Harry Willner, a former Internal Revenue Service agent, was sentenced last week to a year in jail for a tax fraud scheme.
Prosecutors charged him with fraudulently attempting to sell to other taxpayers, and using on his own personal income tax returns, tax losses belonging to a separate company that he controlled. Judge Gerald Lynch sentenced Willner in Manhattan federal court for the scheme. The sentence included one year in jail, one year of supervised release, a $10,000 fine, and the payment of any taxes, interest and penalties owed to the IRS.
Willner was employed by the IRS as a revenue agent assigned to the Large and Midsize Business unit of the IRS in the Southern District of New York. As an LMSB revenue agent, he was responsible for audits of large financial institutions and served as a team coordinator of other revenue agents.
At various times, he was also an officer of a corporation known as NIA Advertising, whose address was the same as his home in New Jersey. He did not request approval from the IRS to serve as an officer of NIA, as required by IRS regulations.
He did, however, request approval for outside, part-time employment as an instructor with schools located in Manhattan and to hold an unspecified position with a company known as Royal Magazine.
According to NIA’s books and records, from 1998 through 2001, NIA purportedly loaned Royal approximately $849,000, a “loan” not evidenced by any written contracts or agreements. Beginning in 2002, Willner reported a “bad debt” deduction on NIA’s corporate tax return, associated with the purported loan to Royal, which resulted in a net operating loss for NIA’s 2002 return of more than $758,000.
Between 2003 and 2004, Willner attempted to, in effect, sell NIA’s net operating loss to other taxpayers, which would enable those other taxpayers to use the NOLs to offset the income on their own tax returns and thereby to fraudulently reduce their tax liabilities. He proposed to accomplish this by having other taxpayers, who were owed income, direct the fee payment to NIA, which would report it as income. NIA would not pay tax on the payment because the income would be offset by the NOL. Willner would then remit the money, minus a fee for himself, to the other taxpayer disguised as a loan repayment.
Willner explained the fraudulent steps attendant to the sale of the NOLs in a tape-recorded conversation made by the IRS during its investigation. During the conversation, between Willner and an accountant from whom Willner was attempting to recruit participants in the scheme, Willner stated that he had “about $700,000 worth of losses” in NIA and explained that the accountant’s clients could use the NOL if they diverted their income from their own tax returns to Willner at NIA.
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