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Justice News

Department of Justice
U.S. Attorney’s Office
Western District of Washington

Friday, July 25, 2014

Former Federal Employees Sentenced to Prison for Tax Fraud

Married Couple, Both Federal Retirees, Falsely Claimed More Than $723,000 Tax Refund

            A married couple from Whidbey Island, Washington, both of whom had lengthy careers as federal employees, was sentenced today to prison for conspiracy to defraud the government and making false or fraudulent claims, announced U.S. Attorney Jenny A. Durkan.  DEBRA A. AARON, 60, was sentenced to five years in prison and SAMUEL A. AARON, 71, was sentenced to 30 months in prison.  Both were sentenced to three years of supervised release and $723,275 in restitution.  SAMUEL AARON had a distinguished military career and then worked for the Federal Aviation Administration for more than 25 years.  Noting that service, Chief Judge Marsha J. Pechman told him, “This kind of theft from the government cannot go on.  You violated the trust of every veteran; you violated the trust of every school child; you violated the trust of every employee of the FAA.”

            According to records filed in the case, in 2008 the AARONs promoted a well-known fraudulent tax scheme known as 1099 OID fraud.  Using the scheme, the couple claimed they were owed a tax refund of $723,275.  DEBRA AARON filed similar bogus claims on behalf of 30 other people for more than $14 million.  Some $4 million was paid out before the IRS caught the fraud.  The AARONs used a shell company to launder the proceeds of the scheme and claimed some of the money was used to help impoverished women in third world countries.  In fact they used the money for a home remodel, expensive trips to Sedona, Arizona and the Caribbean, lavish outings to Las Vegas and other luxuries.

            DEBRA AARON retired following a lengthy career at a variety of government jobs, retiring as a management consultant for the FAA.  At the sentencing hearing Chief Judge Pechman told her “I can’t find any other motivation for doing this other than greed…. The public trust has been violated.  Chief Judge Pechman noted that DEBRA AARON had recruited at least two of her friends to participate in the scheme, and now “their lives are quite devastated” by their criminal conviction and sentence.

The IRS has repeatedly publicized 1099-OID fraud, warning taxpayers about submitting fraudulent claims.  The IRS website states:
False Form 1099 Refund Claims
In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns.  If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

The case was investigated by IRS Criminal Investigation (IRS-CI) and was prosecuted by Assistant United States Attorneys Kate Vaughan and Thomas Woods.

Updated March 20, 2015