KANSAS CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a New Fairfield, Conn., man and a Chickamauga, Ga., woman were convicted in federal court today of making false claims for tax refunds.
Nkosi Gray, 40, of New Fairfield, Conn., and Kimberly Johnson, 43, of Chickamauga, Ga., were each found guilty of one count of filing false claims for a tax refund.
Gray and Johnson each filed fraudulent tax returns that falsely claimed refunds due to over-withholding of taxes. Gray received a $278,874 refund and Johnson filed a claim for a $61,959 refund on behalf of another person identified in the federal indictment as “M.L.F.” 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, they 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. Conspirators claimed that a total of $96 million dollars in fraudulent tax refunds were due. The IRS mistakenly paid out $3.5 million on these fraudulent claims.
Gray, who received a refund of $278,874 on Oct. 17, 2008, 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.
Johnson filed a refund claim for $61,959 in April 2009 on behalf of “M.L.F.” and that refund was issued.
Following the presentation of evidence, the jury in the U.S. District Court in Kansas City, Mo., deliberated for about six hours over two days before returning the guilty verdicts, ending a trial that began Monday, Jan. 6, 2014.
Under federal statutes, Gray and Johnson are each subject to a sentence of up to five years in federal prison without parole, plus a fine up to $250,000. Separate sentencing hearings are scheduled for May 15, 2014.
Poynter is among 11 defendants who have pleaded guilty, including Kristi Jones, 41, of Riverside, Mo.; Shirley Oyer, 72, of Overland Park, Kan.; Jennifer Wilson, 36, of Cumming, Ga.; Mark J. Murray, 51, of Newton, Ala.; John V. Perdido, 57, of Temecula, Calif.; Earl Lee Davis, 55, of Monroe, La.; Robert E. Morris, 68, of Rocklin, Calif.; and Karen A. Olson, 42, of Wood Dale, Ill. Marian Fine-Kennedy, 36, of Eugene, Ore., and Maria Haro Campos, 42, of Vista, Calif., have each pleaded guilty in separate but related cases.
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.html
This 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).