May 28, 2003

OFFICE OF THE UNITED STATES ATTORNEY
SOUTHERN DISTRICT OF CALIFORNIA
San Diego, California

United States Attorney
Carol C. Lam

For Immediate Release

NEWS RELEASE SUMMARY

Carol C. Lam, United States Attorney for the Southern District of California, and Eileen J. O'Connor, Assistant Attorney General for the Tax Division, Department of Justice, announced today that Gregory Jacobs, Sr., pled guilty in United States District Court in San Diego to conspiring to file more than 3,100 false tax returns with the Internal Revenue Service ("IRS") and claiming refunds totaling $8.7 million. According to court documents, Gregory Jacobs, Sr., along with Gwendolyn Jones, Deborah Hughes, and Brenice Hughes operated a tax return preparation service under the name "Neighborhood Money Tree" at 4218 Market Street, San Diego, California, from approximately October 1998 to mid-January 1999. In mid-January 1999, defendant Jacobs began to operate separately from the other three defendants at the Market Street address under the moniker "Boxers Against Drugs" ("B.A.D.") Earned Income Agency. At that time, Gwendolyn Jones, Deborah Hughes, and Brenice Hughes moved to 4120 Alpha Street, Suite D, San Diego, California, and operated separately as the Neighborhood Money Tree at this address until March 1999, when IRS special agents executed a federal search warrant on both locations. Gwendolyn Jones, Deborah Hughes, and Brenice Hughes have previously pleaded guilty to the tax fraud conspiracy and have been sentenced to the custody of the United States Bureau of Prisons.

By his plea, Defendant Jacobs admitted to conspiring with Gwendolyn Jones, Deborah Hughes and Brenice Hughes, and with others, to prepare and file at least 3,140 tax returns for individuals for the tax years 1995 through 1998, which claimed $8,790,607.00 in bogus refunds. The IRS issued approximately $120,000.00 in refund checks before the scheme was detected and a criminal investigation commenced.

Defendant Jacobs further admitted that he and his coconspirators solicited recipients of Aid to Families with Dependent Children ("AFDC") and Supplemental Security Income ("SSI") by word of mouth and written flyers, claiming that such recipients may be eligible for hundreds or thousands of dollars from the United States, and that the individuals were entitled to the Earned Income Tax Credit ("EIC"), when the defendant knew that the individuals, in fact, were not entitled to claim the credit on their tax returns. The defendant also admitted that, in order for the clients to appear eligible for the EIC refund, defendant and others created false, sole proprietorship businesses to report on Schedule C of the clients' tax returns, reporting that the client owned a sole proprietorship business, when in fact the client did not. The defendant and his conspirators would then file the false returns with the IRS.

To ensure that the defendant and his conspirators had control over the refund checks at all times, the defendant and others listed the business addresses of the Neighborhood Money Tree as the taxpayers' addresses, so that any refund check would be mailed directly to the Neighborhood Money Tree and not to the client. The defendant also admitted that when a refund check was delivered to the Neighborhood Money Tree, or when notified that a refund check was available for pick up at the post office at 27th and C Streets, San Diego, California, defendant or one of the other conspirators would escort the clients to retrieve and subsequently cash the refund check. After the clients cashed the refund checks, the defendant or another of the conspirators would immediately take their fee from the cashed proceeds. At times, the fee for the defendant's services was set at a percentage of the refund check, usually twenty-five percent. At other times, the fee for the defendant's services was set at $200 per dependent claimed on the tax return. Defendant Jacobs admitted to being the owner and supervisor of the B.A.D. Earned Income Agency. Gwendolyn Jones and Deborah Hughes previously admitted to being the owners and supervisors of the Neighborhood Money Tree.

Defendant Jacobs entered his guilty plea before the Honorable M. James Lorenz, United States District Judge. Sentencing is set for September 25, 2003 at 9:30 a.m.

All tax returns prepared by the defendants sought the Earned Income Tax Credit as a refund. The Earned Income Tax Credit is a refundable federal income tax credit designed to assist low-income working families. For a taxpayer to qualify for the EIC, the taxpayer must: (a) meet the requirements of, and file, a federal income tax return under the filing status of married filing jointly or head of household; (b) have a qualified child; and (c) have earned income of no more than $26,673 in 1995; $28,495 in 1996; $29,290 in 1997; and $30,580 in 1998. To qualify as a head of household, the taxpayer must furnish over half the cost of maintaining a household in the United States for more than six months during the taxable year, which is the principal place of abode of a child or descendant who is unmarried or who qualifies as a dependent. (A qualified child must be under the age of 19 and live in the United States for more than six months during the tax year.)

The EIC reduces the federal taxes a qualified person may owe. If the EIC amount exceeds the tax liability of a qualified taxpayer, the remaining EIC will be refunded to the taxpayer in the form of a check drawn upon the U.S. Treasury. To qualify for the EIC, individuals must have "earned income." Sources of money such as AFDC, Welfare benefits, SSI, alimony, and unemployment compensation are not earned income and, therefore, not calculated when determining EIC.

DEFENDANT

Gregory Jacobs, Sr.

SUMMARY OF CHARGES

Title 18, United States Code, Section 286: Conspiracy to Defraud the United States
by Making False, Fictitious or Fraudulent Claims Upon an Agency of the United States.

Maximum sentence: Ten years in prison and fine not to exceed $250,000.

AGENCY

Internal Revenue Service, Criminal Investigation