The government has limited resources available to detect and prosecute tax fraud. Fraudulent tax refund schemes by prisoners continue to present a compliance burden for the IRS. The United States v. Turturro, 06-12033 (11th Cir. 2007) case provides a good example of this type of fraudulent scheme.
Facts & Procedural History
Turturro was in prison serving a sentence for manslaughter. While in prison, he learned of a tax refund scheme.
The scheme involved identifying information from bankrupt corporations and using this information to file tax refund claims for fellow inmates. He did this by including the bankrupt corporations information to file Forms W-2 for the inmates.
Turturro would mail the names and social security numbers to his wife. His wife would then prepare tax returns using the social security numbers, mail the returns to the IRS, and collect and cash the refund checks. Turturro instructed his wife where to send the refund money after it arrived.
When his wife withdrew from the scheme, Turturro recruited another woman to prepare the returns in her place.
Tax Fraud is Difficult to Detect
Tax crimes can be one of the more challenging crimes to detect and prosecute. The crimes are often sophisticated and targeted to weaknesses in the IRS’s detection systems. The Turturro case is an example.
The Turturro case involved information associated with bankrupt corporations. The bankruptcy court records contain quite a bit of this type of information. The same can be said of records for deceased taxpayers [using information culled from the local probate records], small corporations that were sold to third parties via asset sales and not as stock sales [culled from state corporate filing records], or even international corporations [possibly those that have ceased doing business in the US].
Regardless of the source, the refund claims are filed in a way that does not put the IRS on notice of the fraud. The IRS is not able to tell whether one refund claim is different from another in this regard. And because the companies are bankrupt, presumably the businesses are not around to detect and alert the IRS that there is a problem.
This type of blatant tax fraud is expensive. It costs the government millions of dollars each year. The IRS’s efforts to stop it have not succeeded. This is evidenced by court cases like this one. This issue is no doubt at the top of the IRS’s compliance challenges. It will be interesting to see how the IRS response to this type of fraud changes over time.