WASHINGTON – A federal court has barred Robert Knupp of Marietta, Ga., from preparing federal income tax returns for others, the Justice Department announced today. The preliminary injunction order, signed by Chief Judge Julie E. Carnes of the U.S. District Court for the Northern District of Georgia, found that Knupp promotes a tax defier scheme that claims large fraudulent tax refunds for customers. The order remains in effect indefinitely, while the Justice Department lawsuit against Knupp is pending. Violation of a preliminary injunction can result in civil and criminal sanctions, including fines and imprisonment.
The court found that Knupp repeatedly prepared federal income tax returns claiming "huge and fraudulent" refunds for customers, "in amounts sometimes in the millions of dollars," based on a tax-fraud scheme known as the "redemption" or "OID redemption" scheme. The court further found that Knupp prepared and filed 58 income tax returns for customers in 2009 claiming more than $11 million in fraudulent refunds. The court said that the redemption scheme is based on a frivolous theory that the federal government maintains secret accounts for its citizens, and that taxpayers can gain access to funds in those accounts by issuing IRS 1099-OID forms to their creditors.
Last fall the Justice Department filed seven other lawsuits across the country, all of which seek permanent injunctions against tax preparers who allegedly promote the redemption scheme. The defendants in those cases allegedly prepared tax returns fraudulently requesting a total of $562.4 million in refunds. Under the scheme, participants file a series of false Internal Revenue Service (IRS) forms, including tax returns, amended returns and Forms 1099 (including Form 1099-OID) or Forms W-2, to request fraudulent tax refunds based on phony claims of large income tax withholding. Several of the defendants in those seven other cases have already been permanently enjoined from preparing tax returns.
Schemes like the OID redemption scam that use false IRS forms to report phony tax withholding and claim improper tax refunds are on the IRS’ list of the2010 Dirty Dozen tax scams.