Big DOJ case against OID scammers

[Demosthenes]

FOR IMMEDIATE RELEASE
TAX
WEDNESDAY, OCTOBER 28, 2009
http://WWW.JUSTICE.GOV

GOVERNMENT FILES SEVEN LAWSUITS NATIONWIDE TO BLOCK ALLEGED SCHEME INVOLVING FRAUDULENT TAX-REFUND CLAIMS

Promoters Allegedly Claim Massive Tax “Refunds” Based on Phony Claims of Large Tax Withholding

WASHINGTON - The United States this week has filed civil injunction lawsuits across the country against seven individuals, the Justice Department announced today. The federal suits – filed in Los Angeles; Panama City, Fla.; Salt Lake City; Nashville, Tenn.; and Pocatello, Idaho – allege that the defendants promote a tax fraud scheme designed to siphon hundreds of millions of dollars from the U.S. Treasury through fraudulent tax refund claims.

Papers filed in the cases say the defendants prepared tax returns requesting a total of $562.4 million in bogus refunds. One defendant – Dick Jenkins, of Heber City, Utah – allegedly holds himself out as a CPA and requested a $210 million fraudulent refund for one customer. The Internal Revenue Service (IRS) catches the vast majority of the bogus tax returns and blocks the claimed refunds.

Under the tax fraud scheme, known as the “redemption” or “OID redemption” scheme, participants file a series of false IRS forms, including tax returns, amended returns, and Forms 1099 (including Form 1099-OID) or Forms W-2, to request fraudulent tax refunds based on phony claims of large income tax withholding. According to papers filed in these cases and earlier cases against other alleged scheme promoters, redemption scheme promoters are tax defiers who falsely tell customers that the federal government maintains “secret” accounts of money for its citizens. Promoters claim to be able to help customers access the secret funds by filing the false IRS forms.

Altogether, according to the IRS, redemption scheme participants (including customers of the defendants in the seven lawsuits filed this week) have requested a total of $3.3 trillion in fraudulent refunds.

“The scope of the misconduct alleged in these lawsuits is staggering,” said John A. DiCicco, Acting Assistant Attorney General for the Justice Department’s Tax Division. “The IRS and Justice Department are working together closely to ensure that those who promote or participate in this large-scale attempted raid on the Treasury face all appropriate civil and criminal sanctions. Anyone who participates in this scheme can expect to not get the claimed refund, face very large civil penalties (up to 20 percent of the false claim), and where appropriate, face criminal prosecution with possible substantial prison sentences if convicted.”

The Justice Department has previously brought other injunction suits to shut down redemption scheme promoters. A federal court in Sacramento found that tax preparer Teresa Marty had been using the same scheme to claim bogus refunds for her customers, and preliminarily barred her from preparing tax returns for others. The Government sued Nyla McIntyre and her Los Angeles-based company, Approved Financial Services Inc., to permanently bar them from preparing tax returns for others.

Listed below are details of the seven lawsuits, filed in U.S. District Courts in the cities indicated:

Fraudulent “Refunds” Requested

United States v. Dick Jenkins, Salt Lake City, Utah $393 million
United States v. Susan Guan, et al., Los Angeles, California $4.5 million
United States v. Jacqueline Cornejo, Los Angeles, California $12.1 million
United States v. Evelyn Johnston, et al., Panama City, Florida $17.5 million
United States v. Thanh Cao, Los Angeles, California $34 million
United States v. Penny Jones, Pocatello, Idaho $93 million
United States v. Karen Miller, Nashville, Tennessee $8.3 million

TOTAL: $562.4 million

The Tax Division also prosecutes criminal cases involving the redemption scheme and other schemes involving fraudulent uses of IRS forms, including Forms 1099. These prosecutions often result in significant prison sentences. In May 2009 in the Southern District of Florida, Willie Bernard Cameron was sentenced to 60 months in prison for filing a false $2.9 million refund claim based on a fictitious Form 1099-OID. At the sentencing hearing, Cameron espoused tax-defier positions, including sovereignty and redemption. Other successful prosecutions have involved the use of fraudulent Forms 1099 to harass federal and state officials. In May 2009 in the Northern District of Ohio, Jeanne Herrington was sentenced to 96 months in prison for conspiracy to defraud the IRS and for retaliating against federal prosecutors by filing false Forms 1099 in their names. In May 2009 in the Central District of California, Giancarlo Pertile was sentenced to 60 months incarceration and fined $75,000. Evidence at sentencing showed that, after his indictment for tax evasion, Pertile filed Forms 1099-OID against the judge and others.

In the past decade, the Justice Department’s Tax Division has obtained more than 430 injunctions against tax fraud promoters and dishonest tax return preparers. Information about these cases is available on the Justice Department’s Web site.

