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H&R CELLBLOCK?

June 30, 2005

Many prisoners toil away for pennies an hour in the licence-plate in the licence plate and rock-breaking sectors of the economy. Others have discovered the joy of tax.

WASHINGTON (AP) -- A South Carolina prison inmate told a rapt House panel Wednesday about how he defrauded the U.S. government of $3.5 million by filing bogus tax returns.

The man, an anonymous 37-year-old inmate dubbed ''John Doe,'' testified behind a partition to prevent him from being photographed or videotaped during the House Ways and Means subcommittee on oversight hearing.

He said he started out by filing phony returns for 10 inmates in 1991, which netted $4,200 to $5,400. He kept a $1,000 commission on each return.

"Over the years, I filed six to seven hundred returns," Doe said. "The total dollar amount would be approximately $3.5 million, face value," of which he netted $600,000 to $700,000.

The funds helped support a thriving prison economy:

"The money and drugs eventually lead to beatings, stabbings and extortion," he said. "With the money I personally made, I often looked out for poor or indigent inmates who got no help from home." But he conceded he also used the money to buy sneakers, a color TV and "lots of drugs."

Amazingly, tax privacy laws have no exception for jailbirds:

Nancy J. Jardini, chief of criminal investigation at the IRS, said one obstacle to cracking down on the problem is a section of the IRS code which prevents the agency from disclosing tax information, with a few exceptions.

"None of the exceptions permit the IRS to refer refund fraud information to prison officials for the imposition of administrative sanctions," she said.

I can see the warden now: "Boy, you'd better get me one of them big ree-funds, or you'll be breakin' rocks in the yard until they carry you out!"

Link: Tax Analysts coverage.