FLORIDA AND ARKANSAS RESIDENTS CHARGED FOR INVOLVEMENT IN MULTI-MILLION DOLLAR FRAUDULENT TAX REFUND SCHEME
IRS Reportedly Paid Out More Than $4.7 Million As Result of Scheme
Laura Barel, of Lauderhill, Fla., has been charged with one count of filing a false claim and two counts of aiding and abetting the filing of a false claim, the Justice Department and Internal Revenue Service (IRS) announced today. The federal complaint against Barel was unsealed on May 24. In a related case, a federal grand jury returned an indictment on May 25, 2011, charging Philip Butcher, formerly of Rogers, Ark., with two counts of filing false claims.
The complaint against Barel alleges that she recruited clients on behalf of co-conspirator #1 and two entities -- PMDD Services and Forever Grace. According to the complaint, co-conspirator #1 has prepared at least 275 fraudulent individual tax returns for clients around the United States during 2008 and 2009. These returns collectively requested more than $120 million in fraudulent refunds. Some of these refunds were paid by the IRS, others were not. The complaint alleges that the IRS has paid out more than $4.7 million as a result of the scheme.
The complaint states that co-conspirator #1 held herself out to be a professional tax preparer and collected information from clients pertaining to all of their debt obligations such as credit card debt, car loans, mortgage obligations and lines of credit. Co-conspirator #1 took the amounts of the outstanding debts and created fraudulent tax documents which she titled “Form 1099-OID Original Issue Discount.” She would create fraudulent Forms OID purporting to convert taxpayers’ debts into interest income purportedly withheld by the lender. The taxpayers reported the withheld income as interest income on their Form 1040. As a result, the taxpayers were owed astronomical refunds because the entire amount of the OID “income” was reported as withheld taxes – not just a portion to cover the taxes owed, as is common with a taxpayer’s Form W-2. In other words, this OID scheme fraudulently inflated the taxpayer’s income and withheld income to create a fraudulent and enormous refund purportedly due to the taxpayer.
The complaint alleges that co-conspirator #1 and PMDD Services required that their clients pay 10 percent of any refund received from the IRS back to PMDD Services. According to the complaint, Barel then received 1.5 percent of the total refund, which was deposited into a bank account controlled by her. The complaint also alleges that Barel filed her own fraudulent OID tax return requesting a refund of $662,906.
Phillip Butcher, a client of PMDD Services and a former resident of Rogers, Ark., was indicted by a grand jury in Fort Smith, Ark., for filing a 2008 individual income tax return which sought a fraudulent tax refund of $672,781. According to the indictment, PMDD Services prepared the tax return and filed false Forms 1099-OID with the IRS on Butcher’s behalf. The indictment further alleges that Butcher paid more than $67,000 to PMDD Services shortly after receiving his refund. The indictment also alleges that after Butcher received the fraudulent $672,781 refund he requested on his first tax return, he filed an amended 2008 individual income tax return claiming an additional fraudulent refund of $1,456,696.
If convicted, Barel faces a maximum potential sentence of 15 years in prison and a maximum fine of $750,000. Butcher faces a maximum potential sentence of 10 years in prison and a maximum fine of $500,000.
A complaint and an indictment are merely allegations, and the defendants are presumed innocent unless and until proven guilty.
More information about the Tax Division and its enforcement efforts can be found at www.doj.gov/tax.
A copy of this press release may be found on the website of the United States Attorney's Office for the Southern District of Florida at http://www.usdoj.gov/usao/fls. Related court documents and information may be found on the website of the District Court for the Southern District of Florida at http://www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.