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173,000 false returns filed by inmates

| Thursday, Jan. 17, 2013, 7:26 p.m.

WASHINGTON — Tax fraud appears to be a popular pastime in the nation's prisons, but the Internal Revenue Service is catching on.

The IRS detected more than 173,000 fraudulent tax returns from inmates last year — more than twice the number of fraudulent returns detected from inmates in 2010, according to a report on Thursday by the Treasury Department's inspector general for tax administration.

Much of the tax fraud involved stolen identities and other false information in an attempt to get tax refunds.

In all, the IRS said it has stopped inmates from illegally claiming $2.5 billion in tax refunds in the 2012 budget year. About $1.1 billion was claimed by just two inmates.

The report credits the IRS and prison officials with stepping up enforcement and sharing more information, but it says more can be done to stop tax fraud among inmates.

The heavily redacted report contains few details about inmates' scams and no information about how two prisoners thought they could get the federal government to send them more than $1 billion. Tax information, even for inmates, is private unless a person gets charged with a tax crime.

The IRS says it aggressively prosecutes fraud.

Over the years, investigators have found that crafty inmates will go to great lengths to try stealing identities or tricking the IRS into sending them a refund they don't deserve, said inspector general spokeswoman Karen Kraushaar.

Some inmates scour obituaries, looking for people's identities to steal. Others use the identities of fellow inmates or even their own. Some use their access to computers to file tax returns online. They can have refunds electronically deposited into the bank accounts of friends on the outside.

Some inmates have identified businesses that have filed for bankruptcy and claimed to work there — using the bankruptcy as an excuse for why the company didn't send them a W-2 form.

“Most taxpayers find e-filing to be quick and easy. Unfortunately, some bad guys found also it is a quick and easy way to commit fraud,” Kraushaar said. “To the IRS' credit, our report found that they are doing a much better job of stopping such fraudsters in their tracks.”

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