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Fraudulent Tax Returns Net Illegal Millions for Prisoners
Arizona prisoners are so adept at defrauding the IRS that U.S. Rep. J.D. Hayworth (AZ) dubbed the dilemma ?Operation H&R (Cell) Block.?
The business of bilking Uncle Sam from within Arizona prisons accounted for about half of the state?s fraudulent income tax claims in 2005. ?It?s time we put it out of business,? Rep. Hayworth stated.
Nationwide, nearly $10 million worth of fraudulent tax claims were filed by 18,000 prisoners in 2004. That?s about one-seventh of all phony claims and is up 700 percent over the past three years.
?There is no question that prisoner refund fraud is on the rise,? said Nancy Jardini, chief of IRS criminal investigations. ?Even though prisoner returns comprised less than 1 percent of all federal income tax returns filed in 2004, more than 15 percent of false refund returns used prisoner names and taxpayer identification numbers.?
Several problems prevent authorities from solving or even slowing prisoner tax scams. One difficulty is that prisoners who are identified in such cases are seldom punished. State prison officials often investigate but don?t impose disciplinary sanctions for fear of impeding federal investigators. Federal officials are prohibited by law from divulging details of an investigation to prison officials. Thus, even known guilty prisoners are neither prosecuted nor disciplined.
Another problem is that punishment is often ineffective. ?If someone is in prison and spending years there anyway, what?s the point of spending time and resources?? queries Sandy Schwartz, an investigation supervisor for the Arizona Revenue Department. ?Are we going to prosecute? No.?
One Arizona prisoner, however, didn?t benefit from the frustrated government?s live-and-let-defraud philosophy. Daniel G. Johnson was a library worker at the privately-operated Marana Community Correctional Treatment Center when he contrived a tax scheme. Johnson filed two returns claiming overpaid taxes on gambling winnings; he requested refunds totaling $209,815. The large sum threw up a red flag, which eventually led to Johnson?s prosecution. He pleaded guilty and was sentenced on June 27, 2006 to 33 months in federal prison, to run consecutively with his state time.
Other prisoners across the country have been prosecuted for tax fraud. Two Colorado prisoners were indicted in federal court for filing fraudulent claims. Carl William Pursley, Jr. and Wendell Wardell, Jr. applied for over $50,000 in undeserved tax refunds, but their scheme was discovered before they collected all the money.
Pursley was sentenced to eight years in federal prison in October 2005 and ordered to repay $14,440 to the IRS. Wardell was found guilty in November 2005. He also was sentenced to eight years, and ordered to repay $14,444 plus over $7,000 in court costs. Their sentences were affirmed by the Tenth Circuit Court of Appeals.
On January 18, 2007, former Ohio prisoner Tommie Lee Brown received a 46-month federal sentence for his role in a conspiracy involving 74 fraudulent tax returns seeking more than $446,000 in refunds. Brown had started the tax scam while in prison, then had recruited other people to assist him after he was released.
In some cases both prisoners and their freeworld accomplices, usually relatives, have been prosecuted for tax fraud. Michigan prisoner Dale Morris received a 5-20 year sentence on September 5, 2006 for his role in a ?sophisticated criminal enterprise? that involved filing false homestead property tax claims from his cell at the Hiawatha Correctional Facility. The operation included two other prisoners, the prisoners? mothers, and two other freeworld conspirators, all of whom pleaded guilty. The prisoners? mothers were each sentenced to three months in jail.
On March 17, 2006, Florida prisoner Paul Turturro was sentenced to four years in federal prison for orchestrating a tax scheme that netted over $138,000. A month earlier his wife, Grace, received three months probation for assisting in the scam; both were ordered to pay restitution. Another husband-and-wife tax fraud team was sentenced on Oct. 16, 2006 ? Florida prisoner Kerry Hill received seven years while his wife, Laureen, was sentenced to eight years and four months. Two other freeworld accomplices also received prison terms; the fraudulent returns totaled over $600,000.
But such cases are exceptions to the rule. Most prisoners go unpunished for tax fraud even when they are caught. And this is not likely to change any time soon, as the cost for such prosecutions far outweighs the punishment.
