Six individuals have been sentenced to federal prison by U.S. District Judge William P. Dimitrouleas for filing false claims for tax refunds, announced Kathryn Keneally, Assistant Attorney General for the Justice Department’s Tax Division, Wifredo A. Ferrer, U.S. Attorney for the Southern District of Florida, and Jose A. Gonzalez, Special Agent in Charge, IRS-Criminal Investigation (IRS-CI), Miami Office.
On Jan. 28, 2013, Penny Jones of Rigby, Idaho, was sentenced to 144 months in prison. Jones had pleaded guilty, without the benefit of a plea agreement, to conspiracy to defraud the United States and 41 counts of filing false claims for tax returns. On that same day, John Michael Smith Jr. of Hidden Hills, Calif., was sentenced to 36 months in prison. Smith pleaded guilty to filing a false claim for a tax refund. According to court documents related to the plea, Smith had sought over $208,000, an amount to which he knew he was not entitled.
Defendants Michael D. Beiter, Jr. formerly of Coral Springs, Fla., David Clum, Jr., of Whites Creek, Tenn., Dale Peters, of San Mateo, Calif., and Christopher Marrero, of Davie, Fla., were all sentenced on Feb. 1, 2013. All four were convicted, following a four-week trial in October 2012, of conspiracy to defraud the United States with respect to claims and multiple counts of filing false claims for tax refunds.
Beiter was sentenced to 300 months in prison, which is to be served consecutively to a ten year sentence he is currently serving for promoting a separate tax fraud scheme. Clum was sentenced to 293 months in prison. Peters was sentenced to 144 months in prison. Marrero was sentenced to 180 months in prison.
“Taxpayers should be wary of deals that appear too good to be true,” said Kathryn Keneally, Assistant Attorney General for the Justice Department’s Tax Division. “Instigators of these tax scams take money from these taxpayers, who may end up paying substantial penalties to the IRS. Sentences like the ones handed down in this case show that peddlers of these bogus tax schemes face significant jail time for their crimes.”
U.S. Attorney Wifredo A. Ferrer stated, “Tax refund scams are the latest crime du jour. For a $750 fee, complicit clients across the United States expected the defendants to submit false returns to the IRS on their behalf, claiming exorbitant fraudulent refunds, to be shared with the defendants. Instead of receiving enormous refunds, however, the defendants were sentenced to substantial jail time and the clients received substantial civil penalties and were subject to aggressive collection efforts by the IRS. As this case demonstrates, we will continue to crack down on fraudsters and will not let them line their pockets with our tax dollars.”
“The defendants who perpetrated this scheme systematically defrauded the government and the taxpaying public,” said Richard Weber, Chief IRS Criminal Investigation. “At the IRS, protecting taxpayer money is a matter we take very seriously. IRS Criminal Investigation will continue to vigorously pursue those who unjustly enrich themselves by preparing false claims for refunds.”
The evidence at trial showed that Jones, Beiter, Clum, Peters and others operated a scheme to defraud the IRS out of tax refunds. The false return scheme operated under the name PMDD Services LLC, and, later, Forever Grace LLC. The false return scheme was nationwide, causing the filing of tax returns for at least 180 clients from 30 different states, requesting more than $160 million in fraudulent tax refunds. The defendants and clients of the scheme collectively filed more than 380 tax returns, mostly from tax year 2008 but also for other tax years. The tax returns falsely reported the amount of their personal debt obligations as both income and as federal tax withholding. The fictitious income and withholding was reported to the IRS on Forms 1099-OID.
According to the evidence at trial, the tax returns prepared as part of the scheme fraudulently claimed refunds in amounts specifically intended to allow the clients to pay off their mortgages, credit cards, student loans, and other personal debts. Clients paid $750 to have the defendants prepare a tax return reporting this fictitious “OID” income, and clients agreed to share 10 percent of their tax refund with defendants. The trial evidence also showed that defendant Beiter and Clum held seminars in Florida and Tennessee, respectively, in which they recruited potential clients.
The evidence at trial further established that most clients of the scheme did not receive the enormous refunds requested, but instead received substantial civil penalties. Those who did receive refunds were typically subject to collection efforts by the IRS.
In addition, the evidence showed that defendants Beiter, Clum and Marrero recruited clients for the scheme. Clum also filed false “OID” tax returns himself. Peters was PMDD Services’ information technology specialist, writing software and implementing computerized procedures to automate the process of preparing the fraudulent tax returns.
Separate from the 1099-OID scheme, Marrero was convicted of filing three false tax returns at three separate IRS offices on the same day. Each return requested a refund in excess of $80,000 based on non-existing gambling income and associated tax withholding.
Previously, in a related case, a client of the scheme, Philip Butcher, formerly of Rogers, Ark., pleaded guilty to filing a false claim for a tax refund. Butcher filed two tax returns reporting his loans as OID income and tax withholding, claiming tax refunds totaling $1,456,696.
These cases were investigated by Special Agents of IRS-Criminal Investigation. Assistant U.S. Attorney Bertha Mitrani and Tax Division Trial Attorneys Jonathan Marx and Jed Silversmith prosecuted the cases.