KUSA - Tax return paperwork may seem like a dreaded chore to many Americans, but for prison inmates, the returns can be cash cows. They create schemes to defraud the IRS and turning a 1040-EZ into easy money.
Dwayne Selvey was doing time while still committing crimes, and all he needed was a calculator, some Social Security numbers, and a blank tax form.
"All you'd have to do is just take one blank copy and make numerous copies, 400-500 copies of it," Selvey said. "I would type them up - everyone of them - except the 1040-EZ form. I would do it in hand."
Selvey tricked the IRS into granting many undeserved tax refunds.
"I'm not sure why I got away with it for as long as I did," he said.
Selvey has been released from prison and says he has reformed, but there are thousands of people still running the scam from the slammer.
The Treasury Department's Inspector General for Tax Administration says the IRS and prisons can and should be doing more to stop the crime.
"It's a serious problem, and it's a growing problem," said Inspector General J. Russell George.
In 2005, the IRS identified 21,000 fraudulent inmate tax returns, asking for a combined $80.4 million dollars. That number has ballooned to 276,000 fraudulent inmate claims in 2012, asking for a total of $1.7 billion. While the IRS catches 94 percent of the bogus inmate requests, the refunds that reach scammers are still staggering.
"We're still talking hundreds of millions of dollars, and that's outrageous given the fiscal restraints the nation finds itself in," George said.
Jacque Riordon, who spent years chasing tax cheats as an IRS special agent, says the IRS is balancing competing priorities.
"On one hand you have the IRS wanting to process returns and get refunds out as quickly as possible," Riordon said. "Then on the other side of the house, you want to stop all the fraudulent schemes and that takes time and resources that the IRS doesn't necessarily have."
Federal law now requires all correctional facilities to send annual lists of inmates' names and Social Security numbers to the IRS. Federal tax processing computers red flag returns that appear to come from inmates. Colorado's Department of Corrections says it's fully compliant with the program. However, some scammers are able to circumvent the system.
Jackie Riordon suggests Congress could create a law allowing the IRS to share inmate's tax information with staff at prisons and jails. She says that would make it easier to investigate tax crimes behind bars.
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