[CaptainKickback]

Fraudulent “Refunds” Requested

United States v. Dick Jenkins, Salt Lake City, Utah $393 million
United States v. Susan Guan, et al., Los Angeles, California $4.5 million
United States v. Jacqueline Cornejo, Los Angeles, California $12.1 million
United States v. Evelyn Johnston, et al., Panama City, Florida $17.5 million
United States v. Thanh Cao, Los Angeles, California $34 million
United States v. Penny Jones, Pocatello, Idaho $93 million
United States v. Karen Miller, Nashville, Tennessee $8.3 million

Just a W.A.G., but the refund amounts, especially the 8-digit and especially the 9-digit one, for individuals, set off a panoply of bells, whistles, horns and sirens at the IRS. I mean really, a $93 million refund for someone living in Pocatello Idaho? Puh-leeze.

To quote myself, "Break them and break them hard."

[Judge Roy Bean]

It's no wonder . . . for $500.00 this genius scammer will even help you do it:

For those who have recently done a 1099 OID filing one of two things it typically occurred. One, the OID process has stalled and the returns have not been forthcoming. In this instance, one needs to correct any deficiencies in the filings and then be able push the returns through and have the refund issued.

Two, you have filed the OID's lead [sic] the IRS is come back with a frivolous filing letter and possibly jeopardy assessment. In this instance, it is imperative to formulate a very strong offense as the best defense is a good offense. This will include, challenging the IRS with statutory authority to issue the frivolous filing letter or jeopardy assessment, as well as, complete an administrative process under 5 USC 551-559 to make you own record and judgment in the matter.

In either instance above, there is additional information contained in the 1099 OID Enforcement Package that will show you how to file a federal action for enforcement and injunctive relief.

The 1099 OID Enforcement Package includes step-by-step instructions and sample documents for both enforcement and the IRS administrative process.

Price $500.00
Coming Soon! Please contact us if you are intersted [sic] in this product

Google 1099-OID scam and his ad shows up.

[bmielke]

Fraudulent “Refunds” Requested

United States v. Dick Jenkins, Salt Lake City, Utah $393 million
United States v. Susan Guan, et al., Los Angeles, California $4.5 million
United States v. Jacqueline Cornejo, Los Angeles, California $12.1 million
United States v. Evelyn Johnston, et al., Panama City, Florida $17.5 million
United States v. Thanh Cao, Los Angeles, California $34 million
United States v. Penny Jones, Pocatello, Idaho $93 million
United States v. Karen Miller, Nashville, Tennessee $8.3 million

Just a W.A.G., but the refund amounts, especially the 8-digit and especially the 9-digit one, for individuals, set off a panoply of bells, whistles, horns and sirens at the IRS. I mean really, a $93 million refund for someone living in Pocatello Idaho? Puh-leeze.

To quote myself, "Break them and break them hard."

Anyone know anything about Miller? I live in the Nashville Area (Well it's the closest big city) and was curious to see a Nashville Name on the list.

As another point Dick Jenkins filed for a $213 Million refund, how the hell did he think he was going to get away with that? That isn't even sensible.

[wserra]

Anyone know anything about Miller? I live in the Nashville Area (Well it's the closest big city) and was curious to see a Nashville Name on the list.

Here is a copy of the complaint.

I once knew a judge who routinely cracked himself up. One of his favorite lines: when a lawyer would say, "Judge, I need to make a record", Joe would say, "So go to Nashville" and fall off the bench laughing.

[bmielke]

Anyone know anything about Miller? I live in the Nashville Area (Well it's the closest big city) and was curious to see a Nashville Name on the list.

Here is a copy of the complaint.

I once knew a judge who routinely cracked himself up. One of his favorite lines: when a lawyer would say, "Judge, I need to make a record", Joe would say, "So go to Nashville" and fall off the bench laughing.

Thanks,

Looking at the complaint, it looks like she wasn;t doing this for clients off the street. It looks like people were seeking her out the complaint talks about people from FL, SC, and MN. It looks like a run of the mill scam, nothing overly interesting. One thing I was glad to see was that she did the same thing for herself. IMHO nothing is worse then when someone like this takes money from clients to run their scam, but does not use the scam themselves. She is a crook, but at least she believed herself.

[notorial dissent]

OK, I’ll bite.

I know what a 1099 OID is, what is it supposed to be for, and I have seen some versions of the mis-use of it, but this one I am not getting. I can see the little penny ante stuff that some of them have been pushing, but $393 million, that I can’t even come close to figuring out what they based it on.

[Judge Roy Bean]

OK, I’ll bite.
... I can’t even come close to figuring out what they based it on.

Get millions of dollars and run, hoping the chaos left behind by you and your like-minded fools is overwhelming the government's capacity to find and effectively prosecute.

