2 Tennessee inmates bilked IRS out of $310K in tax refund scheme, records show

Knoxville

The IRS has paid out more than $310,000 in tax refunds in the names of Tennessee prisoners in a scheme concocted and carried out by two inmates, court records show.

Larry Steven Covington Jr., 38, pleaded guilty Wednesday in U.S. District Court to conspiring to defraud the IRS while serving time in a Tennessee penitentiary and using fellow inmates' Social Security numbers he apparently purloined.

The Howard H. Baker Jr. United States Courthouse

He is the second Tennessee inmate to confess carrying out such a scheme. Career criminal James Glenn Collins pleaded guilty in December 2014 to a similar scam, and court records suggest he may have taught Covington the ropes in deceiving the IRS.

Between the two of them, they filed hundreds of tax returns claiming refunds owed hundreds of inmates, most of whom had been unemployed for years. Some had never worked a legal job in their adult lives.

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Refunds and Green Dot cards

Although the IRS rejected roughly $1.8 million in claimed refunds for inmates, it paid out $163,778 in Covington's six-year scheme and $150,465 in Collins' three-year scam, according to documents filed by Assistant U.S. Attorney Jennifer Kolman in the two cases.

In each case, the goal was not only to get money but to access it from behind bars using Green Dot cards, a debit-style card on which money can be loaded. The cards can be bought at a slew of retailers, and they can be hard to trace, much the same as so-called "burner phones" criminals buy solely to conduct illegal business and then toss them.

Inmates around the country are now using Green Dot cards to pay for contraband behind bars, such as cellular phones and drugs, and even protection money to stave off attacks from other prisoners. Inmates can use the cards to transfer money among themselves or conduct transactions - most illegal - with people on the outside of prison walls. All they need to do business behind bars with a Green Dot card is a contraband cell phone.

Question of access unanswered

Federal court records show Collins snared a partial roster of his fellow prisoners in 2008 that included their personal identifying information. His plea agreement does not state how he obtained it. Covington's plea agreement also is silent on how Covington got access to his fellow prisoner's private information, but Kolman wrote another inmate showed Covington the ropes. Court records suggest it was Collins.

A 1040 tax form appears on display, Tuesday, Jan. 10, 2017, in New York. The IRS is delaying tax refunds for millions of low-income families as the agency steps up efforts to combat identity theft and fraud. Starting in 2017, a federal law requires the tax agency to delay refunds until Feb. 15 for people who claim the earned income tax credit and the additional child tax credit. The IRS says processing times will delay most of the refunds until the end of February. (AP Photo/Mark Lennihan)

Tennessee Department of Correction spokeswoman Neysa Taylor did not say how the inmates' personal information was obtained but suggested the inmates themselves were to blame.

"The Department warns offenders about oversharing their information with other offenders," she said. "In (Covington's) case, suspected fraud was investigated by our Office of Investigation and Compliance and later turned over to federal agents."

But there is no indication in federal court records that any of the inmates whose identities were used by Collins and Covington volunteered the information or that any inmates were paid a cut of any of the scheme proceeds.

A little help from mom

Both men had help on the outside. Collins had a ring of helpers. Covington's chief helper was his mother, Imogene Covington, Kolman wrote. She has not been charged federally, and it's not clear if she will be.

FILE - This May 8, 2008, file photo shows blank checks on an idle press at the Philadelphia Regional Financial Center, which disburses payments on behalf of federal agencies, in Philadelphia. The IRS is delaying tax refunds for millions of low-income families as the agency steps up efforts to combat identity theft and fraud. Starting in 2017, a federal law requires the tax agency to delay refunds until Feb. 15 for people who claim the earned income tax credit and the additional child tax credit. The IRS says processing times will delay most of the refunds until the end of February. (AP Photo/Matt Rourke, File)

Collins was still behind bars when his scheme was discovered. Covington, whose criminal history includes drug and gun offenses, was placed on probation late last year - while under probe in the tax scheme, records filed in Knox County Criminal Court show. It's not clear why state authorities were unaware he was a suspect in a federal case.

His probation still hasn't been violated. Technically, Covington didn't commit his federal crime while on probation. That's because he filed his last fraudulent tax return in 2015. He was placed on probation in October 2016. He was charged federally in April.

Collins was sentenced to 84 months for his crime. He's also serving a decades-long state prison term, so he likely will never go free and or repay the IRS. Covington faces sentencing Oct. 18 before Senior U.S. District Judge Thomas Phillips.