A roundup of our favorite recent tax fraud cases.
El Paso, Texas: Preparers Belia Mendoza, 60, Margarita Hernandez, 36, and Denise Duchene, 46, have been sentenced to prison for preparing and conspiring to prepare false income tax returns.
Mendoza received eight years in prison to be followed by five years of supervised release and was ordered to pay $35,391 restitution to the IRS. Hernandez was sentenced to 10 months in prison to be followed by three years of supervised release and was ordered to pay $18,150 in restitution to the IRS. Duchene received 33 months in prison to be followed by three years of supervised release and was ordered to pay $2,394 restitution to the IRS.
According to evidence and testimony at trial, Mendoza owned Mendez Tax Services, a tax prep business she operated out of her home. Hernandez and Duchene, relatives of Mendoza’s, were employees of MTS hired and trained by Mendoza to prepare returns for clients for tax years 2008, 2009 and 2010.
From February 2009 until June 2011, the trio conspired to prepare and submit to the IRS numerous false 1040s. To maximize clients’ fraudulently claimed refunds, Mendoza, Hernandez and Duchene placed materially false items on the returns, at times without the knowledge or consent of the clients, including false or inflated figures for unreimbursed employee business expenses, child and dependent care expenses, and education credits. Returns prepared by the three also included false filing statuses and improperly claimed EITCs.
Delray Beach, Fla.: Preparers Devonne Herrington, her son Lorenzo Wright and Joyce Walker have each been charged with one count of conspiracy to defraud the U.S. in connection with a 31-count indictment for enriching themselves by submitting false federal income tax returns on behalf of clients.
Herrington was also charged with nine counts of assisting in the preparation of false tax returns and two counts of failure to file personal returns. Wright was also charged with 15 counts of assisting in the preparation of false returns and Walker with two counts of assisting in the preparation of false returns and two counts of filing false personal returns.
According to the indictment, Herrington established and operated a tax prep business initially known as Devonne’s LLC and later as Wright’s & Family LLC. Herrington hired preparers, including Wright and Walker, to assist with preparing clients’ returns.
Although clients did not claim to be eligible for or provide documents in support of certain tax credits or income deductions, the defendants prepared tax returns that falsely stated that the clients were eligible for such credits and deductions, including credits for first-time home purchasers and education expenses. Income deductions falsely claimed by the defendants included for business expenses and for being the head of household.
Herrington, Wright and Walker charged the clients extra fees for these additional fraudulent schedules. In most instances, the defendants did not review the returns with the clients prior to filing them with the IRS and did not provide copies of the returns to the clients.
The indictment also states that Herrington did not file her personal income tax returns for calendar years 2010 and 2011. In addition, Walker filed her personal income tax returns for calendar years 2010 and 2011 containing false claims for the Education Expense Credit.
New York: Preparers Michelle C. Abreu, 30, and Marcos J. Caamana, 27, have been arrested on charges of preparing and filing fraudulent income tax returns.
Both preparers worked for Gavin Sky Inc., d.b.a. Liberty Tax Services in Manhattan.
Abreu was charged with fourth-degree criminal tax fraud and first-degree offering a false instrument for filing, both felonies. She is alleged to have knowingly prepared and filed fraudulent returns on behalf of her clients; the returns contained false itemized deductions.
Caamana was charged with first-degree offering a false instrument for filing and fifth-degree criminal tax fraud. He is alleged to have prepared and filed fraudulent income returns showing false itemized deductions, such as inflated job expenses.
The pair pleaded not guilty and were released on their own recognizance and told to next appear in court on June 13. If convicted, they each face up to four years in prison.
Oakland Park, Fla.: The federal government has filed a civil complaint against preparer Eli St. Phard, maintaining that he prepares fraudulent returns and should be barred from preparing federal tax returns for others.
The complaint alleges that St. Phard prepares income tax returns that fraudulently understate clients’ tax liabilities by falsely claiming deductions for business expenses, fraudulently overstating clients’ claims for refunds by falsely claiming education or fuel tax credits to which his customers are not entitled, or both.
According to the complaint, the IRS audited 340 of the more than 3,132 returns St. Phard prepared since 2009 and found that he understated the tax owed on all but five of the returns, a total of more than $1.8 million in understatements.
Tustin, Calif.: Preparer Thomas P. Butcher, 61, of Rancho Santa Margarita, Calif., has been arrested on federal charges that he allegedly prepared and filed fraudulent federal income tax returns claiming false deductions for his clients.
The 38-count indictment charges Butcher, owner of the tax prep service First Quality Tax Services, with 37 counts of aiding and assisting in the preparation of fraudulent income tax returns and one count of obstructing the administration of internal revenue laws.
The indictment alleges that for tax years 2009 through 2011, Butcher prepared and filed returns that claimed false credits and deductions that clients were not entitled to receive. The returns included fraudulent education credits, as well as false deductions for charitable donations and unreimbursed employee expenses.
The indictment also alleges that Butcher submitted bogus receipts for charitable donations and employee-related expenses when filing 2009 returns.
Each of the 38 counts in the indictment carries a maximum of three years in federal prison.
Houston: Preparer Adriana Lizette Luna has been sentenced to 18 months in prison to be followed by two years of supervised release and was ordered to pay $116,000 restitution after her conviction for knowingly preparing a materially false claim against the U.S. Luna pleaded guilty in September to preparing a materially false 2011 federal individual income tax return.
According to the written plea agreement filed in the record of the case, Luna operated a tax prep business known as Ruby’s Income Tax and sometimes as Diaz Tax Service. She admitted preparing at least 23 false returns for clients, including the 2011 return which claimed a false refund of approximately $11,724.
Luna admitted that the intended tax loss on the 23 false tax returns she prepared was more than $235,000 and that she split roughly one-half of the false refunds with her clients.
Durant, Miss.: A U.S. court has permanently barred Teresa Chism from preparing federal returns for others.
According to the government’s complaint, Chism, who operated her business as Lady T. Taxes, prepared federal income tax returns that fraudulently overstated clients’ claims for refunds. She claimed refundable credits, including the EITC and credits for education expenses that her clients either were ineligible to receive or were not entitled to receive in the amounts claimed on the returns, the complaint alleged.
The complaint further alleged that Chism frequently fabricated W-2s and submitted them with a return as evidence of a client’s eligibility for the EITC.
The complaint alleges that audits of 220 returns prepared by Chism claiming the EITC or other refundable credits, or both, revealed that 98% of these returns claimed credits totaling more than $1 million that Chism’s customers were ineligible to receive.
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