Missouri Woman Sentenced For Orchestrating Tax Scheme To Obtain “Free Money”
Case Is One of Many Prosecuted By United States Attorney Wigginton In Effort to Curb Tax Fraud
Tanya Nichols, 34, of St. Louis, Missouri, was sentenced to 57 months in federal prison on June 12, 2015, for orchestrating a four-year long income tax refund scheme, the United States Attorney for the Southern District of Illinois, Stephen R. Wigginton, announced today. Nichols was also ordered to pay $603,898 in restitution, to pay a $500 special assessment, and to serve three years of supervised release after she is released from prison.
Nichols, and her half-brother Justin Durley, 30, of Hazelwood, Missouri, were indicted by the federal grand jury on August 20, 2014. The pair was charged in lengthy indictment that alleged Nichols functioned as a dishonest tax preparer who filed false tax returns to claim inflated refundable tax credits for low-income tax filers.
Stephen R. Wigginton, United States Attorney for the Southern District of Illinois, remarked that, "Nichols, in her fraud scheme, recruited people by promising them ‘free money.’ But there is no free money in the tax code. Tax credits are paid out of the monies collected from men and women who do their lawful duty and contribute to the system. My office will not cease to combat this ‘free money’ mentality responsible for the various types of frauds against the government that we see. Tax cheats such as Nichols do not steal from some unknown ‘government,’ they steal directly out of the pockets of the hard-working people of Southern Illinois."
Nichols pleaded guilty on March 5, 2015, 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 was not charged with conspiracy, but rather was charged with one count of theft of government property and was separately sentenced to 3 months in prison for stealing more than $3,000.
The scheme to defraud was an ongoing 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 (CTC), which are 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. Evidence in Court revealed 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."
"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. Nichols took advantage of this system by falsifying income, employment, dependents, and other factors, to fraudulently generate these large refundable tax credits.
The investigation was conducted by agents from the Internal Revenue Service / Criminal Investigations. The case was prosecuted by Assistant United States Attorneys Steven D. Weinhoeft and Norman R. Smith.