Inmates stealing billions in IRS refund fraud

Inmates stealing billions in IRS refund fraud

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by STUART WATSON / NBC Charlotte

Bio | Email | Follow: @stuartwcnc

WCNC.com

Posted on February 23, 2013 at 12:21 AM

Updated Wednesday, Oct 30 at 10:25 AM

CHARLOTTE, N.C. -- In his Congressional testimony, the inmate was simply called “John Doe.” As he told them about massive tax fraud spreading through America’s prisons and costing taxpayers billions, he appeared before the Ways and Means Oversight Subcommittee from behind a screen.

Inmates back in the South Carolina prisons knew his name but many just called him “The Tax Man.”

Not just because he filed their taxes, but because he filed fraudulent tax returns and stole millions in refunds for them.

The checks were sometimes mailed directly to the prisons where they were locked up.
Now, after 25 years in state and federal prisons, “John Doe” is out.

He said the scam that sent him from state prison in South Carolina to federal prison for tax fraud is still going on without him.

John Doe's real name is Dwayne Selvey. He currently lives in a mobile home in a location which he asked remain undisclosed, in the upstate of South Carolina. He spends his days looking for an honest job.

“You've got all these people in society working and paying taxes legit, and then you've got criminals coming along and taking these people’s money,” Selvey said. “I have to say it cost billions of dollars -- not millions, but billions.”

The IRS claims to have stopped $2.5 billion dollars in fraudulent refunds on their way to more than 91,000 prison inmates last year.

With the sheer volume of what gets filed, the tougher number to calculate is what gets through. Inmates have gotten more and more clever at incorporating family members, girlfriends and plain old criminals outside the razor wire into the scam.

“Other people started studying on it,” Selvey said. “Learning how to do it.”

Representative J.D. Hayworth of Arizona once nicknamed the scam “H & R Cell Block.”

The 1040EZ is America’s simplest tax form. For tens of thousands of prison inmates, it’s become a ticket to easy money.

“It’s about the easiest thing in the world that you could probably do,” Selvey told WESH-TV reporter Stephen Stock in a silhouette interview after he testified before Congress in 2005.

In the seven-plus years since that congressional testimony, the NBC Charlotte I-Team has requested interviews with Selvey from the S.C. Department of Corrections and numerous wardens at the U.S. Bureau of Prisons.

Uniformly, those requests were denied. Only after he got out of a half-way house last month did he grant the interview.

Dwayne Selvey admitted he and a nephew broke into a girlfriend’s parents’ home in Anderson, S.C. in July of 1987 when he was just 19. They stole guns and jewelry before setting the place on fire.

He said he doesn’t remember many details because he had been drinking alcohol and eating Xanax pills. He said the cops caught him a week later in Myrtle Beach.

He received a 25-year prison sentence for the first degree burglary, 20 years for the arson and 10 years for grand larceny.

After seeing a TV ad on tax preparation in 1991, Selvey went back to his prison cell and filled out the paperwork for a refund he never earned and was not due.

Within weeks, he got it. The IRS refund check from the U.S. Treasury came straight to the prison.

“I said 'That’s pretty good.'”

He recruited nine more inmates, filed fake returns for them, and charged them $1,000 each off the top. No one complained when the money came.

No one even tried to beat him out of his $1,000 “fee.” It turned out there was honor among thieves.

They considered it “free money.” Free to them. Expensive to the honest taxpayers struggling to gather receipts, come up with real income, and calculate Uncle Sam’s cut.

He’d use real names and social security numbers for inmates, their family members, friends or co-conspirators on the outside.

He’d fabricate the employment record and type up a phony W-2 income statement but stuck to the names of real companies.

“I would put you at the BMW plant, JC Penny’s... a real place,” he said.

He said the refunds rarely exceeded $6,000 each. He wanted to avoid an audit. He made up for the big score in volume.

Selvey estimated he filed fake take returns for 600-700 inmates over a decade for a total of between $3.5 and $4 million.

“I actually had it so good inside the prison that there was no reason to get out,” Selvey said. “I had everything I wanted except for females. There wasn’t no females there.”

For the ten years -- from 1991 to 2001 -- Dwayne Selvey’s illicit tax preparation business thrived and expanded behind bars in South Carolina prisons.

He said he even developed something of a franchise with two partners at other prisons.
With the ill-gotten gains he said he bought salmon, oysters, gold chains, lots of clothes, new shoes, TV's (one each for himself and his cellmate) and marijuana. Lots of marijuana.

He said he even kept records of his failed urine screens as evidence of how easy it was to buy dope on the yard at South Carolina prisons back in the day.

He said inmates used the income to help their families buy cars and even property on the outside -– their own illegal stimulus program.

It took more than ten years, but he did get caught. A victim of his own success.

More and more inmates wanted that “free money” from “the tax man” and he just couldn’t keep up.

“You had people start getting jealous and when they start getting jealous they start talking,” Selvey said.

That’s when the IRS agents showed up, asking to talk to him.

“I admitted to it. I said, ‘Yeah, I’m the one that has been filing the taxes,'” he said.

He pleaded guilty and drew a five year sentence in federal prison after his state sentence. After the guilty plea, an investigator with the S.C. prison asked him if he would tell his story to Congress. He said he asked for no reduction in sentence and he got none.

After the hearing, Congress passed a series of tougher laws aimed at slamming the door on inmate tax fraud, but the IRS acknowledges it is still widespread.

In its 2010 report to Congress -- the last year on record -- the IRS blocked refunds from 91,434 false and fraudulent tax forms filed by inmates. There were 3,339 filed from South Carolina prisons, sixth among the 50 states.

“I don't feel right that I was scheming and scamming these people’s money,” Selvey says now.

He has a girlfriend and the support of his family and he vowed to stay straight. These days, as he clicks through potential job prospects on an old monitor in a mobile home, Dwayne Selvey smokes cigarettes but he said he’s given up smoking dope.

“Sure I could jump out here and make a million dollars but I'm not going to do that because it's wrong,” he said.

Selvey has a proposition -– a pitch so crazy it just might work. He wants the IRS to hire him. Intern, consultant, whatever. As long as it comes with an honest paycheck.

He has some tax tips for them. Tax fraud tips.

“Actually, I could prevent a lot of it,” he said.
 

How the IRS says it's trying to stop inmate fraud

Inspector General Report

Dwayne Selvey's Congressional Testimony

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