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Inmates get millions from bogus tax returns

Most fraud caught, but bad data on prisoners hurts enforcement effort.


Inmates increasingly are submitting bogus tax returns in the hopes of receiving a hefty refund from Uncle Sam, and the phony schemes continue to cost taxpayers millions each year.

The number of false returns filed by U.S. prisoners increased fivefold between 2004 and 2010, according to data obtained from the Treasury Inspector General for Tax Administration. The IRS identifies most of the fraudulent returns, but enough got through that inmates received $39.1 million in bogus tax refunds in 2009 and $35.2 million in 2010, the most recent year data is available.

The schemes often involve identity theft — sometimes stealing the identities of other inmates — and other means for submitting false information. The IRS also lacks accurate information on many prisoners in the state and federal prison systems, and until recently was blocked in how much information it could share with state corrections agencies on inmates who file fraudulent tax returns.

The agency says a recent change in federal law gives it better access to accurate prison data, allowing for improved enforcement.

“Hopefully it is becoming an easier crime to catch,” said John Siegel, assistant U.S. attorney for the Northern District of Ohio. “And I think they have gotten better at it, but there are just so many (returns), and there is the pressure to get them out, and some of these (bogus returns) can get through.”

Ohio mirrors the national trend of prisoners filing more false returns.

In 2010, Ohio inmates submitted 2,189 false tax returns, according to information presented last year by the IRS at the American Correctional Association Summer Conference. That represented a 50 percent bump from 2009, when prisoners filed 1,464 bogus returns, according to data from the inspector general.

Five returns in 2009 were from inmates at the Montgomery Education Pre-Release Center and 14 were from the Dayton Correctional Institution. Another 29 came from the Warren Correctional Institution in Lebanon and 48 were from the Lebanon Correctional Institution, the data show.

Inmates at the London Correction Institution submitted 704 false returns in 2009, more than any other prison nationwide, the Inspector General found.

In a statement, Jennifer Jenkins of the IRS regional office in Columbus said the agency stopped more than $2.5 billion in fraudulent refunds to prisoners in fiscal year 2012, a 10 percent increase over the previous year.

When accurate prisoner data is available, Jenkins said, “the IRS is very successful at detecting and stopping incorrect refunds.

But the agency’s efforts “are impacted by issues related to the accuracy of prisoner information we receive,” according to Jenkins. “There are still significant challenges in getting complete and consistent data from the multiple jurisdictions involved.”

Ohio fraud cases

Inmates who cheat and get caught face additional prison time.

In May, Brandon Mace of Canton was sentenced to 77 months in prison in U.S. District Court for the Northern District of Ohio for claiming nearly $207,000 in false income tax refunds in 2008 and $5.3 million in 2009, court records show.

Mace, 35, was incarcerated in an Ohio correctional institution when he filed the returns, and he planned to retrieve the 2008 refund check after he was released in late 2009, authorities said. The IRS never released the 2009 refund, but the 2008 check was sent to a Post Office box Mace owned. Unfortunately for him, the check was returned to the government before he could get there to claim it.

Post offices only hold refund checks for a limited amount of time before they are returned to the government. Mace is currently housed in a West Virginia prison.

In 2010, Devin Heckman, formerly known as Jeffrey Heckman, obtained personal information from other federal inmates while he was incarcerated at the Petersburg Federal Correctional Complex in Virginia, court documents show.

Heckman was serving a 96-month prison sentence after he was convicted in Ohio of bank fraud, transporting stolen goods and distributing child pornography.

According to court documents, he obtained the inmates’ names, dates of birth and Social Security numbers after telling them he needed the information to help them file claims for stimulus payments.

Heckman prepared and filed at least 25 fraudulent tax returns seeking about $62,000 in tax refunds. He managed to obtain about $17,000 in tax refunds using the names of other prisoners, and the money was deposited into bank accounts he controlled.

But Heckman’s crimes were discovered, and a federal judge in May sentenced him to an additional 57 months in prison for tax fraud.

Another tool

The IRS says the vast majority of fraudulent returns — 95 percent in 2010 — were stopped before costing taxpayers.

State and federal prisoners filed 91,434 fraudulent tax returns in 2010, up from 18,103 in 2004, according to the Inspector General data. Inmates claimed $757.6 million in refunds, 11 times the amount sought in 2004.

The IRS says improved detection measures are partly responsible for the rise in fraud cases. More than $722 million in bogus claims sought by inmates in 2010 were identified before any checks were written, according to the IRS.

More recent data was not available. But by March of this year, the IRS identified more than 87,000 potentially fraudulent prisoner tax returns for additional screening.

Siegel said the massive number of returns the IRS handles and the agency’s obligation to process and distribute refunds in a timely manner make it difficult to catch all fraud.

The IRS also lacks accurate information on many inmates, the Inspector General found, hindering the agency’s ability to determine which returns are legitimate. The Federal Bureau of Prisoners and state departments of corrections collect and record information on prisoners, so the inaccuracies are largely not the fault of the IRS, the inspector general found.

Last year, 260,000 prisoner records had information missing (almost 10 percent of all prisoner records), and 240,000 records did not match information from the Social Security Administration, according to the report.

The IRS needs the dates when prisoners were incarcerated to determine if they were behind bars at a time they were claiming wages. Many prisoner files have blank incarceration and release dates.

Jenkins said the IRS is working with the federal prisoners bureau and departments of corrections to obtain more accurate information. She said the agency is pleased with the new law, called the American Taxpayer Relief Act of 2012, which gives the IRS authority to share with prisons information related to prisoner-filed fraudulent returns.

The Ohio Department of Rehabilitation and Corrections said it complies with the federal mandate to provide the IRS with an annual, comprehensive listing of all incarcerated offenders, said Ricky Seyfang, an agency spokesman.

Additionally, mail room staff at correctional facilities send all outgoing mail addressed to the IRS from inmates to the agency’s refund tax compliance department, and they include the prisoners’ names, inmate numbers, Social Security numbers and dates of incarceration and release, Seyfang said.

After the release of its report last December, J. Russell George, the Treasury Inspector General for Tax Administration, said in a prepared statement that the IRS needs to do a better job.

“While many of the problems our auditors found are beyond the control of the IRS, the IRS must take steps to improve its validation and verification processes,” George said.

Sen. Sherrod Brown, D-Ohio, said he has urged both the IRS and the Federal Bureau of Prisons to make prisoner tax evasion a priority.

“As disturbing as these statistics are, the real numbers could be much higher,” he said. “This is simply unacceptable.”



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