Prisoners working the system and stealing your money - WAFB 9 News Baton Rouge, Louisiana News, Weather, Sports

I-Team Report: Paid in Prison

Posted: Updated: Feb 2, 2012 10:20 PM
BATON ROUGE, LA (WAFB) -

If you haven't done so already, you're probably getting ready to file your taxes by the April 17th deadline. Along with you, so are thousands of other people, who are behind bars and defrauding the system - costing you money.

It's an age old practice - people filing false federal taxes. Now, it's made its way behind bars and inside Louisiana prisons. The latest figures from Louisiana alone show more than 1,000 inmates filed fraudulent tax returns in 2009.

"Louisiana has a problem," said former IRS agent and business analyst and consultant Mark Shirley.

Shirley said inmates, just like every citizen, are required to file taxes every year if and only if they have any income.

"We do have offenders in our system that legitimately need to claim income tax files," said Department of Corrections' Thomas Bickham. "Some of them either had income before they came into the system. Some of them are receiving pension checks so there are legitimate reasons for our offenders to file an income tax return."

But it's the ones who are not entitled to refunds who are stealing millions from the U.S. Treasury and taxpayers like you.

A federal investigation of returns filed in 2009 identifies almost 45,000 prisoners across the country who filed fraudulent tax claims.

Louisiana had 1,065 of those refunds. Of those, 668 came from parish and private jails around the state. Among the larger prisons, Angola had 50, while Dixon had 42. That's news to the man who is in charge of supervising inmates filing there.

"I've been at Dixon Correctional Institution for approximately 18 years and to my knowledge, I've never heard of a fraudulent claim here at this particular institution," said Ivy Miller, Dixon Correctional Institute's classification director.

In that same year - fraudulent inmate returns from Louisiana totaled $540,016 - money inmates stole right under the government's nose.

So how are they getting away with it? David Gunn is a local attorney specializing in tax fraud.

"If you have a return on which no social security is reported or a suspicious social security number and things like that, typically the IRS would catch that," said Gunn.

At least that's what the IRS should do.

However, the report found many cases where inmates filed incomplete claims but those claims were never flagged by the IRS, and the stolen refunds were given to inmates.

Of all the claims filed by prisoners, investigators found thousands had missing or inaccurate information including false social security numbers and made-up birthdays with some dating back to the 1800's.

The IRS has an electronic fraud detection system, but prisoners can outsmart technology.

For example, former IRS agent Mark Shirley said if all the information is filled out, even if it's made up, the return is approved by the electronic system, but if something is left blank, it's then flagged and denied. According to investigators, that's one reason why not enough bad returns are being caught.

Another big issue that's made it easier for inmates to file fake returns and not get caught? Federal law previously prevented agencies such as the IRS, the Federal Bureau of Prisons and the state Departments of Corrections from sharing prisoner tax information.

In 2008, a law was passed to address that, but there was a snag and it took lengthy negotiations to get a memorandum of understanding, between all parties to finally start sharing prisoner tax information.

"Would you say because of the lack of the memorandum of understanding, a lot of prisoners did get away with filing false claims," asked Chawla.

"Yes, they did," said Shirley

Louisiana finally signed the agreement nine months ago.

"Since we did sign the MOU, we have had six referrals from the IRS back to us of offenders that were in our custody who have filed fraudulent claims," said Bickham.

Until the IRS and prison authorities can control or even prevent these fake claims, its going to continue costing taxpayers like you and the federal government millions of dollars.

"The more fraud you have, the less money that goes to the treasury and so therefore, revenues have to be increased," said Shirley.

"It makes everybody's income tax bill go up," said Gunn.

The IRS refused an on-camera interview but issued the 9News I-Team a statement: "The IRS takes refund fraud seriously and has programs to aggressively combat it. the IRS is very successful at detecting and stopping incorrect refunds, including criminal refund fraud, and prevents the vast majority of refunds from fraudulently going to inmates.  Our systems provide special scrutiny to reviewing prisoner refunds, and we continue to increase our efforts."

Still, in 2009, records show the IRS paid out $39.1 million across the country in prisoner refunds and has not been able to get that money back.

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