WASHINGTON – Osman Norales, Genaro De La Fuente, Francisco Ramirez and Ulises Linares were indicted on charges of conspiring to defraud the United States, the Justice Department and Internal Revenue Service (IRS) announced today. The indictment was unsealed in the Central District of California today.
According to the allegations in the indictment, in 2009, Norales, De la Fuente, Ramirez and Linares conspired to defraud the United States by filing more than 400 false Forms 1099-OID claiming more than $80 million in fictitious federal income tax withholdings and by filing more than 35 false individual income tax returns, Forms 1040 and Forms 1040X, that claimed more than $19 million in fictitious federal income tax withholding.
According to the indictment, IRS Forms 1099 are used to report income and withholding to the IRS and are typically issued by employers or other payors such as banks. Original Issue Discount (OID), reported on IRS Form 1099-OID, is a form of interest income typically realized on debt instruments that were issued at a discount or purchased for less than the ultimate redemption value of the debt instrument, such as a bond or certificate of deposit.
According to the indictment, the defendants operated the fraudulent scheme using a partnership based in Rancho Cucamonga, Calif., called “De la Fuente and Ramirez and Associates” (DLFRA). Norales, De La Fuente and Ramirez recruited customers into the fraudulent scheme through seminars and one-on-one consultations, charged individuals up to $3,000 to become customers. Linares prepared the false Forms 1040 claiming large fraudulent refunds based on the fictitious withholding amounts reported on the false Forms 1099-OID and Norales, De la Fuente, Ramirez and Linares then caused the false individual income tax returns to be filed with the IRS. Norales and Ramirez transmitted more than 450 fictitious Forms 1099-OID to the IRS falsely claiming that customers had receive more than $81 million in income that had been turned over to the IRS as federal income tax withholdings.
All four defendants are charged with a conspiracy to defraud the United States and with various counts of filing false claims against the United States. In addition, Norales, De la Fuente and Ramirez are also charged with filing false individual income tax returns for themselves using the 1099-OID scheme.
In addition, four other individuals, Maribel Rincon, Arturo Villarreal, Christine Rincon, as well as tax return preparer Angela Molina of Riverside, Calif., were also each indicted separately for aiding and assisting the filing of false individual income tax returns for themselves and/or others that claimed fraudulent tax refunds ranging from approximately $90,000 to more than $1.5 million.
An indictment is merely an allegation and the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law. If convicted, Norales, De La Fuente, Ramirez and Linares each face up to 10 years in prison for the conspiracy charge. All of the defendants face up to five years in prison for each false claim charge. In addition, the defendants face fines of up to $250,000 for each count charged in the indictment.
The case was investigated by IRS-Criminal Investigation and is being prosecuted by Justice Department Tax Division Trial Attorney Ignacio Perez de la Cruz and Assistant U.S. Attorney Charles Pell in the Central District of California.