Some of our favorite recent tax fraud cases.
Birmingham, Ala.: Preparers Demetrius Young, 52, and Deondra Young, 30, father and daughter, have been sentenced for conspiring to defraud the government of more than $490,000 by falsely claiming education tax credits on clients’ tax forms.
Demetrius Young received two years in prison and his daughter got three years of probation, to include six months in home detention. They were also ordered to pay $490,328 restitution to the IRS.
Demetrius Young owned the prep firm Tax of America, where his daughter worked as a preparer and which she and her father planned she would eventually own and run. According to the plea agreements and other court documents, Demetrius and Deondra Young both prepared fraudulent returns for clients and worked in managerial positions overseeing the preparation of fraudulent returns by other preparers at Tax of America during the 2010 and 2011 tax years.
The Youngs added false education credits to clients’ returns without the consent or knowledge of the clients, according to court documents. They also approved returns prepared by others at Tax of America that included false education credits.
Mesquite, Texas: Preparer Yolanda Lavell Kaiser has received 11 years in federal prison and been ordered to pay $2,294,442 restitution to the IRS following her guilty plea in April to one count of wire fraud stemming from a stolen-ID tax refund scheme.
At sentencing, the judge noted Kaiser’s lengthy criminal history as one of the reasons for the sentence, pointing specifically to Kaiser’s 2004 federal conviction in the Northern District of Texas for aiding or assisting in the preparation of false returns; the judge also found that Kaiser’s current offense caused substantial financial hardship to many of the more than 1,300 victims in the case.
According to case papers, from approximately September 2013 through August 2014, Kaiser prepared and e-filed fraudulent returns using the name, Social Security number and other means of identification of actual persons, without lawful authority, to fraudulently obtain refunds. She prepared and filed returns through a tax prep business known as Right 1 Tax Services in Mesquite and later in Dallas.
Kaiser obtained prepaid debit cards issued in the names of victims, case papers added, and filed phony federal income tax returns requesting refunds and directing those refunds be deposited on prepaid debit cards associated with unique account numbers. She then made cash withdrawals of refunds deposited into accounts, including making withdrawals with prepaid debit cards.
Prior Lake, Minn.: Married preparers Mark Alin Hammerschmidt, 48, and Ornella Angelina Hammerschmidt, 36, have reportedly pleaded guilty to conspiracy and filing false income tax returns in the names of hundreds of people, most of them Guatemalan immigrants who had their birth certificate and passport information stolen by the couple, owners of the tax prep business American Group.
They admitted to using the personal ID information of the immigrants to obtain returns fraudulently and steal more than $1.8 million, news outlets said, adding that Mark Hammerschmidt pleaded guilty to two counts of conspiracy to defraud the U.S., and Ornella Hammerschmidt to one count of tax fraud.
According to cited court documents, the couple operated American Group out of a Shakopee, Minn., office between 2010 and 2013, with Ornella misrepresenting herself as an attorney and Mark claiming to be an accountant and certified tax preparer with a college degree. There they reportedly prepared and filed more than 1,000 federal income tax returns on behalf of their tax and immigration clients, seeking refunds based on false household income, dependents and education credits. The returns reportedly directed that the refunds go to bank accounts that the couple controlled; the Hammerschmidts used the funds to pay individuals who provided them with ID information, according to published reports.
They also reportedly filed false State of Minnesota income tax returns using the same scheme. When the Minnesota Department of Revenue sent letters questioning the information provided in the state returns, according to reports, the Hammerschmidts provided false substantiation of the claimed income, as well as fraudulent receipts for education expenses.
Dayton, Ohio: Resident Petrona Penn, 37, has been indicted on 12 counts of filing false claims for income tax refunds with the IRS, three counts of wire fraud and three counts of aggravated ID theft.
According to the indictment, between January 2010 and February 2011 Penn e-filed at least 40 fraudulent returns with the IRS on behalf of clients that claimed false income refunds; her clients included neighbors, acquaintances and others. Penn allegedly prepared returns that contained false information, including false W-2s, fictitious dependent information and fraudulent Schedule Cs, to inflate refunds.
The indictment further alleges that Penn diverted a substantial portion of the phony refunds into bank or debit card accounts that she controlled, including prepaid debit cards.
Filing false claims for refunds with the IRS carries a maximum penalty of five years in prison and a fine of up to $250,000. Wire fraud carries a maximum of 20 years in prison and a fine of up to $250,000.
Washington: The Justice Department has asked federal authorities to shutter a pair of tax fraud schemes.
In the first case, two Utah companies are running a nationwide abusive scheme that purports to use false deductions and claims of the solar energy credit to reduce their customers’ federal income tax liability, according to a complaint that seeks to stop Utah companies RaPower-3 LLC and International Automated Systems Inc.; Utah residents R. Gregory Shepard and Neldon Johnson; and Nevada company LTB1 LLC and Oregon resident Roger Freeborn, from facilitating and promoting the allegedly abusive tax scheme.
According to the complaint, the defendants promote an abusive tax scheme based on a purported solar energy generation facility in Millard County, Utah. The suit alleges that the defendants claim to own and operate technology that offers a “disruptive” and “revolutionary” approach to capturing and using solar energy. But, according to the complaint, the technology is a sham.
The complaint alleges that the defendants purport to sell “solar thermal lenses” – component parts of their technology – to individual customers. According to the complaint, the defendants claim that a customer who purportedly purchases a lens is entitled to claim depreciation and other business-related expenses and the solar energy credit on the customer’s individual income tax return.
The complaint also alleges that the IRS has disallowed the defendants’ customers’ claims of tax benefits from the solar energy scheme: Customers from across the country have filed at least 70 cases that are currently pending in Tax Court. The complaint estimates that losses from those cases alone exceeds $4 million.
In the second case, the U.S. filed a civil injunction suit seeking to bar James Tarpey, a Montana-based attorney, Project Philanthropy Inc. (a District of Columbia corporation d/b/a Donate for a Cause) and Timeshare Closings Inc. (a Colorado corporation d/b/a Resort Closings Inc.) from promoting an allegedly abusive timeshare donation scheme. The government also filed suit against three of Tarpey’s associates.
According to the complaint, the scheme encourages timeshare owners to donate their unwanted timeshares to Donate for a Cause, a tax-exempt entity organized and operated by Tarpey. The complaint states that customers are falsely promised “generous” tax savings and that the defendants purportedly determine the “fair market value” of the timeshare by selecting an independent, third-party appraiser. The government further alleged that Tarpey’s customers (the timeshare owners) pay significant processing fees to Resort Closings Inc. to transfer the timeshares to Donate for a Cause and that Tarpey and his three associates appraise the customers’ timeshares in a manner which does not comply with the law and which significantly overvalues them.
Tarpey’s customers then allegedly claim improper and grossly inflated charitable contribution deductions for both the overvalued timeshares and the processing fees paid to Resort Closings Inc.
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