U.S. Asks Courts in California & South Carolina to Shut Down Promoters of Allegedly Fraudulent $39.2 Million Tax Refund Scam
Tax Return Preparers Allegedly Claim Huge Fraudulent Tax Refunds
Based on Fictitious Withholding
WASHINGTON — The United States has sued tax return preparers in Placerville, Calif., and Columbia, S.C., seeking to bar them from preparing federal tax returns for others, the Justice Department announced today. According to the government complaints in the two cases, Teresa Marty of Pollock Pines, Calif., and Winston Able of Blythewood, S.C., prepare federal income tax returns for their customers that claim fraudulent tax refunds. The government alleges that Marty prepared one tax return claiming a $2.7 million fraudulent refund for one customer.
The complaints allege that Able and Marty both employ a tax fraud scheme that uses fabricated IRS Forms 1099-OID to report fictitious tax withholding on their customers’ returns and then claim refunds of huge amounts. The complaints against Marty and Able allege that the scheme is part of a growing trend among tax protesters to file frivolous tax returns and forms in an attempt to escape their federal tax obligations and steal from the U.S. Treasury.
The complaints allege that while the IRS detects and stops most fraudulent refund claims, Marty’s fraudulent tax return preparation has resulted in the IRS’s issuance of at least $6.9 million in erroneous payments to her customers. The government alleges that the total amount of fraudulent refunds requested on the returns Marty prepared or filed in 2008 was approximately $26.2 million and the total amount of fraudulent refunds requested on the returns Able prepared or filed was over $13 million.
Customers who participate in this tax fraud scheme may be subject to sizeable penalties for filing returns with excessive refund claims —including a penalty equal to 20% of the amount improperly claimed. The penalty applies even if, as usually happens, the IRS detects the false claim and blocks a tax refund. Thus a taxpayer improperly claiming a $2 million refund could be liable for a $400,000 penalty as well as other penalties and possible criminal prosecution.
"The actions announced today are another example of the government’s nationwide efforts to shut down tax fraud schemes and unscrupulous tax return preparers," said John A. DiCicco, Acting Assistant Attorney General for the Justice Department’s Tax Division. "Taxpayers foolish enough to consider participating in this illegal scheme should consider that, in addition to risking criminal prosecution, they also risk incurring civil penalties that could cause them to lose their homes and their savings."
"Taxpayers should steer clear of any situation involving fabricating tax forms or reporting fictitious tax withholding," said IRS Commissioner Doug Shulman. "These schemes carry a high price for promoters and for taxpayers. We aggressively pursue unscrupulous tax return preparers involved in such scams. Taxpayers should remember they are ultimately responsible for what’s on their tax returns. If a promoter’s sales pitch sounds too good to be true, be sure to check it out first."
In the last decade, the Justice Department has obtained injunctions against more than 375 tax return preparers and tax-fraud promoters. Information about these cases is available on the Justice Department Web site.