$120 million 1099-OID scam

[Demosthenes]

FOR IMMEDIATE RELEASE TAX
TUESDAY, DECEMBER 6, 2011 (202) 514-2007
WWW.JUSTICE.GOV TTY (866) 544-5309

SEVEN CHARGED IN FLORIDA IN $120 MILLION NATIONAL TAX FRAUD SCHEME

WASHINGTON – Seven individuals have been charged with participating in filing false tax returns that resulted in a $120 million tax fraud scheme, the Justice Department announced today. Penny Jones, a resident of Rigby, Idaho; Christopher Marrero of Davie, Fla.; Michael D. Beiter, Jr., formerly a resident of Coral Springs, Fla.; David Clum Jr. of Whites Creek, Tenn.; Dale Peters, a resident of San Mateo, Calif., Laura Barel, a resident of Lauderhill, Fla.; and John Michael Smith, Jr. of Hidden Hills, Calif., have been charged with participating in the scheme to file false tax returns

Jones and Marrero appeared in federal court today in Fort Lauderdale, Fla. Both entered not guilty pleas before U.S. Magistrate Judge Lurana S. Snow. Barel had been previously charged by a criminal complaint in May 2011. Arraignments are pending for Beiter, Clum, Peters and Smith.

According to the indictment, the false return scheme was national in scope, causing the filing of tax returns for at least 180 clients from 30 different states, requesting more than $120 million worth of fraudulent tax refunds. The indictment alleges that the defendants and clients of the scheme collectively filed more than 380 tax returns, mostly from tax year 2008 but also for other tax years, reporting the amount of their personal debt obligations as both income and as federal tax withholding.

The indictment also alleges that the defendants held seminars in Florida and Tennessee in which they recruited potential clients. The indictment and other publicly filed documents allege that clients paid $750 to have defendants prepare a tax return reporting this type of “OID” income, and that clients agreed to share 10 percent of their tax refund with defendants.

Previously, in a separate case in Fayetteville, Ark., a client of the scheme, Philip Butcher, formerly of Rogers, Ark., was charged with filing false claims for tax refunds. According to the indictment in that case, Butcher filed two tax returns reporting his loans as OID income and tax withholding, claiming tax refunds totalling $1,456,696. The Internal Revenue Service (IRS) paid Butcher $672,781.

Jones was previously enjoined by a federal court from preparing tax returns.

If convicted, Jones, Beiter, Clum and Peters each face 215 years in prison, Barel faces 25 years, Marrero faces 30 years and Smith faces 75 years. All of the defendants are also subject to fines and mandatory restitution if convicted.

The announcement was made by Wifredo A. Ferrer, U.S. Attorney for the Southern District of Florida; John A. DiCicco, acting Principal Deputy Assistant Attorney General of the Justice Department’s Tax Division; and Jose A. Gonzalez, Special Agent in Charge, IRS-Criminal Investigation (IRS-CI), Miami Office.

These cases were investigated by Special Agents of the IRS - CI. Trial attorneys Jed Silversmith and Jonathan Marx of the Tax Division, and Assistant U.S. Attorney Bertha Mitrani are prosecuting the case.

An indictment is only an accusation and a defendant is presumed innocent until proven guilty beyond a reasonable doubt.

More information about the Tax Division and its enforcement efforts can be found at www.justice.gov/tax.