You have a better chance at the 1099-OID scam than you do at the lottery.

[notorial dissent]

What I was trying to get a handle on was what kind of nonsense they would have to be putting on the form to justify the refund, not that any of them could be, an OID is for such a narrow and specific purpose that almost any use of it has to be looked at, and obviously here has been. What I would love to see are some of the forms, if just for the giggle value

[bmielke]

Well one of the clients of the Scammer who requested $393 million was supposed to get a $213 Million, so if all of his clients had outragous sums it's not hard to imagine how he got there. But I agree what kind of scammer submits a $213 Million bill? Is it possible he is also a soverign?

[notorial dissent]

Ya think???? I have been seeing variations of this floating around in places, but nothing as ambitious as this. It almost sounds like a crossbreed of the old redemption scam tied into OID in some fashion, but I haven’t seen anything this grandiose so far.

[bmielke]

Ya think???? I have been seeing variations of this floating around in places, but nothing as ambitious as this. It almost sounds like a crossbreed of the old redemption scam tied into OID in some fashion, but I haven’t seen anything this grandiose so far.

He could also just be an idiot who added as many zeros on as he thought he could get away with. $213,000,000,000 would have been just a little too much. The IRS would have thought they were dealing with GM/AIG/Wells Fargo.

[LOBO]

OK, I’ll bite.

I know what a 1099 OID is, what is it supposed to be for, and I have seen some versions of the mis-use of it, but this one I am not getting. I can see the little penny ante stuff that some of them have been pushing, but $393 million, that I can’t even come close to figuring out what they based it on.

The ones I've seen have been based on debts they have. So if someone had a $120,000.00 mortgage debt, a $2,000.00 credit card debt and a $30,000.00 car payment debt, they would have a fake $120,000.00 1099-OID "from" the mortgage company, a fake $2,000.00 1099-OID "from" the cedit card company, and a fake $30,000 1099-OID "from" the car payment company. Then they would file a form claiming $152,000.00 in taxable interest and $152,000.00 in withholding. The interest would result in a liability, so the refund wouldnt be for $152,000.00.

A lot of the claims I've seen were amended returns used to switch from the Sciff or Hendrickson returns to an OID return.

[notorial dissent]

Yeah, the OID pushers I have seen so far have been doing a version of what you are talking about, don't exactly remember the logic hoops they twisted to justify using the OID, but this is where they were going.

It is just the ones with the completely out there refunds that I have a hard time with, haven't seen the "logic" they are using to justify what they are doing. It is still just a variation on the redemption or claim of right scam using a bill of exchange instead of the OID.

It is all going to end up with them getting hit for taxes and filing fraudulent forms. And as several people have pointed out over time, they will end up paying more in fines and interest than they would have if they'd just paid up in the first place, but then stupidity and greed tend to be expensive in the long run.

[bmielke]

OK, I’ll bite.

I know what a 1099 OID is, what is it supposed to be for, and I have seen some versions of the mis-use of it, but this one I am not getting. I can see the little penny ante stuff that some of them have been pushing, but $393 million, that I can’t even come close to figuring out what they based it on.

The ones I've seen have been based on debts they have. So if someone had a $120,000.00 mortgage debt, a $2,000.00 credit card debt and a $30,000.00 car payment debt, they would have a fake $120,000.00 1099-OID "from" the mortgage company, a fake $2,000.00 1099-OID "from" the cedit card company, and a fake $30,000 1099-OID "from" the car payment company. Then they would file a form claiming $152,000.00 in taxable interest and $152,000.00 in withholding. The interest would result in a liability, so the refund wouldnt be for $152,000.00.

A lot of the claims I've seen were amended returns used to switch from the Sciff or Hendrickson returns to an OID return.

Yeah thats what Miller was doing. I just don't buy that a private person has $213 Million in debt. Maybe if they were a billionaire and had a had a huge mortgage, but then I think we would heaer about the IRS going after them personally.

[notorial dissent]

Yeah, but the point of the whole exercise is that the only place you should be / can be getting an OID from is an original discount broker, and then only because you paid that much tax on a financial instrument, at time of purchase, and I’m still not clear on exactly how or why you would do that, but my personal suspicion is that it would be very rare, and on a huge transaction to get any sizable amount of tax due. So the field of things that it is applicable to is like tiny, and your mortgage and car loan don’t cut it.

[Judge Roy Bean]

This is the Cao complaint - it's worth the read:

http://images.ocregister.com/newsimages/2009/10/28/CaoComplaint20091027.pdf

When in doubt, try everything all at once.

[bmielke]

This is the Cao complaint - it's worth the read:

http://images.ocregister.com/newsimages/2009/10/28/CaoComplaint20091027.pdf

When in doubt, try everything all at once.

