Does anyone know what happens if a person is in prison and can't file their income taxes? If they had to pay back money, would the interest continue, or are they allowed to file in prison?

I'm Canadian, but I'm sure the same laws apply.

Either ask prison authorities or friends for the forms. They are available at the post office. If that is a problem write to IRS for forms. While waiting, contact employers for the year in question and ask for copies of the tax records (unless of course the employment records have been received, and they are at the taxpayer's home or somewhere accessible). In canada these are called 'T4's' and show how much tax was withheld and earnings. Then when these are received just fill out the form.

If the taxpayer usually has a professional fill them out, see if there are prison visitors (John Howard or Elizabeth Fry society volunteers) who will do the prep. Or just work through it. They're not that tough if the taxpayer just had employment, and no investments or rental income or such.

Not only are they allowed to file in prison, but it is the taxpayer's legal duty to file, wherever he/she is, even if out of the country. So, yes, if the taxpayer owes the government, interest would accrue from the date the return is due. (It's April 15th in the U.S., isn't it? In Canada it's the 30th.)

They have to file their taxes whether in prison, out of the country, in space, whatever. They can ask for an extension, but they still have to file them.

Do you have to pay taxes even if you are living and working for a non-US company outside of the country and pay taxes in another country?

Sarai, you still have to file taxes if you live outside the country. Whether, and how much, you have to pay is more complicated.

Prisoners have legal representation while incarcerated. If the prisoner owes money then they would have to pay interest just like everyone else.