United States Attorney Anne M. Tompkins
Western District of North Carolina
Tax Preparer Fraud, Identity Theft Among The 12 Most Common Tax Scams
CHARLOTTE, NC - With the deadline for filing income tax returns less than a week away, Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina and Jeannine A. Hammett, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation Division (IRS-CI), jointly announce recent tax fraud prosecutions and caution potential tax fraudsters to think twice before they commit tax crimes.
“Prosecuting those who cheat the tax system remains a priority for my Office,” said U.S. Attorney Tompkins in making today’s announcement. “Taxes help pay for important services our communities rely on and tax cheats increase the burden on honest taxpayers who each year file accurate and timely tax returns and pay their tax obligations.” Ms. Tompkins urged tax payers to be vigilant in safeguarding their personal identities and to avoid being victims of tax scams by selecting reliable tax preparers and reporting suspected tax fraud. U.S. Attorney Tompkins also said, “Our experienced tax prosecutors and IRS criminal investigators work hand-in-hand to uncover tax fraud and hold tax cheats accountable for their actions.”
“During tax filing season, return preparers and taxpayers should be aware of the serious consequences facing those who aid or assist in the filing of fraudulent tax returns,” said IRS-CI Special Agent in Charge Hammett. “Those who fly in the face of the tax laws face investigation, prosecution, and if convicted, significant prison sentences and substantial fines.”
Tax Preparer Pleads Guilty to Tax Fraud
Reginald B. Landrum, a Charlotte-area tax return preparer, pleaded guilty today to one count of aiding in the preparation of false tax returns. Court records show that between 2006 and 2010 Landrum prepared and submitted to IRS 58 false tax returns using false information, resulting in larger tax refunds for his clients. Court records show that Landrum used false Schedule C income and expenses, false Schedule A deductions, false wages, false dependents and other false items to prepare the fraudulent tax returns. The total tax loss associated with the 58 fraudulent tax returns Landrum prepared and filed is $229,691. At sentencing, Landrum faces up to three years in prison and a $250,000 fine. A sentencing date has not been set yet. (3:14-cr-46).
Other 2013 Tax Prosecutions
In the last year, the U.S. Attorney’s Office, with the assistance of IRS-CI, has prosecuted numerous individuals for criminal tax violations. Tax enforcement prosecutions include:
Isaac H. Birch - On August 15, 2013, Isaac Birch, of Franklin, N.C., pleaded guilty to filing false and fraudulent statements with the U.S. Treasury. According to court documents, Birch filed false tax returns in 2007, 2008 and 2009 using fictitious IRS 199OID forms, through which he fraudulently obtained a refund in excess of $480,000. Birch is awaiting sentencing and faces a maximum prison term of three years and a $100,000 fine. (2:13-cr-00020).
Tega Burns - On January 14, 2014, Tega Burns, a/k/a Tega Foy, of Charlotte, was sentenced to 24 months in prison and two years of supervised release and was ordered to pay $306,972.43 as restitution, for committing tax fraud and mortgage fraud. Court records show that from 2007 to 2011, Burns was the owner of Family Homecare Services, which provided in-home care services in the Charlotte area. Court documents show that Burns did not pay a large part of the employment taxes owed for the relevant tax years and used nominees, including her son and her step-father, to hide funds from the IRS. Burns pleaded guilty to failure to account for and pay over employment tax and to making a false statement on a loan application. (3:12-cr-00198).
Candida Figueroa and Cathy Cisneros – On November 7, 2013, Candida Figueroa and Cathy Cisneros, both of Charlotte, were sentenced to prison time for obtaining false and fraudulent income tax refunds. Figueroa was sentenced to 30 months in prison and two years of supervised release, and Cisneros was sentenced to 37 months in prison and three years of supervised release. Figueroa and Cisneros pleaded guilty false claims conspiracy and were ordered to pay $1,658,477.67 as restitution. Court documents indicate that from January to July 2012, the defendants used fraudulent Individual Taxpayer Identification Numbers (ITINs), Mexican birth certificates and other false documents to file at least 1,104 fraudulent tax returns seeking refunds. IRS issued refunds totaling approximately $1.6 million, of which $136,334 has been recovered. (3:12-cr-00260). A third co-conspirator, Ana Portillo, of Charlotte, pleaded guilty to false claims conspiracy in May 2013 for participating in the same tax fraud scheme and is awaiting sentencing. Portillo faces a maximum prison term of 10 years, a $250,000 fine, or both. (3:12-cr-00389).
