Inmates turn incarceration into profit
Posted by AccountingWEB in Tax, Watchdog on 03/01/2010 - 12:43
Who says prison inmates sit around doing nothing? At least 50 detainees at the Stock Island Detention Center near Key West, Florida, figured out how to scam the Internal Revenue Service out of $100,000 in bogus tax refunds. Their goal was $1 million.
Using standard 1040EZ forms, some of which came from the jail’s own supply of documents, the inmates allegedly created substitute W-2s (Form 4852), which are used when an employer doesn’t provide a W-2. The inmates fabricated the names of employers or used companies that were no longer in business. They made up earnings and withholding amounts sufficient to render a refund, generally, of approximately $5,000, according to a report by The Miami Herald. In many cases, the income reported on the forms would have been earned while the inmates were incarcerated.
The scheme was originally discovered in December of 2006, when a piece of paper providing how-to directions was found in an inmate’s cell. Soon after, Key West police received a call from a bank in Miami informing them that a relative of an inmate was trying to cash a tax refund for $5,000 using a power of attorney.
A joint investigation involving the police and the FBI revealed that many of the bogus refund checks were sent to inmates directly at the jail. Those checks were deposited in the inmates’ “canteen” accounts or they were signed over to relatives. Investigators allege that two of the scheme’s ringleaders were Shawn Clarke and Danilo Suarez.
The evidence against them includes a tape of a phone conversation allegedly involving Clarke. A former investigator on the case said that Clarke was taped saying, “I’m through with the street crime. I’m strictly white collar from now on. I love the IRS.’’
Stock Island Detention Center makes available common tax forms, but not Form 4852. Inmates obtained those forms directly from the IRS. According to law enforcement publication CorrectionsOne, one inmate even complained to the IRS that the tax agency had not sent him the multiple forms he had requested weeks earlier. The letter said: “Our group would greatly appreciate your help in this matter so we can file accordingly.”
Rick Roth, a retired Monroe County Sheriff told The Miami Herald he was shocked that inmates could steal from the IRS “that easily and that blatantly and not be prosecuted, even when the case was handed to them on a platter.” According to Roth, the Feds dragged their feet in prosecuting the perpetrators.
More than three years after the completion of the local investigation, the case has been brought before a Miami grand jury, said Jonathan Ellsworth, who headed the local investigation. Indictments could come before the end of this month.
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Huh?
This boggles the mind!
I have three questions.
1) Isn't the inmates' mail screened?
2) Doesn't IRS CID flag tax returns with refunds that go to prison addresses?
3) Doesn't IRS flag tax returns with Form 4852 and large refunds?