Meanwhile, prisoners?and some prison employees-- are milking the government for millions. Security screenings and firewalls, including the IRS?s Electronic Fraud Detection System, do little to staunch the flood of illegal filings, as prisons provide an almost endless supply of names and social security numbers for illegal tax returns. The source for such personal data also creates a twist that can prevent the prosecution of imprisoned tax fraud perpetrators.
?Usually in tax fraud cases we know who did it and we have to prove the crime,? said IRS agent Brad Palmer. ?Here, we know the crime but we don?t know who did it.?
That?s because with prison tax scams it?s difficult to tell if the name on the fraudulent return is the person who originated the fraud, a co-conspirator, or an innocent victim of identity theft. Some schemes are simple and involve only one person; others are highly organized and involve outside conspirators who receive the illegal refunds, keep a percentage and disburse the rest to prisoners? accounts.
Even more unnerving is what investigator Sandy Schwartz calls the ?great unknown.? She refers to the fact that the screening process is imperfect, thus it?s impossible to know how many prisoners? fraudulent claims go undetected. Palmer agrees ?that there?s a hole? in the system. ?We?re trying to fix it,? he added.
But prisoners aren?t the only ones engaging in tax fraud ? sometimes their keepers take part in such scams, too. On July 26, 2006, seven people in Florida, including a prison counselor and prison guard, were indicted on charges related to a fraudulent tax scheme. Daniel Goodheart, a psychiatric counselor at the Okeechobee Correctional Institution, obtained prisoners? social security numbers and used them to file fake income tax returns totaling over $1 million. Frankie Jackson, a guard at the facility, was also indicted along with a prisoner and four prisoners? family members. Their cases are pending in federal court.
Janice F. Koontz, a jail guard at the privately-operated Bi-State Justice Building in Texarkana, Texas, was sentenced on October 31, 2006 to five months in prison and three years supervised release, and was ordered to pay $28,000 in restitution, for her part in a tax scam involving prisoners? names and social security numbers. Colleen D. Jordan, a professional tax preparer, was also indicted; she received three years probation and was fined $1,000. The two women reportedly received over $50,000 in improper tax refunds.
Additionally, on March 2, 2006, a detention guard with the Florida Dept. of Juvenile Justice, Lawrence Vincent Bailey, was sentenced to one year and a day, followed by three years supervised release, and required to pay a whopping $852,458 in restitution for tax fraud. Five other co-conspirators were named in the case, which involved about $1.2 million in fraudulent income tax claims.
In some cases prisoners themselves have been exploited and victimized. On February 3, 2007, Janice Singleton, a guard at the Mississippi Correctional Facility and owner of a tax preparation service, was arrested on 15 felony charges including identity theft, wire fraud and fraudulent use of a social security number. She is accused of stealing prisoners? personal data to file false state and federal tax returns. ?In this case, the victims all appear to be inmates, but this can happen to anyone,? said Mississippi Attorney General Jim Hood. Singleton was released on $150,000 bond.
And on November 22, 2006, Jacksonville, Florida tax preparer Morris Hines received a 63-month federal sentence for identity theft and tax fraud. He had filed over 80 false tax returns from 2003 to 2004 using the names and birthdates of prisoners obtained from the Florida DOC?s website, without the prisoners? knowledge or consent.
The emphasis, however, remains on preventing tax fraud by prisoners ? which has even spurred federal legislation. On December 15, 2005, U.S. Rep. Jim Ramstad (MN) introduced a bill that would allow the IRS to share information with prison officials related to prisoners? fraudulent tax returns. The bill was filed following a June 29, 2005 hearing before the House Ways and Means Subcommittee on Oversight that specifically addressed prisoner tax fraud and included testimony from the Treasurer Inspector General for Tax Administration.
On March 28, 2007, Rep. Ramstad?s bill was approved by the House Ways and Means Committee as an amendment to the Taxpayer Protection Act of 2007 (HR 1677), which is expected to pass.
Yet ironically, despite its problem with tax fraud, the IRS might be the one group that actually gets less sympathy than prisoners.