Teodoro Felix Hernandez – On November 10, 2013, Teodoro Felix Hernandez pleaded to false claims conspiracy. According to filed court documents, from February 2012 to May 2013, Hernandez conspired with others and defrauded the U.S. Treasury by obtaining false tax refunds using fraudulently obtained ITINs. The conspirators prepared and filed false returns using the ITINs and false wage, income, and withholding tax information and claiming multiple dependents, causing the U.S. Treasury to issue tax return checks. The checks were mailed to rural addresses in North Carolina, South Carolina and Georgia, at which the purported taxpayer did not live. According to the documents, Hernandez cashed approx. 109 fraudulent tax return checks with various money service businesses, the value of which totaled $428,065 in false refunds. Hernandez is currently released on bond and awaiting sentencing. He faces a maximum of 10 years in prison and a $250,000 fine. (3:12-cr-158).
James Wesley Hills, II – On March 3, 2014, James Wesley Hills, II, of Asheville, pleaded guilty to making false claims against the United States and aggravated identity theft. According to court documents, Hills gained access to personal identifying information of customers of Primerica, a financial products company, and between 2010 and 2011, he used the stolen information to file fraudulent tax returns. Hills filed at least 38 false tax returns in this manner and collected over $50,000 of stolen U.S. Treasury funds. Hills is awaiting sentencing. He faces a maximum prison term of five years for making false claims and a mandatory term of two years in prison for the aggravated ID theft charge, and a $250,000 fine. (1:14-cr-05).
Jacqueline Pucheta Juarez – On January 7, 2014, Jacqueline Pucheta Juarez pleaded to false claims conspiracy. According to filed court documents, from January 2012 to May 2013, Juarez and others conspired to defraud the U.S. Treasury by participating in a scheme to obtain false tax refunds, using fraudulently obtained ITINs. Juarez and others used these ITINs to prepare fraudulent federal tax returns seeking refunds based on false wage, income, and withholding tax information and by claiming multiple dependents. Based on the fraudulent tax returns, the U.S. Treasury issued tax return checks and mailed them to addresses in rural addresses in North Carolina, South Carolina and Georgia, at which the purported taxpayer did not live. Juarez cashed approx. 350 fraudulent tax refund checks at various money service businesses, the value of which totaled $1,271,377 in false refunds. Juarez is currently in federal custody and awaiting sentencing. She faces a maximum prison term of 10 years, a $250,000 fine, or both. (United 3:12-cr-157).
Yolanda Tiess Kitson - On October 28, 2013, Yolanda Tiess Kitson, of Augusta, Ga., pleaded guilty to false claims conspiracy. Court records show that Kitson conspired with Senita Dill and Ronald Jeremy Knowles to file fraudulent tax returns using stolen personal identifying information. Through her job as a contractor at the Eisenhower Army Medical Center at Fort Gordon in Augusta, Ga., Kitson stole personal information from patient records and passed it her sister, Dill, who used it to file false tax returns. The conspirators filed more than 1,000 false tax returns and received over $3.5 million of stolen U.S. Treasury funds. Dill and Knowles also pleaded guilty to similar charges. All three defendants are awaiting sentencing and face up to 10 years in prison and $250,000 in fines. (1:13-cr-31).
Nghia Ly – On October 2, 2013, Nghia Ly, of Waxhaw, N.C., pleaded guilty to tax evasion for the 2011 calendar year. According to court records, Ly owned half of Kim Sen Jewelry, Inc., d.b.a. KS Nail Supply (KSJ) in Charlotte. From 2007 through 2011, Ly concealed from the IRS some of his personal earnings from KSJ. Court records show that Ly failed to provide bank records and hid a large part of the gross receipts of KSJ from his tax return preparer. For years 2007 through 2011, KSJ earned additional gross receipts totaling more than $4.8 million which Ly failed to report on KSJ corporate tax returns. As a result of the unreported gross receipts, Ly had additional taxable income of $820,396. A sentencing has not been set. Ly faces a maximum sentence of five years in prison and a maximum fine of $250,000. (3:13-cr-00235).
Jessica Ordonez – On March 31, 2014, Jessica Ordonez, of Morganton, N.C., was charged with tax evasion and aiding and abetting the preparation and presentation of a false tax return. Beginning in 2002, Ordonez was the owner of Tax Pros (a/k/a “Ordonez Tax Services”), which offered tax preparation services, among other things. Court documents show that between 2004 and 2012 Ordonez prepared at least 100 false tax returns for 23 taxpayers, using fraudulent ITINs which entitled her clients to large fraudulent tax refunds, with an associated tax loss of at least $202,217. Ordonez also failed to report her own income on her individual tax returns for tax years 2009 to 2011, with a corresponding tax loss between $81,000 and $122,000. Ordonez’s formal plea hearing is scheduled for April 11, 2014. At sentencing, she faces five years in prison and a $250,000 fine for the tax evasion charge and three years in prison and a $250,000 fine for aiding and abetting the preparation and presentation of a false tax return. (3:14-cr-00071).
