WASHINGTON, D.C. -- Fraudulent income tax returns continue to be filed by prison inmates despite the IRS being warned of an increase in phony tax returns.
Investigators from WCPO sister station WEWS have been tracking inmates who file fraudulent tax returns since a Treasury Inspector General for Tax Administration report was first issued in September 2005.
One inmate described buying expensive luxury cars, clothes — even lake homes with cash from phony tax returns.
Now, nine years later, fraudulent tax returns filed by inmates has skyrocketed from 18,103 fraudulent returns in 2004 to 186,000 in 2011, according to J. Russell George, Treasury Inspector General for Tax Administration in testimony before Congress on February, 26, 2014.
George reported "refunds claimed on these tax returns increased from $68 million to $3.7 billion."
In 2011, U.S. Senator Sherrod Brown called for increased scrutiny of inmates' tax returns, and released a breakdown of inmate fraud in Ohio prisons based on 2009 data.
At the time, 1,464 inmates across Ohio had filed phony returns. The IRS said it could not release current inmate fraud figures for Ohio.
But our investigation found even convicted killers in Ohio were collecting phony refunds.
Michael Murdock was serving a life sentence for murder, but managed to claim $83,000 in phony refunds.
"There were about 77 returns claiming about $83,000 and another 20 returns that were about to go out," says Assistant U.S. Attorney John Siegel who successfully prosecuted Murdock.
Ronald Dean Wells was also serving time on a murder conviction, but the IRS sent Wells refund checks totaling more than $56,000.
"They just made up an amount of purported withholding and said, hey, IRS — give me back that withholding you took out," said Siegel.
A third inmate, Brandon Mace, is also now serving time in federal prison after filing a whopping $2.5 million in phony claims over two years.
"He had it timed so he could pick it up after he go out of prison, but by the time he got there, the post office had sent the $207,000 check back to the IRS," said Siegel.
Dwayne Selvey was a prison inmate who first testified before a congressional committee in 2005 and explained in detail how he was able to defraud the IRS of what he claims was nearly $4 million in phony refunds.
Now, back in prison for a parole violation, Selvey spoke from behind bars.
"It was about one of the easiest things I've ever done n my life," said Selvey.
"When I first started off, I didn't use a W-2 form, I just used a piece of paper and wrote down like I was the owner of the company."
Selvey says he put the money in multiple bank accounts that he accessed when released and bought "two Cadillac Escalades, a couple of lake homes and expensive clothes.
In the February 2014 testimony before Congress, the inspector general issued a new warning "that prisoner inmate fraud remains a significant problem."
George told Congress that "there are still no agreements in place" to share prisoner information between prisons and the IRS.
In a statement, the IRS said it "has been in touch with all 50 state governors, the Federal Bureau of Prisons, the District of Columbia as well as the Department of Corrections in each state, inviting them to collaborate with the IRS" to better track inmate fraud.
The IRS said it has asked prisons to sign a "Memorandum of Understanding which allows it to disclose returns and return information of inmates who the IRS determines may have filed or facilitated the filing of a false or fraudulent return."
A spokesperson for the Ohio Department of Rehabilitation and Corrections said it "was not aware of any Memorandum of Understand being signed".
It says it does send some inmate information to the IRS every September.
The IRS declined to speak to WEWS investigators regarding the story, but in a statement said, "The IRS takes refund fraud seriously and has programs to aggressively combat it. When accurate prisoner data is available, the IRS is very successful at detecting and stopping incorrect refunds and prevents the vast majority of refunds from fraudulently going to inmates."
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