Prisoners Blatant – and Massive – Tax Fraud

by Diane Dimond on March 7, 2011

Prisoners Committing Tax Fraud - To the Tune of Multiple Millions!

At prisons across the country all incoming mail is opened and checked for contraband before the prisoner ever receives it. What would be considered mail tampering on the outside is standard operating procedure in a prison.

Amazingly, however, outgoing prison mail is mostly just bundled up and shipped out via the U.S. Postal Service with no inspection. The only exception is if a particular prisoner is under suspicion for some sort of criminal activity.

That’s a shame because this failure to monitor mail is the first weak link in a chain of inmate tax fraud that’s been going on for years, according to government investigators. In just the 2009 tax year, for example, prisoner inspired IRS fraud cost you, me and every other taxpaying American at least 39 million dollars.

Prison Tax Fraud - How Can It Go Unnoticed?

How could this happen? How could a prisoner fake an income tax return from behind bars and have it go unnoticed? Many times an outsider’s bank account is used to launder the money but many times sizeable refund checks are deposited directly into prison bank accounts. Doesn’t any prison official take notice?

While the rest of us sweat to scrape up every W-9 or 1099 form, every receipt and all the corresponding documentation the I.R.S. requires by the annual mid-April deadline, these incarcerated mooks are blatantly committing another criminal act – right under the noses of their guards.

A recent Inspector General’s audit of the problem revealed how state prisoners have been getting away with it. First, often using the prison library computer, the inmate steals a Social Security number. While surfing on-line it’s also pretty easy to locate a list of bankrupted businesses. The prisoner takes the name of one of them and lists it as their former employer on a 1040 form. Oh, and the form is also readily available on line and simple for the prisoner to print out and fill out.

IRS Can't Keep Up With Fraud

In this era of record business failures it is nearly impossible for the IRS to track the truthfulness of every 1040 form that lists a bankrupted employer.

The federal audit also disclosed just how gutsy these inmates get. More than two dozen of them asked for and got $50,000 worth of federal tax credits for electric and other alternative fuel cars. Never mind that they couldn’t drive a car if they wanted to! And, the report concluded the 39 million dollar fraud from 2009 was likely even larger because some 10 thousand returns from prisoners were never scrutinized.

The IRS Not Allowed to Share Info With State Prisons

If the first weak link is the state prison system which allows the fake tax forms to be mailed out unchallenged, the second overlooked fail safe has to be the IRS itself. The agency is sending out millions of dollars in undeserved tax refunds to convicts without so much as a double check of Social Security numbers or a second thought as to why a check would be going to a prison address in the first place. Apparently there’s no built in filter at the IRS to flag checks going to state prisons.

That’s got to change!

In 2008, Congress finally got around to passing a law that allows the IRS to share information about suspicious tax returns with the federal Bureau of Prisons. To date, there’s no law that allows the IRS to share with state prison officials. That’s got to change too. Especially for the states of California, Florida, Georgia and others with the largest prison populations.

Tax Cheaters Already Behind Bars

Some prisoners are brilliantly smart. Not smart enough to have stayed out of jail, mind you – but intelligent enough to use their abundance of free time to come up with all sorts of scams launched from their prison cells. Just because this IRS scam is getting some publicity now that doesn’t mean it’s going to stop. With no way for the IRS and the state to legally communicate I can just hear the sarcastic titters of the cons now, “What? I’m gonna get in trouble? What? Are they gonna put me in jail?”

It ticks me off that at a time when my family and so many others strain to cut corners and watch every penny this fraud continues year after year with no apparent shift in government procedures to stop it.

Not long ago I wrote here about how the General Accounting Office had identified for Congress 30 areas in which – if they acted – multiple billions of dollars could be saved. Crooks bilking our Medicare and Medicaid systems, unnecessary military spending and people who simply haven’t paid their taxes could be more enthusiastically pursued. So far no action has been taken.

How About Action to Save Rather Than Spend?

