The story comes out of Tennessee, where federal prosecutors announced this month that the scheme fleeced U.S. taxpayers out of at least a quarter of a million dollars in government benefits. The corrupt IRS employees did it by making false statements to fraudulently obtain the benefits, which also included unemployment insurance.

In short, the IRS workers were “brazenly stealing from law-abiding American taxpayers,” according to the federal prosecutor handling the case. Better yet, Americans are not only paying their salary and generous government benefits while also getting fleeced for the other welfare the corrupt federal workers stole.

This case simply marks the latest of many shameful transgressions for the IRS in the past few years alone. The agency has repeatedly come under fire for failing to crack down on a number of fraudulent schemes, including prison inmates that illegally receive tens of millions of dollars in tax refunds, federal employees at various agencies that have escaped paying billions in back taxes and letting illegal immigrants get billions in tax refunds.

The jailbird tax scam has become a big joke because the IRS has for years failed to stop the fleecing by incarcerated criminals. In fact, the number of fraudulent tax returns filed by prisoners—and the money doled out by the government—increases every year, several federal audits have found. Earlier this year one such audit revealed that from 2004 to 2010 the number of inmates that swindled the government increased from 18,000 to over 91,000 and the refunds claimed skyrocketed from $68 million to $757 million.

A few years earlier a separate federal probe determined that more than a quarter of a million inmates filed tax returns with the IRS and nearly 50,000 claimed more than $130 million in refunds without bothering to report wage information. That particular investigation also disclosed that the IRS has never bothered to create a system to catch the offenders, despite an ongoing epidemic of inmates—in both federal and state prisons—illegally receiving millions of dollars in tax refunds each year.

As if that weren’t bad enough, the IRS has also permitted more than 1 million foreigners—many in the country illegally—to claim tax credits they didn’t qualify for, which ended up costing the government an astounding $9 billion. The agency knew the tax credits were not legal because filers didn’t possess a valid Social Security number, but rather an alternative Tax Identification Number (TIN) popular among illegal aliens but not valid to work in the U.S.

There have been a number of other scandals at the IRS over the years, including a $33 million giveaway for bogus electric car credits and a high-level agency director who admitted defrauding the U.S. government out of $1.3 million using fake deductions to reduce the taxes of unsuspecting Americans. Last spring Judicial Watch obtained records showing how the IRS uses taxpayer confidentiality laws to withhold records of employee fraud.

It’s an inconceivable scheme that rewards bad behavior with big bucks from taxpayers who have no say in the matter. In fact, the U.S. Treasury was forced by Congress to create rules against it yet a new federal audit reveals the agency repeatedly violates them to enrich the very people responsible for the companies’ failures (and need for a government bailout). The rescued firms include American International Group (AIG), General Motors Corp. (GM) and Ally Financial Inc.

Combined they have received an astounding $135 billion from Uncle Sam, according to government figures, yet the Treasury has approved 18 raises totaling $6.2 million for their top dogs. Half of the pay increases went to executives at GM, which got a whopping $50.2 billion bailout. One chairman at AIG, which is labeled “Systematically Significant Failing Institutions” by the Treasury, got an unbelievable $ 1 million raise. AIG has received $67.8 billion from TARP, according to the audit made public this week by the Special Inspector General for the Troubled Asset Relief Program.

The report is scathing and blasts the Treasury for repeatedly disregarding its own rules to approve fat raises for the heads of these rescued firms. In fact, the agency consistently approved cash salaries in excess of $500,000 for the CEO of each company that asked, the inspector general writes in the report, which says the GM, Ally and AIG executives continue to rake in multimillion-dollar pay packages approved by the Obama Treasury.

“While taxpayers struggle to overcome the recent financial crisis and look to the U.S. government to put a lid on compensation for executives of firms whose missteps nearly crippled the U.S. financial system, the U.S. Department of the Treasury continues to allow excessive executive pay,” the report says. It also explains how President Obama quickly implemented prohibitions on excessive pay for executives of bailed out firms after public outrage ensued in 2009 over press reports that TARP recipients paid billions in bonuses.

President Obama called the bonuses “shameful” and responded by setting salary caps for top executives, the audit points out, offering a rambling quote from the commander-in-chief: “In order to restore trust, we’ve got to make certain that taxpayer funds are not subsidizing excessive compensation packages on

Wall Street. We all need to take responsibility. And this includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves customary lavish bonuses. As I said last week, this is the height of irresponsibility. It’s shameful. And that’s exactly the kind of disregard of the costs and consequences of their actions that brought about this crisis…what gets people upset – and rightfully so – are executives being rewarded for failure, especially when those rewards are subsidized by U.S. taxpayers, many of whom are having a tough time themselves.”

Indeed a powerful statement from the nation’s leader that inspired the Treasury to issue guidelines proposing compensation limits on the same day he delivered it. Of course, the rules are only good for; say picking up dog poop, if they’re not enforced. The rest of the report, which spans 78 pages, is littered with a number of other enraging examples of how the government is rewarding the heads of failing companies that came to taxpayers for a rescue with their tail between their legs.

It gets better; the number of fraudulent tax returns filed by prisoners—and the money doled out by the government—goes up every year because the IRS can’t seem to find an effective way to crack down on the scheme! From 2004 to 2010 the number of inmates that swindled the government increased from 18,000 to over 91,000 and the refunds claimed skyrocketed from $68 million to $757 million. The IRS pats itself on the back for blocking $722 million in tax refunds to inmates during 2010, but it still handed out more than $35 million.