Well at least he was an equal oppertunity scammer. He scammed both businesses and inviduals. I would love to see the Jenkins Complaint, ibet that one reads like a fantasy novel.

[Demosthenes]

_______________________________________________________________________________
FOR IMMEDIATE RELEASE TAX
FRIDAY, NOVEMBER 20, 2009 (202) 514-2007
http://WWW.JUSTICE.GOV TDD (202) 514-1888

FEDERAL COURT SHUTS DOWN LOS ANGELES AREA TAX PREPARER
Torrance, California Woman Allegedly Claimed Millions in Fraudulent Tax “Refunds”
Based on Phony Claims of Large Tax Withholding
WASHINGTON - A federal court in Los Angeles has issued permanent injunctions barring a Torrance, Calif., tax preparer, Susan Guan and her company, SRN Financial Services Inc., from preparing tax returns for others, the Justice Department announced today. The defendants agreed to the injunction orders. The government complaint in the civil case alleged that Guan and SRN promoted a tax-fraud scheme designed to siphon millions of dollars from the U.S. Treasury. Guan allegedly requested a total of $4.5 million in fraudulent refunds.
According to the complaint, the defendants promoted a tax-fraud arrangement known as the “redemption” or “OID redemption” scheme. Guan and her firm allegedly filed a series of false IRS forms, including tax returns, amended returns, and IRS Forms 1099-OID to request fraudulent tax refunds based on phony claims of large income tax withholding. For one of her customers, Susan Guan allegedly requested an $851,786 fraudulent refund on a false amended tax return with 16 bogus Forms 1099-OID to support the refund request. The Internal Revenue Service (IRS) catches the vast majority of bogus redemption-scheme tax returns and blocks the claimed refunds.
Guan’s case was one of seven lawsuits filed across the country last month against alleged redemption scheme promoters. Papers filed in those cases said the defendants prepared tax returns requesting a total of $562.4 million in bogus refunds. Altogether, according to the IRS, redemption scheme participants (including customers of the defendants in those seven lawsuits) have requested a total of $3.3 trillion in fraudulent refunds.

John A. DiCicco, Acting Assistant Attorney General for the Justice Department’s Tax Division, thanked Grayson A. Hoffman, the Justice Department trial attorney who handled the case, and Shauna Henline, the IRS senior technical advisor who conducted the investigation.
In the past decade, the Justice Department’s Tax Division has obtained more than 430 injunctions against tax fraud promoters and tax return preparers. Information about these cases is available on the Justice Department’s Web site.

[Demosthenes]

FOR IMMEDIATE RELEASE TAX
FRIDAY, NOVEMBER 20, 2009 (202) 514-2007
http://WWW.JUSTICE.GOV TDD (202) 514-1888
TENNESSEE WOMAN BARRED FROM PREPARING FEDERAL TAX RETURNS FOR OTHERS; JUDGE ISSUES PRELIMINARY INJUNCTION
Preparer Claimed Large Tax “Refunds” Based on Phony Claims of Large Tax Withholding
WASHINGTON – A federal court today issued a preliminary injunction barring Karen Liane Miller of Nashville, Tenn., from preparing federal income tax returns for others. The court order found that Miller promotes a tax defier scheme that claims large fraudulent tax refunds for customers. The order, entered by U.S. District Judge Aleta A. Trauger, remains in effect while the lawsuit is pending. Violation of an injunction can result in civil and criminal sanctions, including fines and imprisonment.
The court found that Miller repeatedly prepared federal income tax returns claiming bogus refunds in “astonishing” amounts, based on a tax fraud scheme known as the “redemption” scheme. The court held that Miller prepared and filed 41 income tax returns for customers in 2009 claiming more than $8.3 million in fraudulent refunds. The court said that the redemption scheme is based on a frivolous theory that the federal government maintains secret accounts for its citizens, and that taxpayers can gain access to funds in those accounts by issuing IRS 1099-OID forms to their creditors.
The case against Miller is one of seven lawsuits the Justice Department filed across the nation in October, which seek permanent injunctions against tax preparers who allegedly promote the redemption scheme. The defendants in those cases allegedly prepared tax returns fraudulently requesting a total of $562.4 million in refunds. Under the scheme, participants file a series of false IRS forms, including tax returns, amended returns, and Forms 1099 (including Form 1099-OID) or Forms W-2, to request fraudulent tax refunds based on phony claims of large income tax withholding.
John A. DiCicco, Acting Assistant Attorney General for the Justice Department's Tax Division, thanked Brian Corcoran, the Justice Department trial attorney who handled the case and Shauna Henline, the Internal Revenue Service senior technical advisor who conducted the investigation.
In the past decade, the Justice Department’s Tax Division has obtained more than 430 injunctions against dishonest tax-return preparers and tax-fraud promoters. Information about these cases is available on the Justice Department Web site.
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