How’s this for an idea? From this point forward – and for the rest of the year – how about Congress agrees to expeditiously take up each and every one of those 30 areas outlined by the independent GAO? And once those multiple billions of dollars is saved – can someone please offer a law that lets the IRS share information with state prison officials to stop prisoner’s tax fraud?

Anybody out there with me?


Diane March 7, 2011 at 11:24 am

Albuquerque Journal Reader Gunhild Vetter writes:

“I found your article interesting and since having been a White Collar Detective with APD I am familiar with various scams. Just before I retired we had a multi-agency meeting about all the problems we would be facing with all the new technology that was coming out. Hopefully by now they have solved some of the problems they were anticipating.

With the filing on line it is very possible that the mails are not even being used, they could just be using the computers they have access to. I have been doing my taxes on line for several years now and never have to use the mails, not even to receive my refund if I get one. I do have to use the mails if I owe something and need to send a check, but I probably could do that on line too if I had to.

I would say that prisons need to monitor not only outgoing mail, but the computer usage by inmates. Seems they have too much idol time, maybe they should have to grow their own food if they want to eat. Instead of leisure time in the yard working out, they should be put to use cleaning up the highways, forests and parks. Jobs that are not getting done because of staff shortage. If they get bored let them make big rocks into little rocks if they can’t be taken out in public.

The only prisons I have heard about that are having low returns are those that are having Christian programs that help the inmates deal with their life problems, many are accepting Jesus as their Lord and Savior. That would be a politically incorrect thing, but it is time to tell the politically correct where to put their politically correctness since it is obvious since prayer was taken out of schools in 1962 that our Nation has been on a down hill slide.

Young people like you may not notice what our Nation has lost, but oldies like me have seen the better side of life. I feel sorry for the young people today, what a mess you are all going to have to live with.”

Gunny Vetter

Diane March 7, 2011 at 11:29 am

Dear Gunny:

Thanks for writing – and for assuming I’m a “Young People”!

One of the reasons I write this column every week is because I realize precisely what we’ve lost in this country in the name of trying to do the “right” thing by everyone.

I’m sure if one were to advocate Christian programs for every prison the atheists would complain. Just as those who are too blind to see that “profiling” for young foreign men at airports (the ones who historically have tried to perpetuate terrorism) is the best way to secure our safety.

I think we’ve forgotten that security of the masses is about the best we can do in this imperfect world. ~ DD

Diane March 7, 2011 at 7:46 pm

DD Facebook Friend Ronald Jeffries Tallman writes:

“I’m on board here. Who do we send this to? There are also so many other things that need reform- namely costs to house them, appeals, special needs, paroles, early releases, etc…and not to mention the costs that they brought onto their victims.”

Diane March 7, 2011 at 7:47 pm

Ron –
Write one impassioned letter. Mail it to both of your United States Senators and to your representative in the U.S. House.
Remind them YOU VOTE. (You DO vote, right?) ~ DD

Diane March 7, 2011 at 7:49 pm

DD Web Site Reader Kilburn Hall writes:

“Ain’t that the truth. Even prisons aren’t free anymore for the criminals who turn to even more crime inside to pay for essentials. What is the purpose of prisons anymore if they just exist to teach criminals how to become better criminals once they get out? I strongly believe in the death penalty for prisoners with no possibility of parole. Why warehouse these violent offenders who have to kill just to stay alive inside? The death penalty compared to the reality of prison life seems more humane.”

Diane March 9, 2011 at 12:04 am

Facebook Friend Maggie Elvey writes:

“With you Diane, so disgusting what those inmates get away with. To bad the Government does not send the money to the victims or states of these inmates. Lots of them owe restitution that is never paid.”

Diane March 9, 2011 at 12:04 am

Facebook Friend Heather Reining-Tyler writes:

“You are right Maggie, I to believe inmates get away with too much. Something has got to give.”

Diane March 9, 2011 at 4:18 pm

Facebook Friend Billie Burns writes:

“I’ll bet we would be amazed at how many get away with this, too!
Crooks only become better crooks while in prison, they get good education in scamming they didn’t already know about.”

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