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I-Team: Prison Tax Fraud Worse Than Initially Thought

MIAMI (CBS4) - Federal Internal Revenue Service auditors now say prison inmates are stealing up to four times more tax dollars than first thought.

A recently released report by the Treasury Inspector General for Tax Administration shows potentially hundreds of millions of tax dollars are stolen every year by prison inmates filing tax returns for work they never did asking for tax refunds they aren't due.

It's a tax refund scam first uncovered by CBS4 I-Team Investigator Stephen Stock who now adds up the cost to every legitimate American taxpayer: nearly a quarter billion dollars stolen by prison inmates already doing time for other crimes.

"They stole my identity," said Broward County resident Denise "Dee" Platt.

At first Platt was concerned because she had had her identity stolen.

Then Platt became concerned because the IRS didn't seem to understand what had happened to her and to the tax refund money the government was supposed to send her but sent to the person who'd stolen her identity.

"(I was) very frustrated. Everything seemed hopeless," said Platt.

Finally Platt lost patience after the IRS kept sending tax refund checks to the person who posed as her, the person who stole her identity. The IRS sent the refund checks to the thief's address even after "Dee" formally notified the IRS exactly what was going on by filing official paperwork with the government.

"They had sent my refund to another person's bank," said Platt.

So Platt sought the help of a former IRS criminal agent, Ron Wise, of MRW Consulting of Fort Lauderdale.

Wise had served as the Chief of Criminal investigations for the IRS out of its Atlanta Fraud unit and remains very connected with the agency.

Wise and his partners at MRW Consulting all used to work as special investigative agents in various IRS criminal divisions.

You can find MRW's website by clicking here.

Using his expertise Wise was able to uncover information within the IRS that showed the agency knew it had made a mistake in sending the tax refund check to the wrong person and had not notified Dee Platt that it had done so.

As if pouring salt into an open wound, the IRS then sent Platt a 1099-INT form showing that the IRS was taxing her on the interest of the refund it, the government, had sent to the wrong person, the person who stole her identity. This despite the fact that an official admitted to Ron Wise that the IRS "had made a mistake" and sent the check to the wrong person, the person who scammed "Dee's" identity.

This did not endear the IRS to "Dee" Platt.

"It's an agency that's like the Wizard of Oz," said Platt. "They're behind this curtain that you can't reach but I learned that the IRS is not infallible. They make mistakes."

Compare that, the IRS's dogged pursuit of "Dee" Platt to the agency's apparent ignoring a much larger and much more costly scam for taxpayers: the tax refund scam being run by inmates out of prisons across the country. These are scams that have been going on for decades and are getting worse every year.

The CBS4 I-Team has learned prison inmates continue to file false tax returns for work they never do, often listing employing companies that don't exist, then get refunds they aren't due.

This, despite the fact that Congress even enacted a law in 2008 (Inmate Tax Fraud Prevention Act of 2008) to help plug holes that allow this prison tax scam while requiring the IRS to be more proactive in addressing and stopping this fraud.

But an auditor's report from the US Treasury Inspector General for Tax Administration (TIGTA) which oversees the IRS found the theft of tax dollars by prison inmates filing false tax returns was up to four times worse than first estimated.

Click here for website for TIGTA.

You can read the latest TIGTA (December 29, 2010) report by clicking here.

"As the Inspector General, I am troubled," said J. Russell George, the Inspector General for Tax Administration.

Inspector George has served as Inspector General since 2004 and leads hundreds of employees and inspectors out the TIGTA office in Washington, D.C.

George even testified before Congress on this problem and released a report back in 2005 outlining the fraud. A follow-up report a year later found much the same thing.

You can read that September, 2005, TIGTA report by clicking here.

Read the follow up September, 2006, report by clicking here.

According to the latest (December 29, 2010) TIGTA report the number of fraudulent tax returns claimed by prison inmates nearly tripled, from 18,103 to 44,944 in the five years between 2004 and 2009 (the last year data is available.)

The report shows the amount of fraudulent money claimed by prison inmates more than quadrupled (4.3 times) from $68.1 Million in 2004 to $295.1 Million in 2009 (last year data available).

And the latest audit reports shows that amount the IRS actually acknowledges was stolen by inmates tripled (2.9 times) from $13.4 Million in 2004 to $39.1 Million in 2009 (the last year for which data is available).

"My charge is to ensure that no dollars are wasted, that no dollars are scammed," said Inspector General George. "And I won't rest until the IRS does what it is supposed to do."

But so far, the IRS seems to be ignoring Congress' mandate to fix things or even to take steps to fix things.

According to the same TIGTA audit report even though "The Inmate Tax Fraud Prevention Act of 2008… …provides the IRS with the authority to disclose information on prisoners…the IRS has not completed the necessary agreements to share prisoner information."

You can read the entire latest TIGTA Audit Report by clicking here.

You can read the full 2008 law (Inmate Tax Fraud Prevention Act of 2008) by clicking here.

And therefore the audit report shows that inmate tax fraud continues to grow in size and is not slowing down.

Read TIGTA's earlier report filed in September, 2010, by clicking here.

According to an internal IRS breakdown of known fraudulent tax forms obtained by CBS4's I-Team, Florida leads the country in false tax returns filed by inmates, 8,777 fraudulent returns or 20 percent of the fraudulent prison tax returns filed in the entire country.

"It was a huge scam going on in our facility," said Monroe County sheriff Robert "Bob" Peryam.

The scam went on for years at the Monroe County jail in Key West despite the fact Sheriff Peryam said his investigators caught on pretty quickly and handed over to U.S. prosecutors and investigators what the sheriff calls evidence for open and shut criminal cases.

Finally, on January 14, 2011, an inmate, 49 year-old Danilo Suarez, formerly of Key West, was sentenced by a U.S. District Court Judge to five years in prison after Suarez and two members of his family were convicted of running the tax refund scam out of the Key West jail.

"It took over three years in fact almost four years before finally something was done," said Sheriff Peryam.

Sheriff Peryam says he has evidence of up to fifty more inmates running the same scam.

"We had inmates admitting to it," said Sheriff Peryam.

But so far, only one other inmate has even been charged by the feds.

"It (the IRS's inaction in these scam cases) angers you. It absolutely angers you," said Sheriff Peryam.

So why isn't the IRS doing more to stop these scams of taxpayer dollars?

It's a question that baffles Dee Platt who wishes the IRS would leave her and others like her alone and concentrate on stopping all that prison fraud. Platt says by saving those dollars lost in prison tax scams that tax money could go to people currently unemployed or struggling to pay their mortgages.

"That money could be going to help these people instead they're paying off these fraudulent returns and they do nothing about it. I don't understand that," said Platt. "It's mind boggling."

Not only was Danilo Suarez sentenced to five years in prison his 25 year-old daughter, Sandra Suarez, and 54 year-old sister, Belkis Mendez, both got a six months sentence in federal prison by a judge back last November for helping run the tax scam from jail.

Three United States Senators, including Florida's Bill Nelson, are now demanding action from the IRS and the Federal Bureau of Prisons. The senators, lead by US Senator Charles Schumer of New York said "it's outrageous" that both the IRS and the Federal Bureau of Prisons continue to fail to comply with a law passed and put into place almost three years ago (Inmate Tax Fraud Prevention Act of 2008).

You can read the full law by clicking here.


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