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.

[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 ... 091027.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 ... 091027.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.
# # #

[The Observer]

UNITED STATES OF AMERICA,
Plaintiff,
v.
KAREN LIANE MILLER,
Defendant.

Release Date: NOVEMBER 24, 2009

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION

Judge Trauger

AMENDED

ORDER GRANTING UNITED STATES' MOTION
FOR PRELIMINARY INJUNCTION

Upon motion by Plaintiff, United States of America, the Court makes the following findings of fact and conclusions of law and enters this preliminary injunction.

STANDARDS FOR PRELIMINARY INJUNCTION

In order to obtain a preliminary injunction prohibiting Karen Liane Miller ("Miller") from acting as an income tax return preparer pursuant to 26 U.S.C. (Internal Revenue Code, I.R.C., or the "Code") section 7407, the United States must show a likelihood of success on the merits that (1) Miller engaged in conduct subject to penalty under Code section 6694 or 6695 or engaged in fraudulent or deceptive conduct that substantially interfered with the proper administration of internal revenue laws; (2) injunctive relief is appropriate to prevent recurrence of such conduct; and (3) Miller continually and repeatedly engaged in conduct described in (1) above and a more limited injunction of such conduct would not be sufficient to prevent interference with the proper administration of internal revenue laws.

In order to obtain a preliminary injunction pursuant to Code section 7408 the United States must show a likelihood of success on the merits that (1) Miller engaged in conduct subject to penalty under Code section 6700 and/or 6701; and (2) injunctive relief is appropriate to prevent the recurrence of such conduct.

In order to obtain a preliminary injunction pursuant to Code section 7402, the United States must show a likelihood of success on the merits that an injunction is necessary or appropriate for the enforcement of the internal revenue laws.

FINDINGS OF FACT

1. This action has been requested by the Chief Counsel of the Internal Revenue Service, a delegate of the Secretary of the Treasury, and commenced at the direction of a delegate of the Attorney General under 26 U.S.C. section 7402, 7407, and 7408.

2. Miller is a resident of Nashville, Tennessee.

3. Miller prepares tax returns for compensation.

4. Miller used an Electronic Filing Identification Number ("EFIN") to electronically file tax returns for her customers.

5. In 2009, Miller prepared and filed numerous fraudulent tax returns (Form 1040) for the tax year 2008 and fraudulent amended tax returns (Forms 1040X) for previous years, and prepared and filed with the IRS other frivolous documents on behalf of others in exchange for compensation.

6. Miller has also been listed as a third party designee, or as having power of attorney with respect to certain of her customers, on numerous income tax returns filed since 2007.

7. Miller promotes a tax-fraud scheme that involves filing fraudulent tax returns and other frivolous documents with the IRS on behalf of her customers. She both prepares tax returns for customers, and in other cases identifies herself as a customer's designee before the IRS.

8. The returns Miller prepares for others falsely state large amounts of taxable interest income and equivalent amounts of federal tax withholding. Tax is reported on the returns Miller prepares, but the false tax withholding falsely reported to the IRS on her customers' returns results in huge and fraudulent refund claims on her customers' Form 1040 tax returns in amounts sometimes in the millions of dollars.

9. Before the IRS was sufficiently aware of the magnitude of Miller's scheme to take necessary precautions, the IRS erroneously issued $ 1,176,629 in refunds to Miller's customers. Many of the refund requests on these fraudulent returns exceeded $ 200,000, and one return prepared and filed by Miller requested a refund of $ 1,021,616. Miller herself asked for a refund in her own 2005 amended income tax return (filed in November 2008) of $ 2,958,762.

10. In support of the fraudulent refund claim, Miller prepares and files with the IRS false Schedule B statements reporting interest earned by her customers. She then reports the same figure as tax withheld. Such withholding or interest earned would, in theory, usually be reported on, and corroborated by, a Form 1099-OID received by the taxpayer and later filed by the taxpayer or his tax preparer. Miller has frequently not filed Forms 1099-OID for her customers to back up the claims in the tax returns she prepares, choosing instead simply to report income that would otherwise be reflected in such a document.

