An inspector general report released in January found that prisoners had been issued at least $123 million in false federal returns between 2004 and 2009. The two federal agencies came to an agreement on the issue after a push started by Sen. Sherrod Brown (D-Ohio) and other Senate Democrats. 

In a statement, Brown called the agreement “a long-overdue, common-sense solution.”

“Government agencies need to work together to prevent tax fraud wherever it occurs, but especially when we’re being bilked from behind bars,” Brown said. 

Sens. Charles Schumer (D-N.Y.), Bill Nelson (D-Fla.) and Amy Klobuchar (D-Minn.) also praised the agreement.

According to a spokesman from the Bureau of Prisons, the memorandum of understanding between the two agencies will basically help with the enforcement of a 2008 law that allows the IRS to give prisoner tax return information to the prison bureau. (That law was later amended to include state corrections departments.)

The Treasury Department’s inspector general for tax administration found in a report that the IRS was not fully utilizing powers given to it in that measure and that no information had been shared on either the federal or state level. The audit also found that prisoners had falsely claimed close to $300 million in 2009, more than four times as much as in 2004. 

Michelle Eldridge, a spokeswoman for the IRS, said in a statement that the agency “is committed to enhancing its processes to further minimize prisoner refund fraud. We believe the agreement signed with the Bureau of Prisons will help us accomplish that.”

The new federal accord should lead to similar contracts between the IRS and state prison authorities, according to the group of Democratic senators. 

The senators’ release also said that federal prisoners have been able to file false returns by using fake names and Social Security numbers, then having refunds sent to a third party. In state facilities, prisoners have had the ability to file fraudulent returns under their own name.