Prisoners File False Tax Returns, Reap Millions

Inmates filing millions in false tax returns

By Tom Llamas
|  Thursday, Feb 24, 2011  |  Updated 9:03 AM EDT
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NBCNewYork exposes how prisoners are scamming taxpayers.

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NBCNewYork exposes how prisoners are scamming taxpayers.

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For many prisoners, mail is the only way they can connect with the outside world.  Authorities say most don't abuse the privilege, but some have figured out a way to use stamps and envelopes to steal millions from taxpayers.

The Department of Treasury Inspector General said in 2009, 45,000 prisoners filed false tax returns claiming nearly $300 million dollars from the federal government, $40 million of which was actually issued.

Inside New Jersey's Northern State Prison, about 3,000 pieces of mail get processed every morning.

The mail is put through an X-ray machine, sniffed by dogs and then individually searched by hand.

Authorities look "only for correct addresses from inmates. All outgoing mail must have an inmate's name and number," said Sergeant Scott Holliday, who runs the prison's mailroom.

His team is on the lookout for contraband including weapons, cash and drugs, which are hidden in envelopes and packages addressed to prisoners.

But there may be something else passing through that mailroom that authorities want to stop.

New Jersey ranked 10th in the country for prisoners filing false tax returns, according to USA Today. Federal and state prisoners were issued more than $900,000 dollars.

“For many New Jersey taxpayers, including small businesses, tax time feels like prison but for a lot of criminals it's more like Christmas," said Sen. Robert Menendez.

Stopping the false tax returns from going out is not an option because outgoing mail, unlike incoming mail, is not searched.

The New Jersey Department of Corrections says its hands are tied.

“It is important to note that this department’s legal authority does not infinitely extend beyond the walls of our prisons. Unless a piece of mail is addressed to an NJDOC facility, that correspondence is not – and cannot – be this department’s responsibility,” NJDOC spokesperson Deidre Fedkenheuer said.

NJDOC is currently investigating how so many prisoners were able to file false tax returns, and is working with the IRS.

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