Prison Inmates Register With the IRS as Tax Preparers

Jan. 3, 2012 — -- Hundreds of prison inmates have found new careers behind bars — by registering with the IRS as income tax preparers.

A total of 331 inmates were serving prison terms when they got active or provisional tax preparer tax identification numbers from the IRS, according to an audit issued Thursday by the Treasury Inspector General for Tax Administration.

Forty-three of those applicants were serving life sentences at the time. Yet none of the lifers disclosed their felony convictions on the IRS application, the audit found.

In all, 962 applicants who had an incarceration date within the last 10 years got active or provisional tax preparer identification numbers. More than three in four didn't disclose their convictions.

The inmates and ex-cons were among thousands of applicants who got the identification numbers from the IRS from September 2010 through July 2011 as the agency began phasing in a 2009 congressional mandate that requires many preparers to file tax returns electronically.

The IRS officials told auditors it would suspend tax preparer identification numbers already issued to prisoners and deny any future applications from inmates.

The tax agency is working on solutions to enforce the crackdown, the audit said.

"Our report shows that the problem of misuse of the tax system by prison inmates continues," said J. Russell George, who heads the inspector general's office. "Based on our report, the IRS is working on solutions for suspending preparer identification numbers obtained by prisoners and preventing future applicants who are prisoners from receiving a preparer ID number. They must persevere in these efforts … especially given the prison inmate population's determination to misuse the system."

Prisoner registration as tax preparers is a new twist in a long history of tax scams involving inmates.

For instance, USA TODAY reported in February that prisoners in three states — Florida, Georgia and California — led the nation's inmate population by using false or fraudulent tax returns to scam nearly $19 million in IRS refunds during 2009.

That total was part of $39.1 million in unmerited federal tax returns the IRS issued to jail and prison inmates nationwide, according to an IRS report to Congress that was included in a Treasury Inspector General for Tax Administration audit released in January.