Special Report: Stealing Your Tax Returns

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They called him "the tax man" and many consider him the father of prison tax fraud.

"I actually had it so good inside the prison system that there really was no need to get out," said Dwayne Selvey, a former tax fraud scammer.

In 1991 a commercial on TV got Selvey thinking, why not files some fake taxes? The worst thing that could happen would be he'd go to prison-- which is where he already was. All he needed were names and social security numbers. He got those from his fellow inmates.

"It was just free money," said Selvey. "It came through easy, so simple."

The first year he made $12,000. He spent the money on shoes, TVs, clothes, even marijuana. Year after year the scam grew, at one point it even had a corporate like structure with partners at different prisons.

"Sometimes one person might get [the IRS] for four, five, six hundred thousand dollars," said Selvey.

It got so big, Selvey couldn't file enough taxes, other prisoners got jealous, and he got caught. However, it was too late and the scam had spread across the country-- including Michigan.

In 2009 the Treasury Inspector General for Tax Administration caught dozens of false returns filed by Michigan prisoners. In Jackson's four prisons, 231 false returns were caught, statewide 899 inmates. Nationally it's a huge problem. 44,944 false tax returns were caught, but keep in mind, many slip past the IRS.

USA TODAY reports Michigan is tenth in the nation for issuing fraudulent refunds. In 2009 prisoners in our state successfully stole $905,326 of tax payer money.

J. Russell George is head of the agency that oversees and audits the IRS.

"It's astounding especially in the sense that people are aware of the problem, and have been made aware of it for again, almost ten years," said J. Russell George, the Treasury Inspector General for Tax Administration.

Despite the warnings, in less than a decade, the IRS's problem has more than quadrupled, from 18,103 false returns filed in 2004, to 91,434. The cost to tax payers also increased from $13.4 million in false tax returns issued in 2004 to $35.2 million in 2010.

"Our most recent review of this--in 2012, over a quarter million claims have been requested, requesting almost 2 billion dollars in refunds," said George.

The Inspector General said the IRS has made significant improvements to spot prison tax fraud. It now catches the vast majority of false returns, but more needs to be done.

"They have to devote the sufficient amount of resources meaning, not necessarily dollars but personnel to address this issue," said George. "They have to use the technology that's available to them."

Tax fraud isn't limited to just inside the slammer.

A two-year long scheme by a Detroit man named Ronald Williams cost tax payers more than $79,000. He was only ordered to pay about $6,000 in restitution, and was given a two-year sentence. WILX requested a copy of his mug shot but the Department of Justice denied that request.

Some would argue punishments aren't very strict.

This past month, Anthony Womack, another Detroit man was sentenced to one year and one day in prison for a scam that lasted three years. While his work cost tax payers $96,000, his fine was $74,000.

IRS criminal investigators in Michigan agreed to do an interview for this story, but the morning of our interview they canceled-- saying they couldn't answer our questions.

In an email a spokesperson acknowledged the problem continues to grow. In 2013, the department investigated more than 1,500 cases. For those convicted the average prison time is a year and a half.

"We take all refund fraud seriously and IRS Criminal Investigation investigates many instances of refund fraud to include identity theft and prisoner refund fraud. There are some prisoners that are required to file returns, so not all returns filed by prisoners are fraudulent." emailed Cindy Burnett, a special agent for the IRS Criminal Investigation unit in Detorit.

"I don't feel good about it," said Selvey. He's out of prison and wants to start clean. He says he's a changed man.

"You've got all these people out here in society that are working and paying taxes legit, and then you've got criminals coming along and taking these people's money," said Selvey. "I don't feel good about that."

He hopes his message can help put an end to the fraud he started.

The Inspector General's office recommends the IRS improve its coordination with states to keep better track of prisoners. It also says congressional legislation is needed to permanently allow the IRS to share data with prisons and fix the problem.

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