Tax Fraud Blotter: ‘Good will gets 40 months’
Off by $10 million-plus; theft by template; coupons, strawmen and the eclipse; and other highlights of recent tax cases.
Suffolk, Va.: Preparer Kevin Towns, 44, has been sentenced to 40 months in prison for his role in a fraud scheme that prepared hundreds of false returns that resulted in a loss of approximately $1.6 million to the U.S.
According to court documents, Towns, who pleaded guilty in June, was one of the principal preparers at A Plus Tax Service and NN Financial, which operated as prep businesses at different periods between July 2009 and February 2014. Towns, along with co-defendants Stephanie Towns and Brenda Benn, conspired to operate a business based on creating false returns that inflated refunds for clients to cultivate good will and generate repeat business.
They used methods such as claiming false education-related expenses, stating excessively high amounts of charitable contributions and manipulating the amount of income to take advantage of certain tax credits. The clients did not persuade or instruct the tax preparers to generate the false returns, authorities said.
New Orleans: CPA Brendel Deemer, 49, has pleaded guilty to one count of willfully filing a false return for herself.
According to court documents, Deemer operated Deemer CPA & Consulting Services LLC since at least 2009. From 1999 through 2005, she also operated Building Blocks Academy, a day care center. Deemer stopped operating Building Blocks Academy after Hurricane Katrina and did not resume operating the business.
Deemer admitted that for tax years 2009 and 2010 she filed individual income tax returns that falsely reported her Schedule C income from Deemer CPA and Consulting and her expenses for Building Blocks Academy.
Sentencing is Dec. 12, when she faces up to three years in prison, followed by one year of supervised release, as well as potential fines and other monetary penalties. As part of her plea agreement, Deemer agreed to pay $88,651.22 restitution to the IRS.
Circleville, Ohio: Local businessman John Anderson Rankin, 54, has been convicted of 17 tax-related charges.
A federal grand jury indicted Rankin in 2015 on seven counts of failing to account for and pay over employment taxes to the IRS, six counts of willfully filing false federal individual income tax returns, three counts of willfully filing false federal corporate income tax returns, and one count of obstructing and impeding the due administration of the IRS.
According to court documents and testimony, Rankin operated a number of businesses, including Connectivity Systems Inc., a mainframe software company that provides Internet protocol development and servicing. Rankin Enterprises LLC was a shell corporation that included several local businesses.
Between June 2008 and April 2011 Rankin failed to account for and pay over to the IRS all federal income and FICA taxes. He also filed false amended individual income tax returns with the IRS for the 2005, 2006, 2007, 2008 and 2009 income tax years. He claimed a corrected AGI of -$1.7 million when his actual corrected AGI exceeded $8.9 million. In 2010, Rankin filed a false individual income tax return that reported an AGI of nearly $27,000; his actual gross income was nearly $1.6 million.
He also filed false U.S. corporation income tax returns with the IRS for Connectivity Systems Inc. for the 2008, 2009 and 2010 income tax years. These false forms claimed a fraudulent accelerated R&D credit of $1.7 million against the corporate taxes due and owing of Connectivity Systems Inc.
Between January 2005 and July 2015 Rankin made false and misleading statements to agents of the IRS and concealed information from agents of the IRS.
Failing to account for and pay over employment taxes to the IRS carries a maximum penalty of five years in prison and a fine of up to $250,000. Willfully filing a false individual and corporate federal income tax return with the IRS and obstructing and impeding the due administration of the IRS carries a maximum of three years in prison and a fine of up to $250,000.
Temple Hills, Md.: Local resident Timothy West, 43, has been sentenced to 21 months in prison for mail fraud in connection with a stolen ID refund fraud.
According to documents filed with the court, from approximately November 2011 through March 2013, West and others engaged in a scheme to file fraudulent federal returns claiming refunds. On two separate occasions, West hired a local preparer to complete returns falsely claiming, among other things, that two individuals were his dependents.
As part of the scheme, West and others then used these false returns as templates to prepare and file hundreds of additional fraudulent returns with the IRS seeking more than $413,000 in refunds.
West caused a tax loss of approximately $284,706 as a result of his actions as part of the scheme.
West was also ordered to serve three years of supervised release and to pay $284,706 restitution to the IRS.
Hermosa Beach, Calif.: A couple has been sentenced for filing fraudulent federal returns that sought millions in refunds and for using bogus financial instruments in an attempt to pay off debt.
Sean David Morton, 59, was sentenced to six years in prison and was ordered to pay $480,322 in restitution to the IRS. His wife Melissa Ann Morton, 51, who was convicted of conspiracy, two counts of filing false claims and 25 counts of passing false or fictitious financial instruments, received two years in prison and was also ordered to pay $480,322 in restitution to the IRS.
Sean Morton was found guilty earlier this year of one count of conspiracy to defraud the U.S., two counts of filing false claims against the U.S. and 26 counts of passing false or fictitious financial instruments. Sean Morton was originally scheduled to be sentenced in June, but he failed to appear for that hearing and was a fugitive for over two months — during which time, authorities said, he appeared on social media and YouTube to brag about being a fugitive.
The Mortons operated a “redemption” scheme, in which proponents falsely claim that the federal government controls bank accounts — often referred to as “U.S. Treasury Direct Accounts” — for U.S. citizens that can be accessed by submitting paperwork with state and federal authorities. Individuals promoting this scam frequently cite bogus legal theories and may refer to the scheme as “Redemption” or “Strawman.” This scheme predominately uses fraudulent financial documents that appear to be legitimate.
Evidence showed that the Mortons filed federal income tax returns that falsely claimed they had income from various banking institutions reported on 1099-OIDs. As part of the scheme, the Mortons falsely reported large withholdings and claimed they were owed refunds from the IRS, which erroneously issued a refund of $480,322.55 to Sean Morton for a 2008 income tax return.
On the same day the refund was deposited into the Mortons’ joint bank account, the couple took steps to conceal the money, opening new accounts, transferring over $360,000 to the two new accounts and withdrawing $70,000 in cash.
When the IRS subsequently placed a levy on the couple’s joint bank account, the couple repeatedly sent letters to the IRS that falsely claimed it was Melissa Morton’s sole and separate account. When the IRS attempted to collect the erroneous refund, the Mortons presented to the IRS “coupons” and “bonds” that purported to pay off their debt with the IRS. The Mortons created and submitted these bogus documents to the IRS, instructing the agency to draw upon funds with the United States Treasury to satisfy their debt.
The Mortons also sold the bond scheme to others who were in debt to governmental organizations, such as the IRS and the State of California, and private bank institutions for mortgage or credit card debt. The Mortons charged clients thousands of dollars to prepare and file useless UCC-1 documents declaring their clients’ “strawman” status.
Prosecutors said Sean Morton “touted he was a ‘paper terrorist’” looking to clog the court system “and make it more difficult to efficiently resolve cases, especially tax cases.”
The Mortons were arrested in August while observing the solar eclipse poolside in Desert Hot Springs, Calif.