Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 3, 1995 TAG: 9504030014
SECTION: VIRGINIA PAGE: C1 EDITION: METRO
SOURCE: JAN VERTEFEUILLE STAFF WRITER
DATELINE: LENGTH: Long
With blank W-2 forms and old employers' identification numbers, Blankenship concocted fictitious wage histories for himself and filed false tax returns. After he began serving time at Bland Correctional Center for embezzlement, Blankenship expanded his operation and started recruiting fellow prisoners.
They were serving time for offenses such as burglary, fraud and malicious wounding, but their fake 1040s showed they were out working, making as much as $27,000 a year. A few inmates' relatives got in on the scam as well.
The IRS sent them refunds of anywhere from $2,000 to $4,200. For his efforts, Blankenship would get a cut.
Just call him H&R Cellblock.
Trial begins today for several inmates charged with conspiring to defraud the IRS. Blankenship and five others pleaded guilty to various charges earlier; a few more of the 14 who were indicted plan to plead guilty this morning before the trial.
About 35 returns seeking $113,000 in refunds were submitted to the IRS, and $28,000 was paid out before the IRS became suspicious and began a quiet investigation. The government recovered no money, but restitution will be a condition of probation for everyone found guilty.
It wasn't a very sophisticated scheme, but the IRS has 116 million tax returns to sift through each year and it takes a while to check them all. The agency became suspicious when 20 refunds were mailed to P.O. Box 46 in Goodview.
According to the indictment, one of the two inmates, Ernest "Wes" Garraghty, got his mother, Shirley M. Garraghty of Ferrum, and his sister, Tammy Moran of Roanoke, to operate the post office box as a mail drop. Both women pleaded guilty Friday - Garraghty to conspiracy, and Moran to filing a false claim with the United States.
IRS criminal investigator Jeff Shaffer testified at the hearing Friday that Shirley Garraghty would pick up packages of returns that Blankenship mailed to Goodview from prison and then remail them to the IRS service center in Philadelphia for processing.
Assistant U.S. Attorney Ken Sorenson said that, at Blankenship's suggestion, Shirley Garraghty tried to get a Bedford business license in the name of Easy Tax Service so having returns mailed to the same post office box wouldn't look suspicious. But she was dissuaded by the procedure and cost of the license.
Refunds were sought using the names of 35 inmates. The ones prosecuted are those the government believes it has corroborating evidence against beyond their names on tax forms, Sorenson said. Some inmates, for example, had their returns mailed to their homes.
When the IRS discovered the scheme, investigators put a stop to the refunds and investigated covertly. When the checks from the IRS stopped arriving, prisoners pointed at Blankenship, questioning whether he was pocketing the refunds himself.
"The heat started rising over at Bland, and the heat was directed at one individual," Sorenson said. "By the time we did the initial interviews at the prison, Jimmy was relatively happy to see us."
Blankenship cooperated with authorities from the beginning and will testify against the defendants at the trial.
"When the writing's on the wall, I don't think you have much choice," Blankenship's attorney, Jimmy Turk, said.
Blankenship, a 37-year-old Pulaski County laborer with a high school education, is "street smart," Turk said, and came up with the scheme on his own.
He began filing false returns for himself in 1991. He got other prisoners involved at Bland in January 1993, a month after he was transferred there to serve time on an embezzlement charge. The scam lasted until August 1993. He stopped seeking business after a point, Sorenson said, but started feeling "very pressured as the scheme went on."
Blankenship has been transferred to Buckingham Correctional Center because of threats made against him at Bland.
Another way the inmates tripped up was by using the same dollar amounts for refunds on too many returns, Sorenson said. Beyond that, the IRS won't reveal its methods of detecting the scheme.
"They haven't told me [for] what other reasons these things were flagged," the prosecutor said.
Harry Schwarz, a Roanoke tax preparer, said the IRS matches the withholding tax reported on W-2s with the amount actually paid into the IRS by each employer. So the taxes Blankenship was claiming using his former employers' ID numbers wouldn't have jibed with IRS records from those employers.
"They would have caught on," Schwarz said. "It's just a matter of time how long it would take them to catch on."
As for the timing of the trial - two weeks before the April 15 federal tax filing deadline - Sorenson said it's strictly coincidence.
"The timing of the thing is not good," he said. "I'd rather not be trying it during tax season. I just don't want tax season to confuse the real issues of the case."
In other words, jurors who just wrote painful checks to the IRS may not be feeling particularly charitable to the agency at this time of year.
by CNB