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Fake tax refund scams on the rise as tax day looms

The Justice Department is highlighting cases where tax preparers filed for fraudulent tax refunds in a bid to discourage would-be tax cheats.

By Staff writer / March 16, 2010

Tax forms. The Justice Department, in an effort to bring attention to its efforts to catch tax refund cheats and discourage fraud, is highlighting recent cases.



Justice Department lawyers are seeking to shut down a Huntington Beach, Calif., tax preparation service accused of attempting to obtain $15 million in fraudulent tax refund checks.

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A federal complaint alleges that Alexander Adams and his two sons, Garrett and Brandon, were attempting to claim substantial tax refunds based on fabricated income tax withholdings. Twice they filed for refunds of $2.5 million. In another return they sought $361,000.

The tax preparers did it by filing false Internal Revenue Service documents, including 1099 forms reflecting fictitious tax withholdings, according to federal officials. The inflated, fictitious withholdings were then cited to justify the fraudulent refunds. The father and sons did business as Adams Beach Income Tax.

Officials with the Justice Department’s tax division say such fake refund scams are a growing trend. With the April 15 tax deadline fast approaching, federal tax officials are pointing up a number of recent tax fraud prosecutions in the hope that tax filers and tax preparers are aware that enforcement operations are underway.

Last week, a federal judge in Sacramento, Calif., permanently barred Teresa Marty and her Placerville, Calif., business Advanced Financial Services LLC, from working as federal tax return preparers.

The judge found that in 2008 and 2009, Ms. Marty had falsely inflated the amount of taxes withheld on IRS 1099 forms. As a result, she was able to claim refunds on behalf of her clients as large as $2.7 million per customer, according to federal officials.

Investigators identified 110 returns with inflated 1099 forms, and the judge ordered Marty to turn over her complete customer list.

"Taxpayers thinking of participating in [such illegal schemes] should consider that, in addition to risking criminal prosecution, they also risk incurring civil penalties of as much as 20 percent of the amount of their bogus refund claim,” said John DiCicco, acting assistant attorney general for the Justice Department’s tax division.

“For false claims on the scale described in [the Adams case], the 20 percent penalty could result in scheme customers losing their savings and their homes,” Mr. DiCicco said.