Tax refund scams on the rise
by Apr 6th 2010 2:00PM
Just yesterday, the Justice Department announced that Idrissa Bassoum, formerly of Cincinnati, had been charged with 15 counts of aiding in the preparation of false income tax returns and other charges. According to the indictment, from February 2003 through 2005, Bassoum prepared tax returns for his clients that included inflated or entirely fake deductions, with the intention of securing fraudulent tax refunds for his clients. If convicted, Bassoum faces a maximum sentence of three years in prison and a maximum fine of $250,000 for each of the 15 counts of aiding in the filing of a false tax return.
The Bassoum indictment is just the latest in a string of charges announced in an effort to curb tax refund fraud. Last month, the Justice Department announced charges against Alexander Adams and his sons, Garrett and Brandon, of Huntington Beach, Calif. The Adams family (go ahead, snicker -- you know you want to), who did business as Adams Beach Income Tax, engaged in a scheme to generate substantial fake tax refunds based on made up withholdings. Twice they filed for refunds of $2.5 million; they are charged with attempting to collect more than $15 million on fake refunds.
Of course, that's nothing on Penny Lea Jones, who has been accused of attempting to collect $93 million in fake tax refunds for her clients. Jones, who was barred from preparing returns this season while she is being investigated, used a scheme previously highlighted by the IRS as one of their dirty dozen tax scams (and again this year), known as a "redemption scheme." In a redemption scheme, tax preparers tell customers that the federal government maintains "secret" accounts of money. Taxpayers are advised that they can gain access to the funds by issuing bogus 1099-OID forms to their creditors. According to the IRS, the redemption scheme is so popular that taxpayers have requested a total of $3.3 trillion in fraudulent refunds.
It's not just large claims for refund that attract attention -- even smaller instances of fraud are being targeted. Late last month, Cynthia Peters and Melissa Peters, both of Jasmine and Melissa's Tax Service in Baton Rouge, La., were charged with aiding in the preparation of false tax returns for clients. These refund schemes weren't in the millions, but in the thousands. According to the indictment, Peters and Edwards prepared fraudulent tax returns that reported false amounts of telephone excise tax refund (TETR) credits. The TETR credit was a one-time credit available to taxpayers for the 2006 tax year. The credit was available in standard amounts ranging from $30 to $60 or in the amount of actual excise tax paid; the rate was 3% of the cost of long distance and bundled service. The two are charged with preparing taxpayer returns claiming bogus TETR credits in amounts ranging from just over $1,000 to under $7,500.
In the past 10 years, the Justice Department's Tax Division has secured nearly 500 injunctions against tax fraud promoters and dishonest tax-return preparers. You can find more information about the Justice Department's Tax Division and its enforcement efforts at www.usdoj.gov/tax/.
But don't be fooled into thinking that the blame for these schemes falls solely on the tax preparers. This March, a federal judge in Sacramento permanently barred Teresa Marty of Placerville, Calif., from working as a federal tax preparer. As part of the case against her, the judge ordered Marty to turn over her complete customer list to the Department of Justice. Those taxpayers may find themselves subject to substantial penalties: The penalty, of up to 20% of the amount of the improperly claimed refund, applies even if the IRS doesn't pay out the claim. Other penalties and even jail time may also be imposed.
IRS Commissioner Doug Shulman has said that "[t]axpayers should steer clear of any situation involving fabricating tax forms or reporting fictitious tax withholding. These schemes carry a high price for promoters and for taxpayers. We aggressively pursue unscrupulous tax return preparers involved in such scams. Taxpayers should remember they are ultimately responsible for what's on their tax returns. If a promoter's sales pitch sounds too good to be true, be sure to check it out first."
In other words, use common sense. There are no "secret accounts" for taxpayers, and you can't claim additional refunds by creating fake tax forms. And if there was really such a scheme that allowed you to generate more in refunds than you actually paid in, simply by watching a webinar or paying some guru to coach you, wouldn't everyone be doing it? If in doubt about whether a deduction or credit is proper, ask a trusted tax professional for help -- or call the IRS at 1-800-829-1040.