While this may seem unfathomable to many, it’s all documented in a scathing federal audit released recently by the Treasury Inspector General for Tax Administration. Here is an understatement, as per the agency watchdog: “Refund fraud committed by prisoners remains a significant problem for tax administration.” Here is another one, included in the report; “controls used to ensure the IRS identifies fraudulent refunds on tax returns prepared by prisoners are not fully effective.”  

No kidding! Now that we got those enlightening assessments out of the way, let’s look at some of the reasons why this is happening. Parts of the report—including entire pages—were redacted to comply with “federal confidentiality laws,” but the bottom line seems to be finger pointing between the IRS and the Federal Bureau of Prisons and the State Departments of Corrections.

The IRS defends its incompetency by claiming that it does not have the authority to contact jail officials about prisoner-filed fraudulent tax returns because the information is confidential. When the IRS identifies records that don’t match those provided by the Social Security Administration its hands are tied. That’s because it doesn’t have the authority to resolve the discrepancies since it would violate an IRS code that specifically states tax returns and all associated information shall be confidential.

Furthermore, the IRS asserts that prisons don’t always provide it with accurate information or complete records and that not all facilities report inmates. This makes it impossible to adequately control the corruption because the agency must rely on information provided by prisons to identify inmate-filed tax returns. Nonetheless, the inspector general says, the IRS can do a better job of ensuring the files are accurate and complete by taking further steps to improve the validation and verification processes.

This is not the first time that the IRS gets slammed for doling out money to incarcerated criminals who are not entitled to it. For more than a decade, government investigators have exposed an epidemic of prison inmates illegally receiving tens of millions of dollars in tax refunds. Just a few years ago a federal audit revealed that more than a quarter of a million inmates filed tax returns with the IRS and nearly 50,000 claimed more than $130 million in refunds without bothering to report wage information  

The internal document was posted last week on the website of a group that provides electronic copies of thousands of federal government files obtained under the public-records law known as the Freedom of Information Act (FOIA). Because droves of information are available, juicy stuff often gets lost or overlooked. However, a congressional newspaper caught the scathing Treasury exposé and brought much-deserve attention to its findings.

It reveals that officials at the Treasury Department have been embroiled in a variety of transgressions, including violating conflict-of interest rules, accepting forbidden gifts from corporate executives, soliciting prostitutes and inappropriate personal relationships between supervisors and subordinates. One excerpt tells how an agency director in a romantic affair with a subordinate used his government-issued credit card to make “unauthorized purchases related to this relationship.”

Other portions tell about multiple incidents of sexual harassment and whistle blowers who faced retaliation for reporting illegal or inappropriate behavior. One Treasury official violated several ethics regulations by “accepting gratuities” and playing golf during work hours with employees of a bank and lying about it. Another unlawfully entered an agency office and stole a laptop computer, according to the report. The list goes on and on.

The investigation was conducted by the Treasury’s Inspector General and the report has most names and other incriminating details blacked out so the identities of the offenders aren’t revealed. Never the less, the probe exposes different episodes of misconduct and concludes that Treasury officials and employees definitely engaged in unethical and, quite frankly, criminal conduct.

This is alarming considering that the agency is the steward of the U.S. economic and financial systems, an influential participant the world economy. With these sorts of unscrupulous officials running it, how can taxpayers expect the Treasury to fulfill its duties of maintaining a strong economy, creating job opportunities and strengthening national security by combating threats and protecting the integrity of the financial system? …

This is hardly earth-shattering news considering the well-documented history of the $700 billion Troubled Asset Relieve Program (TARP), the president’s brilliant idea to rescue the nation’s ailing financial institutions. Instead, it’s turned out to be a troubling experiment of U.S. tax dollars with virtually no oversight.

In the last few years a variety of federal probes have documented that TARP is severely mismanaged and that its rife with waste and abuse. In fact, a 2009 TARP Inspector General report revealed that dozens of criminal investigations had been launched into the controversial bailout experiment and that the risk would only grow. The probes have centered on securities fraud, tax law violations, mortgage modification fraud and insider trading involving recipients of the federal money.

A separate audit—by the Congressionally-created panel charged with overseeing the Treasury’s actions—divulged that the government actually paid collapsed mortgage giants Fannie Mae and Freddie Mac $240 million to help “administer” TARP. Think about it! These are the scandal-plagued mortgage companies that were seized by the government in 2008 getting millions more from taxpayers to “administer” yet another fraud-infested federal program.

This week the Special Inspector General for TARP revealed that the monstrous bailout program’s losses stand at about $60 billion and that financial institutions owe Uncle Sam a whopping $118.5 billion. Furthermore, hundreds of small banks can’t afford to repay the federal bailout loans so taxpayers will get stuck with the exorbitant tab, according to the TARP inspector general. Just last month the Congressional Budget Office (CBO) estimated that TARP would lose $32 billion.

TARP’s IG disclosed the latest figures to Congress in a 330-page report that outlines the bailout’s monumental failures. “It is a widely held misconception that TARP will make a profit,” the IG writes in the report. It goes on to say: “While TARP and other government responses to the financial crisis may have prevented the immediate collapse of our financial and auto manufacturing industries, and improved stability since 2008, the trade-off is not without profound long-term consequences.” A significant legacy of TARP is increased moral hazard and potentially disastrous consequences associated with institutions deemed ‘too big to fail.”’

Judicial Watch has been a frontrunner in investigating the administration’s handling of the nation’s financial crisis and has sued the U.S. Treasury Department to obtain records related to evaluation procedures used by the government to determine which financial institutions get TARP funds. As a result of the ongoing probe, JW obtained documents involving a controversial $12 million bailout grant provided to an unqualified Boston bank at the behest of California Congresswoman Maxine Waters and Massachusetts Congressman Barney Frank.