11. Certain utterly false tax defier contentions about the proper utilization of Forms 1099OID are the basis for Miller's scheme. IRS Forms 1099-OID are used to report Original Issue Discount (OID) income (and any federal income tax withheld on that income). OID income is a reportable form of taxable interest based upon the difference between the maturity and issuance price of a debt instrument. OID is generally included in a taxpayer's income as it accrues over the term of the debt instrument, whether or not the taxpayer actually receives payments from the issuer of the debt instrument. OID is treated like a payment of interest and a party issuing a financial instrument generating OID must issue a Form 1099-OID.

12. By reporting in her customers' tax returns these large interest sums, the returns prepared by Miller make overlapping false representations. First, the returns prepared by Miller (as well as those listing her as third party designee or power of attorney) falsely report the existence of OID income with respect to the customer. Second, such returns also falsely report that federal income taxes were withheld for the full amount of OID purportedly paid or received by her customer, when there is no independent verification or proof that this in fact occurred -- on the contrary, there is substantial evidence that it did not.

13. This scheme is based upon the purported existence of IRS Forms 1099-OID issued by Miller's customers to their creditors -- usually a credit card company, mortgage company, or other large bank or financial institution. The amount of the false "original issue discount" reported is typically equivalent to the amount of debt owed by the customer to the creditor. The returns Miller prepares rely on this general concept to report tax withholding for the full amount of the phony "original issue discount."

14. This fraudulent use of Forms 1099-OID, or fraudulent reporting of nonexistent OID income, is itself based upon the tax defier theory of "commercial redemption" or "redemption." This theory frivolously contends that all taxpayers have a secret account with the Treasury Department. Issuance of a Form 1099-OID to a taxpayer's creditor, proponents of this scheme assert, permits access to these accounts, enabling the creditor to receive full payment for the amount of the indebtedness.

15. Through the above, Miller claims on her customers' IRS Form 1040 the total amount of the false "original issue discount" as both interest income and false withholding. This results in increased tax liability for the customer, but (because of the parallel false withholding claims) produces a huge false refund claim dwarfing the reported amount of taxes owed. Through this scheme, nonexistent withheld taxes reported in the returns prepared and filed by Miller result in massive claimed refunds.

16. The magnitude of the refunds that Miller claims through this theory is astonishing and frequently exceeds $ 200,000 in spite of a customer's modest demonstrable income. The total amount of refunds fraudulently requested in the 41 income tax returns prepared and filed by Miller in 2009 and reviewed by the IRS to date exceeds $ 8.3 million.

17. The result of Miller's scheme is that her customers fail to file proper federal income tax returns and falsely claim tax refunds to which they are in fact not entitled.

18. The returns that Miller submits on behalf of her customers falsely claim that the relevant taxpayer/customer had large amounts of withheld tax, based on fraudulent or nonexistent Forms 1099-OID. The amounts are in fact simply the sum total amount of debt the customer owes to creditors.

19. For example, Miller prepared and transmitted a 2008 income tax return for Kraig A. and Barbara Kranz of Eden Prairie, Minnesota. The Kranzes' return that Miller prepared reported taxable interest income of $ 1,527,741, despite the Kranzes' reported actual income of $ 17,813. The Kranzes' return also reported $ 1,527,169 in withholding (only $ 572 less than the amount claimed as taxable interest income). As a result, the Kranzes' tax return as prepared by Miller reported taxes of approximately $ 500,000 but requested a refund of $ 1,021,616.

20. The Schedule B appended to the Kranzes' income tax return listed eight sources of taxable interest income, but the sums set forth on that form simply tallied the indebtedness of the Kranzes to their creditors. The lenders and other third parties who were purportedly paying these sums to these taxpayers in fact reported to the IRS that the Kranzes were paying far more modest interest to them -not the other way around. Thus, the return prepared for Mr. and Mrs. Kranz by Miller claimed they had earned from EMC Mortgage $ 586,236 in interest income, whereas EMC Mortgage reported to the IRS merely that the taxpayers had themselves paid $ 32,533 in mortgage interest. Similarly, the Kranzes' Schedule B claims that they received nearly $ 400,000 in taxable interest income from Aurora Loan Services, which presumably would be corroborated by a Form 1099-OID; but in fact Aurora Loan Services reported to the IRS only that the taxpayers had themselves paid less than $ 8,000 in mortgage interest. The refund claimed in the Kranzes' return prepared by Miller is thus fraudulent.

