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Prisoner Tax Refund Scam Thwarted at Arizona Prison

Prisoner Tax Refund Scam Thwarted at Arizona Prison

By Derek Gilna

Yavapai County Sheriff Scott Mascher announced in March 2013 that two men had been identified as carrying out a scheme to defraud the IRS by filing phony tax returns that directed fraudulent refunds to them and accomplices. Apparently, according to Mascher, they had filed at least 60 fraudulent returns over a three-year period that would have produced over $300,000 in refunds.

A report issued by the U.S. Treasury Inspector General for Tax Administration, previously reported in Prison Legal News, highlighted that phony prisoner-prepared tax returns had increased from $166 million to $757 million in 2010. Although the IRS computer programs prevented the issuance of checks in most instances, at least $35 million was paid out in 2010. Every year, according to Treasury, hundreds of millions of dollars are also paid out in undeserved refund checks by non-prisoners.

Apparently, the pair had managed to convince other prisoners to provide their identities to them so that they could file the tax returns, and divide the proceeds of any refunds wrongfully obtained. Since the prisoners whose identities were used did not sign the returns, they felt that they would not be liable for any of the fraudulent refunds obtained in their names. The mailroom at the prison facility at Camp Verde noted an unusually high amount of mail going to and from the IRS coming into the jail, and decided to investigate further.

The U.S. Treasury Department claims that poor record keeping has created this problem, noting that “to combat this growing problem, the IRS compiles a list of prisoners from the Federal Bureau of Prisons and State Departments of Corrections ... [but] the IRS does not have the authority to disclose to the prisons information related to prisoner-filed fraudulent tax returns ... [and] as a result, controls used to ensure the IRS identifies fraudulent refunds on tax returns prepared by prisoners are not fully effective.”

Mascher claimed that until he “started to make arrests,” the federal government refused to take action, but now “they’ve decided to re-look at it.”



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