KC Man Pleads Guilty to Leading a nearly $100 Million, Nationwide Tax Fraud Conspiracy
KANSAS CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a Kansas City, Mo., man pleaded guilty in federal court today to leading a tax fraud conspiracy that attempted to receive nearly $100 million in fraudulent refunds from the IRS. Co-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.
“This scheme was based on a nonsensical formula that any honest person would instantly recognize was patently absurd and fraudulent,” Dickinson said. “Fortunately, the vast majority of these refund claims were detected by the IRS and denied. Those who profited from the scheme at the expense of law-abiding taxpayers will be held accountable.”
Gerald A. Poynter, also known as “Brother Jerry Love,” 48, of Kansas City, Mo., pleaded guilty before U.S. District Judge Brian C. Wimes to one count of conspiracy to defraud the United States by filing fraudulent tax returns and one count of filing a fraudulent tax return.
Under the terms of today’s plea agreement, Poynter will be sentenced to 13 years in federal prison without parole and must pay $951,930 in restitution to the government.
Poynter admitted that conspirators prepared and filed 284 fraudulent tax returns from July 1, 2008, to Sept. 21, 2011. Each of the returns contained false claims that the taxpayer listed was due a refund due to over-withholding of taxes, based on fictitious forms 1099-OID. In actuality, Poynter’s clients had not received interest income from the banks and lenders listed on their Forms 1099, nor had any money been over-withheld. 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.
Some individuals received hundreds of thousands of dollars in refunds. For the returns that successfully were paid out, Poynter received a fee. In an attempt to mask his involvement, Poynter requested that conspirators refer to his fees as “love donations,” frequently directing them to write checks to “Jerry Love Ministries.” Poynter used computer software to file returns electronically from his karate studio in Blue Springs.
Poynter filed returns in his own name, and in the names of his family. Poynter received a refund of $196,348 as a result of filing a fraudulent claim in July 2008. Poynter personally was responsible for recruiting at least 44 filers to the scheme. Poynter submitted at least $25 million in fraudulent claims on 81 returns filed for his clients, which caused a tax loss to the United States of at least $951,930.
Poynter also recruited “branch managers” who in turn recruited additional filers to the scheme.
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, 54, of Monroe, La.; Robert E. Morris, 67, 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.
Poynter conducted a training seminar in December 2008 at the Doubletree Hotel in Atlanta, Ga. At the seminar, Poynter gave a presentation outlining his “OID process,” during which he pointed out that the IRS would issue refunds even if the name listed on the OID form was “Spongebob Squarepants” or “Spiderman.” Poynter told attendees they would use a rented office rather than process the OID returns at home to avoid their homes being raided by the FBI. He talked about attracting attention from IRS criminal investigators, and he provided pointers on how to avoid that outcome. He also joked that his going to prison was a possibility.
In addition to this training session, Poynter conducted and participated in numerous other seminars and conference calls around the country to promote his OID process. Poynter also maintained a Web site called “luckytown” that was used to promote the scheme.
Oyer, the owner of ABC Seamless Siding in Kansas City, Mo., was a promoter and branch manager who recruited at least a dozen clients in furtherance of the scheme. She helped these individuals prepare and file at least 26 fraudulent returns, claiming $12.4 million in refunds. Of those attempts, the IRS paid out $92,974 and denied the remainder. Oyer did not file any returns in her name, and her personal total profit from the scheme was $2,862.
Perdido, who acted as a branch manager and recruited clients for the scheme, received the largest single refund from the scheme – $805,749, which must be forfeited to the government. Perdido received the refund on Feb. 6, 2009, and deposited the check into his bank account on Feb. 11. Perdido and his wife signed the check with “by:” in front of their names, a Sovereign Citizen practice.
More than $500,000 was quickly removed from Perdido’s bank accounts, with four wire transfers to the Philippines of $100,000 each that were used to purchase a car and a house in Batung. Perdido also bought an $11,000 Rolex watch, paid off his credit cards, and invested $200,000 in a private company (Helios). Before he received his refund, Perdido expressed concerns about the process’s legality. After getting the refund, he was concerned about cashing or depositing the check because the IRS might prosecute him. Even after expressing concerns about his potential prosecution for getting the refund check, Perdido became an affiliate in the scheme.
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. Bond holders then file these OID forms with the IRS, along with their income tax forms.
However, the scheme described in the indictments utilized the 1099-OID forms in a nonsensical manner. Clients of the conspirators, working with their branch managers, 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 income from bond proceeds and that federal income tax had been withheld. The fraudulent returns claimed the government had over-withheld taxes from the clients’ OID bond 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 – any bond income. No bond payer had issued any 1099-OID forms. Instead, the bond 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 bond interest.
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).