A California tax preparer who submitted false tax forms and promoted a tax fraud scheme in the U.S. and Canada was sentenced Friday in a Seattle federal court to 12 years in prison, three years of supervised release and over $6.2 million in restitution for conspiracy and wire fraud.
Ronald l. Brekke, 55, of Orange County, Calif. was convicted following a two-day jury trial in March 2012. He allegedly promoted a tax fraud scheme known as “1099 OID” fraud. Promoters of this scheme claim that the U.S. Treasury will pay out tax refunds equal to the value of a person’s personal debt. Brekke helped nearly 1,000 people in three countries claim over $763 million in fraudulent tax refunds, according to prosecutors.
At sentencing, U.S. District Judge John C. Coughenour said Brekke “fundamentally failed to grasp our laws.” The judge told Brekke he could spend the rest of his life “tilting at windmills,” and “squander his remaining time on earth,” or instead come to accept that our laws are “rules that citizens of this country have made.”
Brekke was indicted and arrested in late 2010, after two of his Canadian co-conspirators were arrested in Bellingham after trying to cash two refund checks exceeding $350,000 each. The two Canadians, Donald Mason and John Chung, were convicted in U.S. District Court in Seattle, and the investigation revealed that Brekke had been promoting the tax fraud scheme.
The IRS flagged the vast majority of the 1099 OID filings as frivolous, but refund claims totaling approximately $14 million were paid before the IRS detected the fraudulent nature of the returns.
Approximately two-thirds of Brekke’s customers were Canadians who had never paid any U.S. income tax and were not owed any money by the U.S. Treasury. Those submitting the bogus claims were told to quickly move the money to Canada where it would be more difficult for the IRS to recover the money. Brekke took in about $400,000 in fees over less than a two-year period from the people he aided in the fraud.
“The defendant used his knowledge to exploit vulnerabilities in the tax system, to loot tax dollars,” said U.S. Attorney Jenny A. Durkan in a statement. “He used citizens of the U.S. and Canada to hide his dirty work, and now will pay with a lengthy prison term.”
Brekke had been repeatedly warned and fined by the IRS for similar frivolous filings that he had submitted on his own behalf, prosecutors noted. He also had received a public notice from the FBI warning him that the scheme was illegal. In a recording played for the jury at his trial, Brekke is heard telling people at a seminar that some of the filings would slip through resulting in a big payout for some of the filers. The IRS has been able to get just over half the $14 million back, resulting in a restitution figure for Brekke of $6,206,998. The jury also found that $291,064 seized from Brekke’s PayPal account at the time of his arrest was subject to forfeiture as the proceeds of his crime.
“The American tax system is designed to provide vital government services to our people,"
said Kenneth J. Hines, the IRS special agent in charge of the Pacific Northwest. "It is not a slush fund for thieves and fraudsters. Those who illegally target our nation’s tax dollars for personal financial gain, along with others who assist them, could face criminal prosecution and lengthy prison sentences. The foreign nationals residing in other countries who participated are not shielded from prosecution, as a few Canadians who participated in this scheme learned the hard way.”
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