A scheme hatched by inmates in the Camp Verde jail to defraud the U.S. government out of hundreds of thousands of dollars while still behind bars was stopped when workers in the jail's mailroom noticed unusual amounts of mail to and from the IRS, Sheriff Scott Mascher said this past Thursday.
Eleven inmates have been arrested so far, with charges ranging from conspiracy to fraudulent schemes and artifices to forgery. Two of those charged, Justin Eugene Shaw Young, 27, and James Edward Borboa, 47, have been identified as heading up the scheme, according to court documents.
The plan was to use other inmates' identities to file multiple years' tax returns requesting unwarranted refunds from the IRS, according to probable cause statements written by YCSO Det. Todd Swaim. Borboa is alleged to have explained to Young how the scheme worked, and Young ran with it, attempting to file 60 bogus tax returns asking for over $300,000 in refunds, Swaim said.
Young filed returns for 2010, 2011 and 2012, claiming that the inmates whose names he used worked in "jobs that did not even exist," Swaim said.
The plan was for those inmates whose IDs Young and Borboa used to kick back to them about $1,000 of the refund money they received; the refunds would have been placed on untraceable disposable debit cards. Those inmates, Swaim found, believed they would be able to legitimately claim they had done nothing wrong if caught, because Young filled out and signed the tax returns for them.
Borboa attempted to file a false return for an 18-year-old fellow in-mate, Tyler Ewert, who, he claimed, earned $52,000 when he was 15, asking for a $5,000 refund.
But the "foolproof scam" Young told the other inmates about apparently failed because mailroom staffers noticed a large volume of mail involving the IRS.
"That's what triggered it on our end," Mascher said. "And then, (we) started to use the intelligence network we have with other jails... and it does involve other jails in Arizona."
He said the scams usually come from gang members who have gotten out of prison and are back in jail, and bring their experience in defrauding the IRS. These schemes are more typically found in prisons, but are now expanding to county jails.
When investigators went through Young's records, they found he had handwritten detailed instructions on how the scheme was to be run, spreadsheets with fake business information, and "numerous" people's names and social security numbers, Swaim said.
Young reportedly told Swaim he started the scam "because he saw everyone else doing it and he thought he wanted in on part of it."
While "everyone" is an exaggeration, the problem is widespread.
A report issued in December by the U.S. Treasury Inspector General for Tax Administration (TIGTA) said these types of tax fraud schemes run by prisoners has gone up sharply in the last few years, from prisoners claiming $166 million in fraudulent tax returns in 2007 to $757 million in 2010, the last year for which data is available.
The IRS stopped most of those refunds from being paid, but prisoners still got hold of $35 million in 2010.
TIGTA blamed poor record-keeping and lack of sharing records for the IRS's inability to track down prisoners' identities, and said, "To combat this growing problem, the IRS compiles a list of prisoners from the Federal Bureau of Prisons and State Departments of Corrections. The IRS does not have the authority to disclose to the prisons information related to prisoner-filed fraudulent tax returns, limiting the prison officials' ability to curtail prisoners' abuse of the tax system. As a result, controls used to ensure the IRS identifies fraudulent refunds on tax returns prepared by prisoners are not fully effective."
Mascher said he tried to approach the federal authorities about the scam, but "they didn't want it. Now that we've started to make arrests, they've decided to re-look at it."
He added that there would likely be more arrests - "upwards of 20 or so" - to come.