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.

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.

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.

Not all tax scams rely on falsified 1099s.

Using other people's names. A tax preparer in South Carolina is under investigation for allegedly obtaining taxpayer names and social security numbers for use in filing requests for tax refunds without their knowledge.

Federal investigators believe Dorothy Anderson of DL Anderson Tax Service in Hopkins, S.C., filed tax returns that generated more than $290,000 in refunds. The money was deposited in bank accounts controlled by Ms. Anderson, according to federal officials.

Jose Lares runs a tax preparation business in Garden City, Kansas, called Dinero Rapido Tax Service. Federal investigators are seeking to shut him down after discovering that he allegedly claimed dependent exemptions and filing status exemptions that his clients didn’t deserve.

The bogus exemptions cost the US government about $6,000 in lost taxes per customer – or nearly $2 million, officials said.

Misusing the home tax credit. Federal investigators in Miami have targeted two tax preparation businesses that they say allowed their customers to claim an $8,000 new home tax credit even though their clients hadn’t purchased a new home.

Complaints have been filed in south Florida against Paula Olivette Patrice of To the Max Tax Professionals and Henry Ernesto Medina of Medina Group Inc., seeking a court order to prevent them from claiming the tax credit unless a new home has been purchased.

Nonexistent 'loopholes.' Two weeks ago, a National City, Calif., tax preparer was sentenced to 65 months in prison and ordered to pay $377,468 in restitution for filing false tax returns, failing to pay taxes, and aiding in the preparation of false tax returns.

Fe Garrett ran Fe’s Tax Service and Garrett’s Tax Service. Federal agents say she failed to pay $278,000 of her own personal tax bills from 2001 to 2006. In addition, she claimed fraudulent itemized deductions, including child care deductions and real estate rental deductions, according to federal officials.

During a nine-day trial, an undercover IRS agent testified that Garrett prepared a false tax return for the agent that included similar undeserved deductions. Garrett was recorded as saying she used “loopholes” in the tax law to claim certain deductions.

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