Missouri Woman Guilty Of Tax Scheme To Obtain “Free Money”

Tanya Nichols, 33, of St. Louis, Missouri, pleaded guilty on March 5, 2015, in US District Court for participating in an income tax refund scheme, the United States Attorney for the Southern District of Illinois, Stephen R. Wigginton, announced today.

Nichols, and her half-brother Justin Durley, 30, of Hazelwood, Missouri, were indicted by the federal grand jury on August 20, 2014. They were charged in lengthy indictment that alleges Nichols functioned as a dishonest tax preparer who filed false tax returns to claim inflated refundable tax credits for low-income tax filers.

Nichols pleaded guilty to conspiracy to obstruct or impair the Internal Revenue Service in the lawful assessment and collection of income taxes and distribution of tax refunds, three counts of mail fraud and one count of theft of government property. Durley is charged with theft of government property. Durley is scheduled for trial on May 11, 2015.

The scheme to defraud was described as an ongoing federal income tax refund scheme where Nichols

prepared fraudulent income tax returns for individual tax filers in order to generate "refundable tax credits," such as the earned income tax credit (EIC) and the child tax credit, which were refunded to the filer. The false information contained in the income tax returns prevented the IRS from making an accurate ascertainment, computation, and assessment of tax liabilities. It also prevented the IRS from making a correct distribution of income tax refunds. The false tax returns generated a larger tax refund than the filer was entitled to receive. Nichols shared the proceeds generated from the fraudulent returns with the tax filers, while collecting a fee in excess of that typically charged by legitimate tax preparers.

Nichols also paid finders’ fees to those who recruited tax filers to participate in the scheme. The indictment charges that Nichols and her coconspirators solicited low-income individuals residing in St. Louis, Missouri and East St. Louis, Illinois to become participants in this refund scheme by promising IRS tax refunds, sometimes marketed as "free money."

The indictment explains that "refundable tax credits" are vulnerable to abuse because they have cash value to tax filers. That means a filer can receive "refund" payments for refundable credits even when the person filing the tax return has never paid any income tax whatsoever. In the case of low-income tax filers, it is common for a person to have little or no federal tax liability while still qualifying to receive these valuable refundable tax credits. This means that a low-income filer can receive a tax "refund" that exceeds the amount of income tax the filer actually paid. In that situation, the filer is not receiving a refund of their money; but rather they are actually profiting from the tax code by receiving thousands of dollars’ worth of refundable tax credits that exceed the filer’s tax obligations. The indictment alleges that Nichols took advantage of this system by falsifying income, employment, dependents, and other factors, to fraudulently generate these large refundable tax credits.

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Conspiracy is punishable by not more than 5 years’ imprisonment, a $250,000 fine, and not more than 5 years supervised release. Theft of government property is punishable by not more than 10 years’ imprisonment, a $250,000 fine and not more than three years supervised release. Each count of wire fraud is punishable by not more than 20 years’ imprisonment, a $250,000 fine, and not more than three years of supervised release. However, the United States Sentencing Guidelines must be applied to the case and considered by the Court during sentencing. Nichols is scheduled to be sentenced on June 12, 2015.

The investigation is being conducted by agents from the Internal Revenue Service / Criminal Investigations. The case is being prosecuted by Assistant United States Attorneys Steven D. Weinhoeft and Norman R. Smith.

An indictment is a formal charge against a defendant. Under the law, Justin Durley is presumed to be innocent of a charge until proved guilty beyond a reasonable doubt to the satisfaction of a jury.