Colorado Business Litigation Lawyer Blog

In July 2009, a Colorado jury found a man guilty of 52 criminal counts, including violations of the Colorado Organized Crime Control Act, for stealing $11 million from the Colorado Department of Revenue.

The man’s girlfriend, a supervisor at the department, took the money through various schemes, including creating false businesses and fake tax returns. The woman said she took the funds at her boyfriend’s urging because she loved him and wanted him to leave his wife.

The man said that he believed the woman was withdrawing the funds from her trust account, a claim that the jury found incredible. The man lost all of the money in 18 months on business ventures, land deals, jewelry, cars and trips. His girlfriend spent none of the money on herself.

The man’s sentence of 58 years in jail was imposed on September 24. His girlfriend pleaded guilty and was sentenced to 24 years in prison. She must also pay $10.8 million in restitution to the state.

The moral of this story is that one should never take that which the tax man has first taken away.

U.S. District Judge Edward J. Lodge, recently issued a preliminary injunction barring Penny Lea Jones of Idaho Falls, Idaho, from preparing federal income tax returns for others, while the lawsuit is pending. The court found that Jones promotes a tax defier scheme that claims large fraudulent tax refunds for customers.

The court found that Jones repeatedly prepared federal income tax returns claiming bogus refunds based on a tax fraud scheme known as the "redemption" scheme. The court held that Jones prepared and filed 333 income tax returns for customers in 2008 and 2009 claiming more than $93 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 Jones is one of seven lawsuits the Justice Department filed across the nation in October 2009 that seek to shut down 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.

The Internal Revenue Service (IRS) catches the vast majority of fraudulent redemption-scheme tax refund claims without issuing any refund. Taxpayers who submit the claims face substantial civil monetary penalties, and possible criminal prosecution.

In the past decade, the Justice Department’s Tax Division has obtained more than 435 injunctions against dishonest tax-return preparers and tax-fraud promoters.