21. Miller also prepared a 2008 income tax return for Keith N. Jackson of Orlando, Florida using the same 1099-OID-based methodology. That return reflected taxable interest income of $ 1,466,907 which, when added to the business income he claimed, resulted in a tax liability of $ 507,327. However, because Jackson's return also reported federal income tax withholding of $ 1,466,791, his return as prepared by Miller claimed an entitlement to refund of $ 959,464. Jackson's Schedule B reported taxable interest income received from 15 different lenders or credit card companies -none of which themselves had filed Forms 1099-OID confirming that such interest was earned by or paid to Jackson.

22. In February 2009, Miller prepared and electronically filed a Form 1040 (2008) for Nellie K. Hartsoe of West Columbia, South Carolina. On that tax return, Miller falsely claimed that Hartsoe had earned interest income of $ 525,562 from Countrywide Bank ($ 127,800), Citifinancial Inc. ($ 10,000), State Credit Union ($ 24,400), HFC Subsidiaries ($ 153,545), Ascent Home Loans Inc. ($ 127,800), and Wachovia Bank ($ 82,017). Additionally, Miller falsely claimed that Hartsoe had income tax withholding of $ 526,190, even through the IRS could only independently corroborate withholding in the amount of $ 663. With these false income and withholding figures, Miller fraudulently claimed for Hartsoe an overstated refund of $ 354,947, which was erroneously issued and wired into Hartsoe's checking account.

23. During the same period, Miller prepared and electronically filed a Form 1040 (2008) for Clifford L. and Phyllis P. Holyfield of Lakeland, Florida. On that tax return, Miller falsely claimed that the Holyfields had earned OID income of $ 525,562 from a variety of lenders, including but not limited to Washington Mutual ($ 202,500), Long Beach Mortgage Company ($ 202,500), and Wells Fargo Educational Financial Services ($ 15,100). Additionally, Miller falsely claimed that the Holyfields had income tax withholding of $ 427,319, even though the sole attached Form W-2 showed withholding of only $ 7,234. Based on the above, Miller fraudulently claimed for the Holyfields an overstated refund of $ 294,681, which the Holyfields also received.

24. Vincent French retained Miller to prepare and file his 2008 income tax return, and she did so in February 2009. Miller attempted to explain to French the theories underlying her ability to obtain large refunds for her customers, although French did not fully understand them, and simply assumed Miller was not only honest but had a legal basis for her tax preparation methodologies. French subsequently received a refund of $ 67,709, which the IRS quickly recovered once it became aware of Miller's misconduct.

25. Miller has herself corresponded with the IRS in connection with the filing of her own income tax return, and in so doing indicated her view that her practices (and, in particular, belief in the secret Treasury accounts) are legitimate. She is therefore fully aware of what she is doing.

26. The scheme employed by Miller is part of a growing trend among tax defiers nationwide to file frivolous tax returns and Forms 1099-OID with the IRS and courts in an attempt to escape their federal tax obligations and steal from the U.S. Treasury.

27. In reliance on Miller's services, her customers have failed to file proper federal income tax returns which has either deprived her customers of proper tax refunds to which they may have been entitled or deprived the United States of additional tax revenue owed by their customers.

28. While the IRS is able to detect and stop most fraudulent OID refund claims, Miller's fraudulent tax return preparation has resulted in the IRS's issuance of at least $ 1,176,629 in erroneous refund payments to her customers.

29. In addition to the lost revenue due to the issuance of erroneous refunds, the Government has also incurred the expense of conducting the investigation of Miller's fraudulent return preparation and responding to and processing the frivolous documents Miller submitted to the IRS.

CONCLUSIONS OF LAW

1. Jurisdiction is conferred on this Court by 28 U.S.C. section 1340 and 1345 and 26 U.S.C. section 7402(a), 7407, and 7408.

2. Venue is proper in this Court pursuant to 28 U.S.C. section 1391.

3. Internal Revenue Code section 7407 authorizes the United States to seek an injunction against any tax return preparer who has engaged in any "fraudulent or deceptive conduct which substantially interferes with the proper administration of the Internal Revenue laws," or who has "engaged in any conduct subject to penalty under section 6694 or 6695."