Edward Rosner – On September 12, 2013, Edward Rosner, of Charlotte pleaded guilty to tax evasion. According to the court records, from 2005 through 2009, Rosner concealed his personal earnings from the IRS by directing funds obtained from his employer to himself through bank accounts in the name a nominee company, New Start LLC, and by directing the transfer of funds to accounts in the name of another individual. During this same time period, Rosner failed to file tax returns, despite obtaining income totaling approximately $2.9 million. Rosner awaits sentencing and faces a maximum prison sentence of five years and a $250,000 fine. (3:13-cr-00172).
Nkhenge Shropshire – On October 15, 2013, Nkhenge Shropshire, a/k/a Konjay Shropshire, of Charlotte, pleaded guilty to conspiracy to defraud the IRS and to making false statements on a loan application. Court records show that from 2009 through 2012, Shropshire owned Tax Connections, a Charlotte tax return preparation business. From 2009 to 2011, Shrophsire aided and assisted in the preparation of more than 600 tax returns for clients which were e-filed with the IRS. Many of the tax returns prepared by Shropshire falsely included Schedule C losses and refundable education credits, which decreased the clients’ tax liabilities, therefore resulting in larger tax refunds and false Earned Income Tax Credits. The tax loss associated with the false education credits is more than $580,000. Shropshire directed that many of the fraudulent tax refunds be deposited into a business bank account she controlled, and kept a portion of the refund as payment for her services. On some occasions, Shropshire did not provide her clients with copies of their completed tax returns or gave them incomplete copies, so clients could know their returns contained false information. The defendant is awaiting sentencing, and faces a maximum sentence of five years in prison and a maximum fine of $250,000 for the conspiracy count and a maximum sentence of 30 years in prison and a $1 million fine for the false statement on a loan application charge. (3:13-cr-00248).
Kenneth Sumner – On January 16, 2014, Kenneth Sumner, of Charlotte, pleaded guilty to filing a false tax return. Court documents indicate that Sumner was the owner of a Charlotte sales company, Ken B. Sumner and Associates. From 2006 through 2010, Sumner failed to file timely tax returns with the IRS despite having the requisite income to file tax returns. In June 2010, Sumner filed his 2006 federal income tax return which omitted gross receipts from Sumner’s business totaling approximately $106,808. For tax years 2007 and 2008, Sumner failed to file timely income tax returns even though he earned approximately $318,433 and $337,090, respectively. A sentencing date has not been set. Sumner faces a maximum sentence of three years in prison and a $250,000 fine. (3:13-cr-00257).
Denise Swanson – On August 22, 2013, Denise Swanson, of Lenoir, N.C., pleaded guilty to tax evasion for tax year 2010. Court documents show that Swanson was the owner and operator of Bottomline Accounting, a tax preparation and bookkeeping business. From 2006 to 2012, Swanson performed tax preparation services for J.W. and K.W., and their business, C.B. (“the Clients”), and was responsible for making tax payments on their behalf. Swanson received money from the Clients to pay various tax obligations to the IRS and other state agencies. But instead of making the payments, Swanson embezzled the money and used it to pay for personal expenses. In total, Swanson embezzled approximately $839,830. Also, Swanson failed to report the embezzled income on her own individual tax returns for tax years 2006 through 2011. Swanson awaits sentencing and faces a maximum sentence of five years in prison and a $250,000 fine. (5:13-cr-61).
Federal penalties for each count of conviction of tax crimes range from a maximum of one year in prison and a $100,000 fine for failure to file a tax return, false withholding exemptions, and delivering or disclosing false tax documents, to a maximum of 10 years in prison and a $250,000 fine for conspiracy to defraud with respect to false refund claims. Other penalties include a mandatory term of two years in prison and a $250,000 fine for aggravated ID theft charges, three years in prison and a $250,000 fine for obstructing or impeding an investigation and filing or preparing a false tax return, and a maximum of five years in prison and a $250,000 fine for tax evasion, failure to pay taxes, conspiracy to commit a tax offense or conspiracy to defraud.
The U.S. Attorney’s Office and the IRS remind tax payers to exercise caution during tax season to protect themselves against a wide range of tax schemes ranging from identity theft to return preparer fraud. The IRS has issued its annual “Dirty Dozen” which lists common tax scams that taxpayers may encounter, particularly during filing season. Taxpayers are urged look out for, and to avoid, the following common schemes:
• Identity theft
• Pervasive Telephone Scams
• False Promises of “Free Money” from Inflated Refunds
• Return Preparer Fraud
• Hiding Income Offshore
• Impersonation of Charitable Organizations
• False Income, Expenses or Exemptions
• Frivolous Arguments
• Falsely Claiming Zero Wages or Using False Form 1099
• Abusive Tax Structures
• Misuse of Trusts
Education is the best way to avoid these common schemes. To learn more about the Dirty Dozen scams and for help with recognizing and avoiding abusive tax schemes, the IRS offers educational material at www.irs.gov. Suspected tax fraud can be reported to the IRS using Form 3949-A found on the IRS.gov website.