In a somewhat surprising and ironic development, IRS officials have found that prisoners are becoming victims of identity theft in increasing numbers.  Phony income tax returns using the Social Security numbers of prisoners, according to most recent data has dramatically increased in recent years to more than 137,000 per year at a cost of about 70 million dollars to the Treasury.  Federal prosecutors have begun to target this type of crime.  Last year an Alabama bail bondsman, two former Alabama prison employees, a Florida prison guard and a Georgia man were all convicted in separate federal prosecutions for  stealing the Social Security numbers of 1,200 prisoners and filing phony income tax returns claiming more than 6.5 million dollars in fraudulent refunds.  In an Alabama state court, a prison clerk at the Staton Correctional Facility with access to Social Security numbers of prisoners illegally filed phony tax returns using the Social Security numbers of inmates and managed to get $176,000 in fraudulent refunds before he was caught.  He is no longer a prison clerk.  He is now a prisoner doing a ten year sentence.


Of course, as I have been advocating for years now in regard to income tax identity theft, if Congress were to change the law so that when employers file W-2s with the Social Security Administration in February and March, they file copies with the IRS at the same time so that the IRS could match the actual W-2s with the phony ones used with fraudulent income tax returns before returning a refund, income tax identity theft could be all but eliminated.  Presently, employers are required to file W-2s with the Social Security Administration in February and March, but the Social Security Administration does not get around to sending them to the IRS until July, long after the IRS has sent out refunds based upon the W-2s filed with the fraudulent returns.

Until Congress finally acts, the best way to avoid income tax identity theft is to protect the privacy of your Social Security number as best you can and file your income tax return early before an identity thief can beat you to the punch.