Sources: The Arizona Republic, accountingweb.com, rockymountainnews.com, WESH 2 News, Texarkana Gazette, PRNewswire, North Country Gazette (FL), www.irs.gov
The business of bilking Uncle Sam from within Arizona prisons accounted for about half of the state?s fraudulent income tax claims in 2005. ?It?s time we put it out of business,? Rep. Hayworth stated.
Nationwide, nearly $10 million worth of fraudulent tax claims were filed by 18,000 prisoners in 2004. That?s about one-seventh of all phony claims and is up 700 percent over the past three years.
?There is no question that prisoner refund fraud is on the rise,? said Nancy Jardini, chief of IRS criminal investigations. ?Even though prisoner returns comprised less than 1 percent of all federal income tax returns filed in 2004, more than 15 percent of false refund returns used prisoner names and taxpayer identification numbers.?
Several problems prevent authorities from solving or even slowing prisoner tax scams. One difficulty is that prisoners who are identified in such cases are seldom punished. State prison officials often investigate but don?t impose disciplinary sanctions for fear of impeding federal investigators. Federal officials are prohibited by law from divulging details of an investigation to prison officials. Thus, even known guilty prisoners are neither prosecuted nor disciplined.
Another problem is that punishment is often ineffective. ?If someone is in prison and spending years there anyway, what?s the point of spending time and resources?? queries Sandy Schwartz, an investigation supervisor for the Arizona Revenue Department. ?Are we going to prosecute? No.?
One Arizona prisoner, however, didn?t benefit from the frustrated government?s live-and-let-defraud philosophy. Daniel G. Johnson was a library worker at the privately-operated Marana Community Correctional Treatment Center when he contrived a tax scheme. Johnson filed two returns claiming overpaid taxes on gambling winnings; he requested refunds totaling $209,815. The large sum threw up a red flag, which eventually led to Johnson?s prosecution. He pleaded guilty and was sentenced on June 27, 2006 to 33 months in federal prison, to run consecutively with his state time.
Other prisoners across the country have been prosecuted for tax fraud. Two Colorado prisoners were indicted in federal court for filing fraudulent claims. Carl William Pursley, Jr. and Wendell Wardell, Jr. applied for over $50,000 in undeserved tax refunds, but their scheme was discovered before they collected all the money.
Pursley was sentenced to eight years in federal prison in October 2005 and ordered to repay $14,440 to the IRS. Wardell was found guilty in November 2005. He also was sentenced to eight years, and ordered to repay $14,444 plus over $7,000 in court costs. Their sentences were affirmed by the Tenth Circuit Court of Appeals.
On January 18, 2007, former Ohio prisoner Tommie Lee Brown received a 46-month federal sentence for his role in a conspiracy involving 74 fraudulent tax returns seeking more than $446,000 in refunds. Brown had started the tax scam while in prison, then had recruited other people to assist him after he was released.
In some cases both prisoners and their freeworld accomplices, usually relatives, have been prosecuted for tax fraud. Michigan prisoner Dale Morris received a 5-20 year sentence on September 5, 2006 for his role in a ?sophisticated criminal enterprise? that involved filing false homestead property tax claims from his cell at the Hiawatha Correctional Facility. The operation included two other prisoners, the prisoners? mothers, and two other freeworld conspirators, all of whom pleaded guilty. The prisoners? mothers were each sentenced to three months in jail.
On March 17, 2006, Florida prisoner Paul Turturro was sentenced to four years in federal prison for orchestrating a tax scheme that netted over $138,000. A month earlier his wife, Grace, received three months probation for assisting in the scam; both were ordered to pay restitution. Another husband-and-wife tax fraud team was sentenced on Oct. 16, 2006 ? Florida prisoner Kerry Hill received seven years while his wife, Laureen, was sentenced to eight years and four months. Two other freeworld accomplices also received prison terms; the fraudulent returns totaled over $600,000.
But such cases are exceptions to the rule. Most prisoners go unpunished for tax fraud even when they are caught. And this is not likely to change any time soon, as the cost for such prosecutions far outweighs the punishment.
