KANSAS CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a New Fairfield, Conn., man was sentenced in federal court today for making false claims for tax refunds.
Nkosi Gray, 41, of New Fairfield, was sentenced by U.S. District Judge Brian C. Wimes to five years in federal prison without parole. The court also ordered Gray to pay $278,874 in restitution. Gray was taken into federal custody at the conclusion of today’s hearing.
On Jan. 13, 2014, Gray was found guilty at trial of one count of filing false claims for a tax refund.
Gray filed fraudulent tax returns that falsely claimed refunds due to over-withholding of taxes. Gray was convicted of filing a false tax return for which he received a $278,874 refund. According to court documents, Gray filed 11 fraudulent tax returns, seeking over $1.5 million in fraudulent refunds, even after receiving multiple notices by the IRS that the claims were fraudulent.
These claims utilized fictitious 1099-OID tax forms (which are legitimately used to pay taxes on income received from the interest on bond investments). In actuality, Gray had not received interest income from the banks and lenders listed on their Forms 1099, nor had any money been over-withheld.
Co-defendant Gerald A. Poynter, also known as “Brother Jerry Love,” 48, of Kansas City, Mo., pleaded guilty on Nov. 7, 2013, to being the leader of a conspiracy to defraud the government that utilized this fraudulent practice. He was sentenced to 13 years in federal prison without parole. Conspirators filed 284 fraudulent returns that claimed a total of $96 million dollars in refunds. The IRS mistakenly paid out $3.5 million on these fraudulent claims. Conspirators from eight states were involved in filing fraudulent tax returns in the largest federal false claims case that has ever been prosecuted in Missouri.
After he received a refund of $278,874 on Oct. 17, 2008, Gray paid a $15,000 fee to Poynter a few days later. After the refund was deposited into his account, Gray made 56 withdrawals over the next two months. By withdrawing the cash in increments of less than $10,000, Gray (a former bank employee) avoided the requirement for his bank to report those transactions to the government.
According to court documents, Gray refused to pay the IRS back despite aggressive collection efforts. He continued to live well and used trusts and multiple accounts to hide the money. He sent frivolous correspondence to IRS in an attempt to confuse and frustrate the collection as he continued filing fraudulent tax returns.
Poynter is among 13 defendants who have pleaded guilty. Co-defendant Kimberly Johnson, 43, of Chickamauga, Ga., was also convicted at trial and sentenced to four years in federal prison without parole. The court also ordered Johnson to pay $306,496 in restitution.
1099-OID Tax Fraud Scheme
Conspirators utilized 1099-Original Issue Discount forms as part of their scheme.
These forms are legitimately used by tax filers who must pay taxes on income they receive from the interest on their bond investments. Tax on certain bonds must be paid as income accrues. Bond holders receive annual forms, called 1099-Original Issue Discount (OID), from the debt issuers.
However, the scheme described in the indictments utilized the 1099-OID forms in a nonsensical manner. Clients of the conspirators assembled financial documents such as mortgage and loan statements, car payments, foreclosure records, bank statements, credit card statements, and other records of debt and spending. Poynter and his staff used this debt information – rather than any actual bond income – to prepare and/or finalize false tax returns and improperly calculated Forms 1099-OID.
These tax returns falsely claimed that the filers had received interest and dividend income and that federal income tax had been withheld. The fraudulent returns claimed the government had over-withheld taxes from the clients’ purported interest and dividend income, making the clients appear entitled to more than $96 million in tax refunds.
In reality, Poynter’s clients had not earned – or paid tax on – such income. No financial institution had issued any 1099-OID forms. Instead, the income that was listed was calculated by what the indictment describes as an “arbitrary and capricious formula.” Conspirators simply added up the taxpayers’ debts and spending and listed those creditors as “payers” of interest and dividends.
OID Fraud Web Site
A Web site has been established to provide information about the status of this investigation. Updates about this investigation and related cases will be posted at www.justice.gov/usao/mow/divisions/OIDfraud.htmlThis case is being prosecuted by Assistant U.S. Attorney Daniel M. Nelson. It was investigated by IRS-Criminal Investigation and the Treasury Inspector General for Tax Administration (TIGTA).