WASHINGTON - A South Carolina prison inmate told a rapt House panel Wednesday about how he defrauded the U.S. government of $3.5 million by filing bogus tax returns.

The man, an anonymous 37-year-old inmate dubbed "John Doe," testified behind a partition to prevent him from being photographed or videotaped during the House Ways and Means subcommittee on oversight hearing.

He said he started out by filing phony returns for 10 inmates in 1991, which netted $4,200 to $5,400. He kept a $1,000 commission on each return.

"Over the years, I filed six to seven hundred returns," Doe said. "The total dollar amount would be approximately $3.5 million, face value," of which he netted $600,000 to $700,000.

Doe said inmates spent most of the ill-gotten tax return money to buy illegal drugs.

"The money and drugs eventually lead to beatings, stabbings and extortion," he said. "With the money I personally made, I often looked out for poor or indigent inmates who got no help from home." But he conceded he also used the money to buy sneakers, a color TV and "lots of drugs."

The Internal Revenue Service estimates that 15 percent of all tax fraud is committed by prison inmates.

"Tax fraud in any form is unacceptable and illegal," said the subcommittee chairman, Rep. Jim Ramstad, R-Minn. "But it is particularly outrageous when it is committed by prison inmates while they are behind bars."

In the typical scam, the inmate fills out a tax form with phony income and withholding information, and then claims a large refund.

Nancy J. Jardini, chief of criminal investigation at the IRS, said one obstacle to cracking down on the problem is a section of the IRS code which prevents the agency from disclosing tax information, with a few exceptions.

"None of the exceptions permit the IRS to refer refund fraud information to prison officials for the imposition of administrative sanctions," she said.

J. Russell George, the Treasury Department's inspector general for taxation, said IRS figures show that the number of fraudulent tax returns filed by prisoners quadrupled from 4,300 in 2002 to 18,000 last year.

"Of particular concern is the fact that the IRS frequently pays refunds on returns it has identified as fraudulent," George said. "In 2004, the IRS paid 36,000 refunds on returns that it determined to be fraudulent; 4,100 of these were issued to prisoners."

Doe, who is serving a 25-year sentence for burglary, grand larceny and arson, said he will have to serve five years in federal prison for tax fraud. He said the practice is widespread, based on conversations he's had with friends in other states.