4. If a return preparer's misconduct is continual or repeated and the court finds that a narrower injunction (i.e. prohibiting specific enumerated conduct) would not be sufficient to prevent the preparer's interference with the proper administration of federal tax laws, the court may enjoin the person from further acting as a return preparer.

5. Miller has continually and repeatedly prepared and filed with the IRS false and frivolous federal income tax returns on behalf of her customers.

6. As a result Miller has repeatedly engaged in fraudulent or deceptive conduct which substantially interferes with the proper administration of the Internal Revenue laws.

7. Miller has repeatedly and continually prepared and filed federal tax returns that understate her customers' tax liabilities as a result of unreasonable and frivolous claims and has thus engaged in conduct subject to penalty under 26 U.S.C. section 6694.

8. Miller has repeatedly and continually prepared and filed federal tax returns that understate her customers' tax liabilities as a result of Miller's willful attempt to understate her customers' tax liabilities and/or Miller's reckless and/or intentional disregard of internal revenue laws and regulations.

9. Injunctive relief is appropriate to prevent this misconduct because, absent an injunction, Miller is likely to continue to prepare false federal income tax returns and engage in other misconduct of the type described in this complaint.

10. Miller has continually and repeatedly prepared returns that include fraudulent refund claims and a preliminary injunction barring her from acting as a federal tax return preparer is necessary and appropriate to prevent her from interfering with the proper administration of the tax laws..

11. Section 7408, I.R.C., authorizes a district court to enjoin any person from, inter alia, engaging in conduct subject to penalty under I.R.C. section 6700 or 6701 if injunctive relief is appropriate to prevent recurrence of that conduct.

12. Section 6700 imposes a penalty on any person who organizes or participates in the sale of a plan or arrangement and in so doing makes a statement with respect to the allowability of any deduction or credit, the excludability of any income, or the securing of any tax benefit by participating in the plan or arrangement which that person knows or has reason to know is false or fraudulent as to any material matter.

13. In 2009, Miller organized and participated in the sale of a plan or arrangement and in doing so made false and fraudulent statements with respect to the tax benefits of participating in the plan or arrangement which Miller knew or had reason to know were false.

14. Miller falsely promised her customers that she could obtain larger tax refunds from the Government. Miller knew or had reason to know that the tax refunds she promised were falsely predicated on the fraudulent redemption/OID scheme.

15. As a result Miller engaged in conduct subject to penalty under 26 U.S.C. section 6700.

16. Section 6701 imposes a penalty on any person who aids or assists in, procures, or advises with respect to, the preparation of any portion of a return, affidavit, claim, or other document, who knows (or has reason to believe) that such portion will be used in connection with any material matter arising under the internal revenue laws, and who know that such portion (if so used) would result in an understatement of the liability for tax of another person.

17. Miller prepared and aided or assisted in the preparation and filing of federal income tax returns and other documents that resulted in the understatement of her customers' tax liabilities.

18. As a result Miller has engaged in conduct subject to penalty under 26 U.S.C. section 6701.

19. Miller has shown no remorse for her actions, and, as evidenced by correspondence with the IRS, and her document filed in opposition to the Motion for Preliminary Injunction (DE#11),continues to assert her fraudulent tax returns and practices are correct.

20. Injunctive relief is appropriate to prevent the recurrence of Miller's penalty conduct.

21. Section 7402(a), I.R.C., authorizes a court to issue injunctions as may be necessary or appropriate for the enforcement of the internal revenue laws, even if the United States has other remedies available for enforcing those laws.

22. Miller substantially interferes with the enforcement of the internal revenue laws by promoting her "redemption" tax-fraud scheme and filing frivolous federal tax returns and other documents on behalf of her customers.

23. As a result of Miller's misconduct her customers fail to file proper tax returns, erroneous refunds for hundreds of thousands of dollars have been issued to her customers, and her customers are liable for substantial penalties, including penalties for 20 percent of the excessive refund claim pursuant to 26 U.S.C. section 6676, as a result of their fraudulent refund claims.

24. Miller's conduct results in irreparable harm to the United States and to the public for which there is no adequate remedy at law.

