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Calif. prisoners scam millions in tax returns from IRS

12:58 PM, Feb 27, 2013   |    comments
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SACRAMENTO, CA - Prisoners typically earn chump change by working in maintenance, the kitchen or laundry. But it turns out the big money comes from the outside, from Uncle Sam.

It turns out inmate tax fraud is much more common than you'd think. In one year, prisoners nationwide collected $130 million in undeserved tax refunds. Since 2004, the number of prisoners filing those refunds has skyrocketed from 18,000 45,000.

"It never ceases to amaze me," said Benjamin Wagner, the U.S. Attorney for the Eastern District of Sacramento. "I think a lot of people in prison either think we don't care or that they won't get caught. The IRS does tend to attract a lot of these small scale attempts at fraud, and some of them succeed."

California ranks third in the nation in the amount of fake tax returns filed.

In 2010, more than $23 million in fake returns were filed. The IRS paid out $1.1 million of them. That information comes directly from the IRS, but it wasn't easy to get. News10 made several inquiries and all were denied, until a request was filed under the Freedom of Information Act.

The IRS said 5,888 false tax returns came from California prisoners in 2010:

  • 261 from Mule Creek in Ione
  • 201 from the Sacramento State Prison, also known as the new Folsom prison
  • 161 from the Solano prison
  • 113 from the old Folsom prison
  • 31 from San Quentin

The IRS caught more than 95 percent of the fraudulent tax returns, but those that did get through were worth $1,136,158.

Inmates pulled off the scam by using actual names and Social Security numbers. They claim they've lost the W-2 form and then make up the employer and income.

How is it possible that IRS employees have no clue the returns are filled out by convicted killers and other felons?

It's because prison authorities and the IRS can't share information. The returns are confidential under tax law.

"There's the principle of the things," Rep. Tom McClintock, R-Roseville, said. "People who have committed crimes and then go to prison and commit more crimes in prison guarded by the confidentiality of our tax laws? That is insane."

McClintock is pushing for reform of the system. A bill he introduced in January would allow the IRS to exchange information with the prisons.

"I can understand a prisoner who has investment income that was legitimate and he has to file tax returns. That's part of the tax law," McClintock said. "But keeping them confidential from prison officials is ridiculous."

By Nick Monacelli, nick@news10.net

News10/KXTV

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