Federal Inmate Indicted For Filing False Tax Returns From Prison

May 3, 2012

Logo of the Internal Revenue Service

There are all sorts of reasons for why I write about all sorts of legal and regulatory matters.  Sometimes it's the esoteric legal points raised in a case or the heart wrenching circumstances of what drives men and women to do wrong.  Other times, however, it's just the quirkiness of something that strikes me, as is the case for this column.

What caught my eye was the intriguing headline of a May 2, 2012, Department of Justice press release: "Prison Inmate Indicted in Alabama for Filing False Tax Returns."

I mean, seriously, how could you not read that story after such a nugget of a teaser?

Turns out that David Marrero, formerly a resident of the Sunshine State of Florida but presently a resident of the Federal Bureau of Prisons in Montgomery County, AL, was indicted by a federal grand jury. And what, exactly, did Marrero do while already whiling away his time behind bars after a prior conviction? According to the Indictment, he sent various false documents to the Internal Revenue Service ("IRS") and to the federal judge who had presided over his case.   Among the documents he allegedly sent were false money orders and false tax returns making claims for refunds.  And let's give this inmate some credit - he didn't simply seek to get a run-of-the-mill refund but, purportedly, his filings sought refunds based upon false IRS Forms 1099-OID that he had prepared.  Marrero also allegedly used financial documents he had obtained from other people, without their knowledge or consent, as supporting documentation for his fraudulent claims.

NOTE: An Indictment merely alleges that crimes have been committed, and the defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

SIDE BAR: What's a 1099-OID you ask?  Hey, great question. Let me offer this official explanationfrom the IRS:

Original issue discount (OID) is the excess of an obligation's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). OID is taxable as interest over the life of the obligation. If you are the holder of an OID obligation, generally you must include an amount of OID in your gross income each year you hold the obligation.Obligations that may have OID include a bond, debenture, note, certificate, or other evidence of indebtedness having a term of more than 1 year. For example, the OID rules may apply to certificates of deposit (CDs), time deposits, bonus savings plans, and other deposit arrangements, especially if the payment of interest is deferred until maturity. In addition, the OID rules apply to Treasury inflation-protected securities. See Pub. 550, Investment Income and Expenses, for more information.

According to federal prosecutors, Form 1099-OID schemes are one of the IRS's "Dirty Dozen" tax scams for 2012.

If convicted, Marrero faces a potential maximum of three years in prison on the obstruction count and five years in prison on each false claims count, plus up to $1 million in fines.

Not so much H&R Block as H&R Cellblock. Did this inmate use his commissary privileges to buy TurboTax? Ahhh . . . shades of Andy Dufresne.