WRAL Investigates

NC inmates cash in on fraudulent tax returns

Posted March 14, 2011 6:00 p.m. EDT
Updated March 14, 2011 6:54 p.m. EDT

— By law, prisoners are required to file tax returns, but a federal new audit shows thousands of fraudulent tax returns from inmates.

Across the country, nearly 45,000 false tax returns were filed by inmates for 2009, according to Criminals requested $295 million in refunds.

In North Carolina, inmates filed 376 fraudulent returns, asking for $1.4 million in refunds.

While the IRS catches some of the fraudulent returns, millions of dollars are still ending up in the hands of inmates.

The report shows prison inmates received $29 million in refunds through false returns.

North Carolina Department of Correction spokesman Keith Acree said the report isn’t surprising.

“It’s obviously concerning to us,” Acree said. “Workers, when they see mail headed out of the prison headed for the IRS, will direct that mail to an IRS fraud detection unit so it can be screened and let the IRS determine if it's a legitimate return.”

However, two years after Congress passed the Inmate Tax Fraud Prevention Act, prisons and the IRS still haven't agreed on how to share information about specific inmates committing the fraud.

Among state and federal prisons in North Carolina, Maury Correctional Institution near Hookerton reported the highest number of fraudulent returns by inmates, with 34 filed in 2009. Lanesboro, Franklin and Pasquotank correctional institutions each had more than two dozen cases of false returns.

While the IRS won't disclose the specific number of fraudulent refunds issued to individual inmates, reports show North Carolina prisoners received almost $200,000.

When filing, some inmates tried to take advantage of the First Time Homebuyer's Credit.

In some cases, the IRS had incomplete information about inmates from the states, like partial or incorrect Social Security numbers or wrong birth dates, including some from the 1800s.

In other cases, inmates had outside help to, in essence, commit identity fraud.

“Inmates who violate the law do break laws while in prison can be prosecuted in a court for those things. But, additionally, we can also have sanctions in our internal disciplinary system inside the prison,” Acree said.

The DOC doesn't investigate or prosecute. Instead, the IRS identifies and handles the cases, but the agency admits that it doesn’t focus on inmates who are already behind bars. They instead go after those outside of prison who help commit fraud.

IRS officials say the agency takes prisoner refund fraud seriously and has programs to aggressively combat it.

Legitimate taxpayers see the irony, but they just want a solution.

“I'm appalled, and I think that's really ridiculous and the state should do something about it,” taxpayer Natasha Sanford said. “You have people who are working two and three jobs who don't get that type of money from the state of North Carolina. I'm shocked.”