The Post-Standard (New York) - by Marnie Eisenstadt

As he sat in a state prison in 2006, Ronald Williams claimed he made $500,000. The IRS didn’t question it.

The IRS sent Williams a refund check for $327,456 to his address: Camp Gabriels Correctional Facility in northern New York.

But when prison staff opened his mail April 10, 2007, imagine the surprise: Prisoners don’t get six-figure tax refund checks.

Corrections staff sent the check back to the IRS, gave Williams a copy and put him on notice: no more fake tax forms.

But baited by the hundreds of thousands of dollars he almost received, Williams tried 11 more times, using income amounts that went up and up — the highest was $293 million, according to Assistant U.S. Attorney Tamara Thomson.

While the prisons are full of jailhouse lawyers, Williams was instead a jailhouse CPA: He helped at least one other inmate prepare similar returns in exchange for stamps and canned food — prison currency.

Williams, 48, of Buffalo, was convicted Thursday in U.S. District Court in Syracuse of 11 counts of filing false tax returns and one count of helping another prisoner do it.

His attorney, assistant federal public defender James Greenwald, argued that Williams wasn’t trying to get refund checks. Instead, he believed in a scheme offered up in a publication called America’s Bulletin, Greenwald said. The article instructed prisoners that the government held accounts on each prisoner’s behalf.

The America’s Bulletin article instructed prisoners that if they could trick the government into closing out that account, they could get out of prison. The way to do that, the article instructed, was to file tax returns claiming large amounts of money. The article was co-authored by “Obi-Wan Kenobi.” That’s probably not the case, either.

“I’m not here to tell you it’s true,” Greenwald told the jury. “But Ronald Williams believed it to be true.”

America’s Bulletin is associated with the Sovereign Citizens — a loosely knit movement of people who believe U.S. laws don’t apply to them. They often target government officials and enemies with false liens, messing up their lives with stacks of legal nuisances. The prison tax scheme is also thought to be part of the Sovereign Citizens’ strategy. It’s outlined in a publication called the “Prison Packet.”

What Williams did was not unheard-of. In 2009, the IRS reported that there were 44,944 bogus tax filings from prisoners. The IRS has been working with federal and state prison authorities to try to make it easier to catch prisoner fraud, but a report in April by J. Russell George, the treasury secretary for tax administration, said the IRS is not doing enough.

George told Congress that the 2009 number was likely much higher because the IRS didn’t have enough command of the data to ensure it was accurate.

It’s hard to get a handle on exactly how much the IRS is losing every year to prison tax fraud, said Richard T. Ainsworth, a Boston University professor who has studied the problem.

He said that in 2009, inmates claimed more than $295 million in refunds they weren’t owed. The IRS stopped most of those from being paid, but sent out $39 million in refund checks. It’s unclear how much of that $39 million in checks was cashed and eventually lost.

Since Williams’ caper, Ainsworth said, the IRS has a new system. Computers check return addresses against prison addresses and automatically put those filings under greater scrutiny.

It’s not that prisoners aren’t entitled to tax returns, Ainsworth said. They can have businesses that still run while they’re inside, or have relatives who are still entitled to an Earned Income Tax Credit. But prisoners are much more likely to file fraudulent returns.

The scam Williams used is widespread in and out of prisons, Ainsworth said. And prisoners can easily get around the new address-detection safeguards by having the check sent to a relative or deposited in a bank account.

The IRS’ process is backward, Ainsworth said. It focuses on getting people their returns first and figuring later if they were actually entitled to the money. He would like to see the IRS use a digital signature. Every form would need a special barcode, like a grocery store UPC, that would make it easy to verify whether the documents were legitimate or fabricated.

In all, Williams filed 12 bogus returns to the IRS. Each bore the return address of a state prison.

How is it that no one at the IRS noticed the first bogus return with the $500,000 income and $500,000 withheld? How was it that the IRS issued Williams a six-figure check and mailed it to a prison?

That, said Shauna Henline, was a mistake. Henline is one of the people in charge at the IRS’ special center for screening fraudulent filings in Ogden, Utah. There, 50 people with special training on the latest scams search through returns that have been flagged in other return centers and sent on to them.

For some reason, Williams’ first return never made its way to Utah.

“It shouldn’t have happened,” Henline said of the check when she testified at trial. “But any time you have a human being involved, mistakes can get made. Someone didn’t notice this as a frivolous filing.”

Ainsworth, the Boston University professor, said returns are scanned into a computer when they come in and dumped into two categories: those who owe and those who get money back. Computer programs look for oddities, but the programs do a cursory job at best, he said.

After the first filing, Williams’ refund requests were all forwarded to the Utah center and identified as frivolous.

Maybe Williams was easily duped or maybe he wanted the money. His mother, Maggie Hayes, who lives outside of Buffalo, said both were possible.

Williams has been in and out of prison so many times she lost count. His first time was 30 years ago, when he was 18. When police stopped his car, hanging out of the window was molding stolen from a nearby hardware store, his mother said.

And so began Williams’ life in and out of state prison for small, “crazy” things, Hayes said. The last time, 2006, he stole a tractor-trailer full of canned beans off a Buffalo street.

Hayes said her son was diagnosed with a learning disability when he was in elementary school and was getting special help for a while. But that help ended before he went to high school. He dropped out and started getting into trouble, she said.

During the trial, it wasn’t made clear how Williams happened upon the tax scheme article. It wasn’t savvy. He claimed the Erie County District Attorney was withholding $500,000 in taxes from him for a bond which did not exist. Williams left blank most of the lines in his Form 1099.

Once thwarted, he was determined to keep trying. He was first visited by a state Department of Corrections investigator shortly after that $327,456 check arrived in April 2007. The investigator told him to stop. But he kept filing the bogus returns.

And he began helping other inmates file returns, too.

The next year, when Williams was in Gouverneur Correctional Facility, a corrections officer found him with a binder that had a list of 10 other inmates’ names and multimillion-dollar amounts written next to them. That was Jan. 15, 2008.

Corrections Officer Robert McCoy said he searched Williams’ cell. There he found tax refund documents and Social Security numbers for other inmates. McCoy told Williams he could get in trouble for identity theft because he had other inmates’ Social Security numbers.

“He said, ‘No. I do people’s income taxes for them,’” McCoy testified.

A few months later, IRS Special Agent Kelly Ewald visited Williams after prison investigators referred the case to her.

She, too, explained to him what he was doing was wrong and told him to stop. Williams said he would stop, Ewald testified.

But he continued to fill out the returns and send change-of-address forms to the IRS, trying to get that original $327,456 check sent to his mother’s house. He wanted that payday, said Thomson, the prosecutor.

Instead, he’ll receive up to five more years behind bars. This time in federal prison.