A roundup of our favorite recent tax fraud cases.
Chicago: A federal court has barred preparer Victor M. Crown from preparing returns for others.
According to a civil complaint the U.S. filed in 2014, Crown prepared returns that falsely claimed that recipients of discrimination awards related to a class-action lawsuit could claim large deductions on their federal returns and that falsely inflated the amount of wages that City of Chicago employees claimed were withheld from their paychecks.
Crown promoted two false and fraudulent schemes through which he claimed that his clients could obtain significant federal refunds, the complaint alleged. In the first scheme, he allegedly falsely inflated the amount of income tax withheld from his clients’ paychecks because the City of Chicago purportedly calculated an incorrect withholding amount.
The second alleged scheme is founded on the 1969 class-action lawsuit Shakman v. Democratic Organization of Cook County et al., a discrimination case against the City of Chicago that alleged that the city improperly used political patronage when hiring and promoting public officials. As part of an agreed settlement order, the city set up a $12 million fund to compensate claimants for violations of the federal district court’s orders. Claims were submitted to the court-appointed monitor, who was responsible for evaluating the claims and, if justified, assigning a monetary award amount.
According to the complaint against Crown, he asserted that his clients who were Shakman award recipients were entitled to claim net operating loss deductions for the difference between their claim and the amount they actually received in their award.
In explaining its reasons for enjoining Crown, the court noted that the scope of Crown’s misconduct involved “at least 2,900 fraudulent tax returns,” as well as his “failure to accept responsibility and cease his operations.”
The court’s injunction order forbids Crown from preparing returns for others and from making false statements about securing any tax benefit by virtue of receiving or not receiving an award in the Shakman litigation. It also requires Crown to give the federal government a list of all his prep clients since 2010.
Oxnard, Calif.: Preparer Rodrigo Pablo “Paul” Lozano, a.k.a. “El Profe,” 61, has been convicted of conspiracy to file false refund claims and for having signed returns claiming more than $53 million in fraudulent refunds.
Before the IRS was able to identify and stop the scheme, it had already paid out more than $23 million of refunds to the defendant and his co-conspirators.
According to the evidence at trial, Lozano’s scheme was based on his applying for ITINs. Co-conspirators provided Lozano with fake ID documents, such as birth certificates and Matricula cards supposedly issued by the Mexican government, which Lozano used to obtain ITINs in the names shown on the fake documents.
He then used the ITINs to file three years of income tax returns based on wage and withholding information contained in fake W-2s; he also listed three or four fictitious dependents in whose names Lozano also applied for ITINs.
All of the scheme’s returns requested refunds, with most in the $3,000 to $4,000 range, which they requested by claiming the ACTC, with the number of dependents and wage amounts on the returns falsified to maximize the ACTC.
Lozano submitted more than 12,000 false returns in an 18-month period in 2011 and 2012 – during which time his employees told him at least five times that the identity and W-2 documents looked suspicious. The IRS sent hundreds of warning notices to Lozano stating that the returns and W-2s were invalid. Despite the repeated warnings, Lozano continued to direct his employees to file the fraudulent tax returns.
Lozano split the refunds with his co-conspirators, including having employees count out tens of thousands of dollars in cash in a bathroom located next to his office space. Lozano operated his prep business, Ayuda, by renting space from businesses that catered to Hispanic clients. He went by the name “El Profe,” as he was a teacher before he began preparing tax returns.
Fairview, N.J.: Preparer Sharon Ashby, 38, has pleaded guilty to one count of preparing fraudulent returns.
According to court documents and statements in court, Ashby prepared false returns for clients by intentionally including fraudulent employment information on W-2s that showed the clients earning wages from employers where they were not employed or claiming deductions to which they were not entitled. Ashby e-filed these returns with the IRS and kept a portion of the refunds.
Ashby admitted that for tax years 2010 through 2012, she prepared 48 fraudulent returns for $238,877 in phony refunds.
The count of filing false claims with the government carries a maximum of five years’ prison and a heavy fine.
Sentencing is October 4.
Dayton, Ohio: Preparer Tarralis Mack, 49, of Atlanta, has pleaded guilty after being accused of devising and executing a plan where he filed false claims for tax refunds for his clients, according to published reports.
The scheme was carried out between March 2009 and April 2010, according to court documents. Mack also reportedly owned and operated Metro Tax Advisors between 2006 and 2010 as the only full-time employee and offered his services in Ohio, Indiana and about 13 other states. He also posted fliers at General Motors and its affiliated plants near Dayton and Indianapolis, reports added.
Mack typically charged $200 to $500 per tax return, reports said, adding that according to the court documents he falsely told potential clients that he’d previously worked for Fortune 500 companies and a tax consultancy group that assisted taxpayers to reduce debt to the IRS.
Additionally, Mack also told his clients he worked for the IRS, which he never did, reports said.
He reportedly never included his name or signature on federal returns he prepared, guaranteed clients the largest refund possible and claimed false refunds he knew his clients were unentitled to receive. None of Mack’s clients provided him with false information, according to the court documents cited.
Federal prosecutors reportedly said that Mack cost the IRS $456,594, and as part of his plea agreement Mack agreed to compensate the IRS nearly $280,000 for the loss. He also is prohibited from preparing or filing tax returns for the IRS for anyone but himself, reports added.
New outlets also said that he faces three years in prison.
Dallas: Preparer Kevin Troy Jernigan has pleaded guilty to one count of aiding or assisting in the preparation or presentation of a false or fraudulent individual income tax return.
Since 2007, Jernigan was the owner and a preparer at The Parks 11 prep service. During tax years 2007 through 2012, he prepared and filed more than 1,300 returns that contained false and inflated deductions and credits intended to inflate the refund. These returns cost the Treasury approximately $2,250,780.
In January 2010, Jernigan also prepared and filed with the IRS a 2009 return on behalf of taxpayer, “CJ.” Jernigan included $27,019 as a Schedule C business loss that he knew to be false. The refund was fraudulently inflated to $5,819 and resulted in a tax loss in the amount of $6,432.
Jernigan faces a maximum of three years in federal prison and a $250,000 fine. Following his plea, Jernigan was taken into custody following multiple violations of his pretrial release.
Xenia, Ohio: Preparer Robert Coates, 37, has pleaded guilty to filing false income tax returns, according to published reports.
The IRS reportedly said that Coates filed at least 170 false returns for the 2011 tax year, causing a loss of $445,450, with $167,422.63 being directed into bank accounts in Coates’ name or under his control.
Coates filed fraudulent returns on behalf of people referred to him by other clients or those who responded to a flyer he distributed in the area, according to authorities cited by news outlets. Coates reportedly promised clients that they could get refunds even if they didn’t work or were getting disability payments.
The taxpayers reportedly didn’t know Coates included fraudulent household help income to maximize the Earned Income Credit and generate a refund. He also knowingly included fake totals of qualified educational expenses.
Sentencing is November 10, reports added, when Coates could face five years in prison and a fine up to $250,000.
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