to a 2010 Treasury report, prisoners filed more than 54,000 false tax returns in 2009. In some cases, inmates search the internet for listings of businesses that have filed for bankruptcy. Listing a defunct firm as an employer on a false tax return makes it difficult for the IRS to verify the claim. While most fraudulent returns are caught, the IRS estimates more than $39 million in refunds were mistakenly paid out in 2009 – triple the amount of money refunded to prisoners 5 years earlier.

“Prison inmates are increasingly scamming the IRS and the American people out of millions, and it’s got to stop.” Pryor said. “My legislation provides both prison officials and the IRS with every tool they need to prevent refund fraud. As we look to get our nation out of the red, this bill is an easy place to start.”

Pryor said the Tax Fraud Prevention Act improves information-sharing between the IRS and Federal Bureau of Prisons and State prison authorities. First, it will ensure inmates’ taxpayer identification numbers are cross-referenced with Federal tax returns before a refund is issued. In addition, the IRS will provide prison officials with a list of prisoners that have tried to defraud the federal government so that the states can take legal action against the inmates. Finally, the legislation makes permanent the authority of the IRS to share certain tax return information with prison officials. This authority will otherwise expire at the end of 2011. Pryor estimates the legislation will save taxpayers $134 million over 10 years.