Pixel Tracker

Saturday, February 16 , 2019, 1:43 am | Fair 50º


Diane Dimond: Tax Fraud Goes Unchecked Behind Bars

Failing to monitor inmate mail and fake returns costs Americans at least $39 million

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.

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, sizable refund checks are deposited directly into prison bank accounts. Doesn’t any official notice?

While the rest of us sweat to scrape up every W-9 or 1099 form, every receipt and all the corresponding documentation the IRS 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 online, 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 his or her former employer on a 1040 form. Oh, and the form is also readily available online and simple for the prisoner to print out and fill out.

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 fraud from 2009 was likely even larger because some 10,000 returns from prisoners were never scrutinized.

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.

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 about how the Government Accountability 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’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 prison IRS fraud?

Anybody out there with me?

Diane Dimond is the author of Cirque Du Salahi: Be Careful Who You Trust. Click here for more information. She can be contacted at .(JavaScript must be enabled to view this email address).

Talk to Us!

Please take Noozhawk's audience survey to help us understand what you expect — and want — from us. It'll take you just a few minutes. Thank you!

Get Started >

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made using a credit card, Apple Pay or Google Pay, or click here for information on recurring credit-card payments and a mailing address for checks.

Thank you for your vital support.

Become a Noozhawk Supporter

First name
Last name
Select your monthly membership
Or choose an annual membership

Payment Information

Membership Subscription

You are enrolling in . Thank you for joining the Hawks Club.

Payment Method

Pay by Credit Card:

Mastercard, Visa, American Express, Discover
One click only, please!

Pay with Apple Pay or Google Pay:

Noozhawk partners with Stripe to provide secure invoicing and payments processing.
You may cancel your membership at any time by sending an email to .(JavaScript must be enabled to view this email address).

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.