25. Miller's conduct interferes with the proper administration of the Internal Revenue Code because it results in hundreds of frivolous filings with the IRS that harass public officials and hinder the IRS's ability to determine the correct tax liabilities of Miller's customers.

26. Unless enjoined by this Court, Miller will continue to promote and administer her tax-fraud scheme.

27. The United States is entitled to injunctive relief under I.R.C. section 7402(a) to prevent the recurrence of this misconduct.

PRELIMINARY INJUNCTION

Based on the foregoing findings of fact and conclusions of law, the Court enters the following preliminary injunction against Miller:

A. Pursuant to 26 U.S.C. section 7402 and 7407, Miller is enjoined from acting as federal tax return preparer and from preparing or filing federal tax returns or forms for others, from representing others before the IRS, and from advising anyone concerning federal tax matters;

B. Pursuant to 26 U.S.C. section 7402 and 7407, Miller and her representatives, agents, servants, employees, attorneys, independent contractors, anyone in active concert or participation with them, are enjoined from directly or indirectly;

(1) Preparing or filing, or assisting in, or directing
the preparation or filing of any federal tax return
or amended return or other related documents or forms
for any other person or entity;

(2) Engaging in activity subject to penalty under
26 U.S.C. section 6694 or 6695;

(3) Engaging in any other activity subject to penalty
under the Internal Revenue Code; and

(4) Engaging in other conduct that substantially
interferes with the proper administration and enforcement
of the internal revenue laws;

C. Pursuant to 26 U.S.C. section 7402 and 7408, Miller and her representatives, agents, servants, employees, and anyone in active concert or participation with her, are enjoined from directly or indirectly by means of false, deceptive, or misleading commercial speech:

(1) Organizing or selling tax shelters, plans or
arrangements that advise or assist taxpayers to attempt
to evade the assessment or collection of such taxpayers'
correct federal tax;

(2) Engaging in any other activity subject to penalty
under 26 U.S.C. section 6700, including organizing
or selling a plan or arrangement and making a statement
regarding the excludability of income or securing
of any other tax benefit by participating in the
plan that she knows or has reason to know is false
or fraudulent as to any material matter;

(3) Engaging in any activity subject to penalty under
26 U.S.C. section 6701; and

(4) Directly or indirectly organizing, promoting,
marketing, or selling any plan or arrangement that
advises or encourages taxpayers to attempt to violate
internal revenue laws or unlawfully evade the assessment
or collection of their federal tax liabilities, including
promoting, selling, or advocating the use of false
Forms 1099 or other forms based on the false claims
that:

i. Taxpayers have a secret account with the Treasury
Department which they can use to pay their debts or
which they can draw on for refunds through a process
that is often called "redemption" or "commercial redemption";

ii. Taxpayers can name the Secretary of the Treasury
as their fiduciary and/or can draw on the Treasury
of the United States to pay their tax debt or other
debt using Forms 1099-OID, bonded promissory notes,
sights drafts or other documents; and

iii. Taxpayers can issue false Forms 1099-OID to a
creditor and report the amount on the false Form 1099
as income taxes withheld on their behalf;

D. Pursuant to 26 U.S.C. section 7402, Miller is enjoined from preparing her own federal income tax returns claiming false income tax withholding and refunds based on amounts shown in false Forms 1099 or other IRS forms;

E. Pursuant to 26 U.S.C. section 7402, Miller is enjoined from filing, providing forms for, or otherwise aiding and abetting the filing of frivolous Forms 1040 or Forms 1099 or other IRS forms for herself or others, including the notarization or signing of certificates of service or similar documents in connection with the frivolous tax returns;

F. Pursuant to 26 U.S.C. section 7402, Miller is hereby required to contact by mail (and also by e-mail, if an address is known) all persons who have purchased from Miller any products, services or advice associated with the false or fraudulent tax scheme described in this complaint in the past three years and inform those persons of the Court's findings concerning the falsity of Miller's prior representations and attach a copy of the permanent injunction against Miller; and

G. Pursuant to 26 U.S.C. section 7402, Miller shall provide to the United States a list of all persons who have purchased her products, services or advice in the past three years.

REISSUED: November 23, 2009 at 3:30 p.m., to remain in effect until a final hearing in this cause.

DATED: November __, 2009

[signed]
United States District Court