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Tax Fraud…Behind Bars!

This post was written by Josh

Consider this: you committed a crime, weren't wiley enough to avoid getting caught, and now you're in jail. What's the first thing on your mind? Well, send a bunch of fraudulent tax returns to the IRS in order to collect millions in refunds, of course!

Investigators in Key West, Florida have found that inmates in the Monroe County jail have been running a tax refund scam since at least 2004. The inmates devised an elaborate scheme whereby they used names of fake or defunct businesses along with a cheat sheet that showed how to fill out forms line by line. The tax fraudsters convinced other unsuspecting inmates to give up their social security numbers, sometimes in exchange for honey buns, which are apparently haute cuisine in prison.

Once the inmates had all of this information, they made extensive use of family members to help with the scam on the outside. In return, the inmates filled out fake returns for family members, as well as themselves and other inmates, some of whom were charged a $500 fee.

Other documented instances of prisoner tax fraud have also surfaced.  One Florida prisoner was sentenced to an additional 33 months in jail after he prepared 64 fraudulent returns for other prisoners--as well as a handy self-help manual. In another case, this time in South Carolina, a dubious trio comprising two inmates and an inmate's mother hatched a scheme in which one inmate stole other prisoners' social security numbers and made fake W-2s, the other inmate used the W-2s to file false returns, and mom lovingly provided the checking account for deposit of the refunds.  People outside the prison systems--often family members--clearly play an important role in most of these tax fraud schemes. Perhaps this helps to explain why the inmate is locked up in the first place!

Fortunately, Congress has recognized the gravity of the problem posed by inmate tax fraud and has amended the Internal Revenue Code to help combat tax fraud by prisoners. The fraud continues, however, despite IRS attempts to block refunds from getting into prisoners' hands. Testimony before the House Ways and Means committee five years ago revealed that the IRS had managed to block $53 million in refunds to inmates, but $14 million in fraudulent refunds did manage to slip through the...bars. Given the billions of tax payer dollars that are spent to house inmates, $14 million may seem like a drop in the bucket. However, this kind of fraud is a big insult on principle alone, particularly when other inmates who are trying to turn their lives around in prison get duped into turning over their social security numbers.

This article is brought to you by The Qui Tam Team, the epicenter for whistleblowers and people interested in the False Claims Act, Qui Tam Provisions, and Medicare and Medicaid fraud. To discuss a potential case, please call Eric Young at 1 (800) 590-4116.