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$123 million in fraudulent refunds paid by IRS in scam by prisoners

Prisoners nationwide have bilked taxpayers out of $123 million in the last five years through phony tax refunds they applied for from their cells, according to four senators.

Sens. Charles E. Schumer, Sherrod Brown, Amy Klobuchar and Bill Nelson said the Federal Bureau of Prisons and the Internal Revenue Service have failed to cooperate and comply with a 2008 law aimed at stopping the practice in federal and state prisons nationwide. Prisoners use their own names or the names of friends and associates to submit false claims to receive and cash refund checks.

"It is outrageous to think that convicted felons are able to fleece taxpayers from a jail cell," said Schumer, D-N.Y.

IRS and Bureau of Prisons spokeswomen say they are working to end gaps in what is already substantial enforcement against the practice. But the IRS says congressional action is needed to require prisons to report their tax status to the Bureau of Prisons.

"We have the ability to put an end to this fraud and save taxpayers millions of dollars, but government bureaucracy has gotten in the way," said Klobuchar, D-Minn. "It's time for the IRS and the Bureau of Prisons to work together to stop felons from scamming the system."

"The IRS is very successful at detecting and stopping incorrect refunds, including criminal refund fraud, and prevents the vast majority of refunds from fraudulently going to inmates," said IRS spokeswoman Christina A. D'Amico.

"Our systems provide special scrutiny to reviewing prisoner refunds, and we continue to increase our efforts," she said.

But D'Amico said prisons aren't required to provide all the needed tax information on prisoners.

"This information is provided by federal and state prison systems on a voluntary basis," she said. "Federal law covering taxpayer privacy prevents the IRS from providing tax return information to state and local prison officials without congressional action to require state and federal prisons to report the status of inmates to the IRS, there will be gaps."

The issue was the topic of a recent Treasury Department inspector general report. It found refund fraud by prisoners "is increasing at a significant rate." Overall, the report found that $123 million in fraudulent refunds were paid to prisoners from 2004 to 2009.

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