two more plead guilty to nearly $100 million tax fraud scheme
largest false claims case ever prosecuted in mO
KANSAS CITY, Mo. – David M. Ketchmark, Acting United States Attorney for the Western District of Missouri, announced that two more defendants who received hundreds of thousands of dollars in fraudulent tax refunds pleaded guilty in federal court today. The tax fraud scheme attempted to receive nearly $100 million in fraudulent refunds from the IRS in the largest federal false claims case that has ever been prosecuted in Missouri.
Karen A. Olson, 41, of Wood Dale, Ill., and Mark J. Murray, 50, of Newton, Ala., pleaded guilty before U.S. District Judge Brian C. Wimes to the charge contained in a Sept. 22, 2011, federal indictment.
Olson admitted she participated in a conspiracy that promoted a tax refund scheme across the United States from July 1, 2008, to Sept. 21, 2011. Conspirators received more than $3.5 million of the total $96 million in attempted fraudulent refunds. Murray pleaded guilty to filing false claims for tax refunds.
Co-defendant Jennifer S. Wilson, 35, of Cumming, Ga., was sentenced on Aug. 2, 2012, to one year and one day in federal prison without parole after pleading guilty to filing a false claim for a tax refund. The court also ordered Wilson to pay $161,514 in restitution.
1099-OID Tax Fraud Scheme
Olson, Murray and the other conspirators utilized 1099-Original Issue Discount forms as part of their scheme.
These forms are legitimately used by tax filers who must pay taxes on income they receive from the interest on certain investments, such as some types of bonds. Tax on certain bonds must be paid as income accrues. Such bond holders receive annual forms, called 1099-Original Issue Discount (OID), from the debt issuers. Bond holders then file these OID forms with the IRS, along with their income tax forms.
However, the scheme to which Olson and Murray pleaded guilty today utilized the 1099-OID forms in a nonsensical manner. Clients of the conspirators, working with their branch managers, assembled financial documents such as mortgage and loan statements, car payments, foreclosure records, bank statements, credit card statements, and other records of debt and spending. This debt information – rather than any actual bond income – was used to prepare and/or finalize false tax returns and fictitious Forms 1099-OID.
Karen A. Olson
Olson, who has an associate’s degree in accounting, was formerly employed as a tax preparer and did taxes for people on the Air Force base where her husband was deployed while serving in the military. On Oct. 13, 2008, the Olsons submitted a 2007 joint income tax return, including fraudulent Forms 1099-OID. They received a refund of $171,806, which they used in part to purchase a $43,000 Acura MDX and to pay off a timeshare in Branson, Mo.
In actuality, Olson admitted that they had never accrued any OID income from the banks and lenders listed on their Forms 1099-OID, nor had those entities issued the forms, nor had they paid any taxes on the Olsons’ behalf.
Olson admitted that she became aware of “red flags” concerning the OID process, including through receiving multiple notices from the IRS that the filings were frivolous. Although she wasn’t “sure” about the legality of the process, and she knew that something was “not right,” Olson never called the IRS to inquire. Likewise, she did not consult a tax attorney, CPA or legitimate tax preparer to get the facts. After receiving a letter from IRS advising their 2007 tax return did not match IRS records, the Olsons decided to assert that their original filing was accurate. They amended an affidavit they obtained from the Internet and sent it into the IRS. On March 16, 2009, Olson also read an article concerning a fraud alert for 1099-OID filings posted in the IRS’s newsroom section of its website. However, she continued to participate in the OID scheme.
People around the Olsons knew they had received a large refund from the process and began asking them for their help. They decided to charge $200 per person or couple to transmit their Forms 1099-OID and 1099-A through their tax preparation and submission company, FATR, LLC. The Olsons assisted approximately 10 individuals/couples in preparing their Forms 1040 using the 1099-OID process. Four returns that were based on fraudulent Forms 1099-OID claimed refunds totaling $825,907. Refunds totaling $408,693 were issued.
Mark J. Murray
Murray, who is retired from the U.S. Air Guard, owns and operates an irrigation company that contracts with Fort Rucker in Alabama. Murray received a total of $582,291 in fraudulent tax refunds from participating in the OID scheme. He used the money, in part, to pay off his real estate loan, buy equipment for his irrigation business, purchase $225,000 worth of silver coins and buy a new GMC Sierra 1500.
Muray admitted that he did not receive the income and withholdings as claimed on his returns and that he did not receive any Forms 1099-OID. Murray, who had used a CPA to prepare his returns for the previous 20 years, admits that he did not discuss the 1099-OID process with his CPA before participating in the scheme. Had he contacted her about OIDs, the CPA would have told him it was a scam.
Three additional co-defendants have also pleaded guilty. John V. Perdido, 56, of Temecula, Calif., acted as a “branch manager” and recruited clients for the scheme. Perdido received the largest single refund from the scheme – $805,749, which must be forfeited to the government. Robert E. Morris, 66, of Rocklin, Calif., and Earl Lee Davis, 53, of Monroe, La., also pleaded guilty to their roles in the conspiracy.
Under federal statutes, Olson is subject to a sentence of up to 10 years in federal prison without parole, plus a fine up to $250,000 and an order of restitution. Murray is subject to a sentence of up to five years in federal prison without parole, plus a fine up to $250,000 and an order of restitution. Sentencing hearings will be scheduled after the completion of presentence investigations by the United States Probation Office.
OID Fraud Web Site
A Web site has been established to provide updated information about the status of this investigation. Updates about this investigation and related cases will be posted at www.justice.gov/usao/mow/divisions/OIDfraud.htmlThese cases are being prosecuted by Assistant U.S. Attorneys Daniel M. Nelson and Thomas Larson. They were investigated by IRS-Criminal Investigation and the Treasury Inspector General for Tax Administration (TIGTA).