Meanwhile, prisoners?and some prison employees-- are milking the government for millions. Security screenings and firewalls, including the IRS?s Electronic Fraud Detection System, do little to staunch the flood of illegal filings, as prisons provide an almost endless supply of names and social security numbers for illegal tax returns. The source for such personal data also creates a twist that can prevent the prosecution of imprisoned tax fraud perpetrators.
?Usually in tax fraud cases we know who did it and we have to prove the crime,? said IRS agent Brad Palmer. ?Here, we know the crime but we don?t know who did it.?
That?s because with prison tax scams it?s difficult to tell if the name on the fraudulent return is the person who originated the fraud, a co-conspirator, or an innocent victim of identity theft. Some schemes are simple and involve only one person; others are highly organized and involve outside conspirators who receive the illegal refunds, keep a percentage and disburse the rest to prisoners? accounts.
Even more unnerving is what investigator Sandy Schwartz calls the ?great unknown.? She refers to the fact that the screening process is imperfect, thus it?s impossible to know how many prisoners? fraudulent claims go undetected. Palmer agrees ?that there?s a hole? in the system. ?We?re trying to fix it,? he added.
But prisoners aren?t the only ones engaging in tax fraud ? sometimes their keepers take part in such scams, too. On July 26, 2006, seven people in Florida, including a prison counselor and prison guard, were indicted on charges related to a fraudulent tax scheme. Daniel Goodheart, a psychiatric counselor at the Okeechobee Correctional Institution, obtained prisoners? social security numbers and used them to file fake income tax returns totaling over $1 million. Frankie Jackson, a guard at the facility, was also indicted along with a prisoner and four prisoners? family members. Their cases are pending in federal court.
Janice F. Koontz, a jail guard at the privately-operated Bi-State Justice Building in Texarkana, Texas, was sentenced on October 31, 2006 to five months in prison and three years supervised release, and was ordered to pay $28,000 in restitution, for her part in a tax scam involving prisoners? names and social security numbers. Colleen D. Jordan, a professional tax preparer, was also indicted; she received three years probation and was fined $1,000. The two women reportedly received over $50,000 in improper tax refunds.
Additionally, on March 2, 2006, a detention guard with the Florida Dept. of Juvenile Justice, Lawrence Vincent Bailey, was sentenced to one year and a day, followed by three years supervised release, and required to pay a whopping $852,458 in restitution for tax fraud. Five other co-conspirators were named in the case, which involved about $1.2 million in fraudulent income tax claims.
In some cases prisoners themselves have been exploited and victimized. On February 3, 2007, Janice Singleton, a guard at the Mississippi Correctional Facility and owner of a tax preparation service, was arrested on 15 felony charges including identity theft, wire fraud and fraudulent use of a social security number. She is accused of stealing prisoners? personal data to file false state and federal tax returns. ?In this case, the victims all appear to be inmates, but this can happen to anyone,? said Mississippi Attorney General Jim Hood. Singleton was released on $150,000 bond.
And on November 22, 2006, Jacksonville, Florida tax preparer Morris Hines received a 63-month federal sentence for identity theft and tax fraud. He had filed over 80 false tax returns from 2003 to 2004 using the names and birthdates of prisoners obtained from the Florida DOC?s website, without the prisoners? knowledge or consent.
The emphasis, however, remains on preventing tax fraud by prisoners ? which has even spurred federal legislation. On December 15, 2005, U.S. Rep. Jim Ramstad (MN) introduced a bill that would allow the IRS to share information with prison officials related to prisoners? fraudulent tax returns. The bill was filed following a June 29, 2005 hearing before the House Ways and Means Subcommittee on Oversight that specifically addressed prisoner tax fraud and included testimony from the Treasurer Inspector General for Tax Administration.
On March 28, 2007, Rep. Ramstad?s bill was approved by the House Ways and Means Committee as an amendment to the Taxpayer Protection Act of 2007 (HR 1677), which is expected to pass.
Yet ironically, despite its problem with tax fraud, the IRS might be the one group that actually gets less sympathy than prisoners.
Sources: The Arizona Republic, accountingweb.com, rockymountainnews.com, WESH 2 News, Texarkana Gazette, PRNewswire, North Country Gazette (FL), www.irs.gov
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