Vallejo Man Sentenced to over 3 Years in Prison for False Claims in Tax Refund Scheme
SACRAMENTO, Calif. — United States District Judge John A. Mendez sentenced Kenneth Knockum, 48, of Vallejo, today to three years and 10 months in prison for three counts of filing false claims against the United States, U.S. Attorney Phillip A. Talbert announced.
According to court documents, Knockum was scheduled to be sentenced on May 10, 2016. When he failed to appear, a no bail bench warrant was issued and he was arrested in Vallejo on March 14, 2017.
According to evidence presented at a three–day bench trial in January 2016, Knockum prepared and filed taxes on behalf of himself and others utilizing an OID tax fraud scheme. Knockum prepared and filed tax returns claiming massive amounts of a particular kind of investment interest income, known as Original Issue Discount income. He also claimed that large portions of such income were withheld by financial institutions and paid to the Internal Revenue Service. The returns sought large refunds of such income — one return requested a refund of over $1.4 million, and another made a claim for over $500,000. Through a complex process, Knockum generated false 1099-OIDs and other tax forms to support the claimed income and taxes and filed those documents utilizing an IRS electronic filing system that requires special software and is used primarily by financial institutions and brokerage firms. The IRS caught the majority of the false returns and declared the claims to be frivolous, though the agency did sustain losses of over $125,000 in fraudulent refunds that were actually issued.
This case was the product of an investigation by the IRS, Criminal Investigation. Assistant United States Attorney Roger Yang prosecuted the case.