Hot on the heels of the IRS’s push for taxpayers to be more choosy about their return preparers, the DOJ issued a press release last week about the sentencing of three men for their role in a tax return preparation and false tax credit scam. According to the press release (the full text of which can be found by clicking here):
On May 27, 2014, after a six-week jury trial, the three defendants were convicted of one count of conspiracy to defraud the United States, 13 counts of aiding and assisting in the preparation of false income tax returns and four counts of mail fraud. Rodrigues and Coolidge were each convicted of an additional two counts of aiding and assisting in the preparation of false income tax returns.
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The evidence at trial established that through NADN, the defendants promoted and sold a product called Tax Break 2000 to customers throughout the United States. NADN began to promote and sell Tax Break 2000 in early 2001. Tax Break 2000 purported to be an online shopping website. The defendants falsely and fraudulently told customers that buying the product would allow them to claim legitimate income tax credits and deductions under the Americans with Disabilities Act (ADA) by modifying the website each customer was provided to make it accessible to the disabled. NADN charged $10,475 for the product to maximize the fraudulent income tax credits and deductions that individuals would claim on their tax returns. Although the price of the product that was claimed on the tax returns was $10,475, the customers only paid between $2,000 and $2,695 out-of-pocket. The remainder of the cost was covered by a promissory note that customers were not expected to repay.
The defendants knew that the websites provided to customers made little, if any, money from sales commissions and that they did not entitle the purchaser to either a tax credit or any deductions. The defendants nonetheless taught and directed the tax return preparers working for NADN to prepare thousands of tax returns for customers that claimed the fraudulent tax credit and deductions. When special agents of the Internal Revenue Service (IRS) began to investigate Tax Break 2000 and NADN, the evidence showed that the defendants sought to cover up the fraud by creating false IRS Forms 1099 that reported fictitious income to make it appear that the websites were in fact earning money.
From 2001 through approximately May 2004, NADN sold the Tax Break 2000 product more than 18,000 times to thousands of customers located throughout the United States. As a result of the defendants’ fraud, thousands of NADN customers were audited by the IRS. On April 13, 2004, the Tax Division filed a civil complaint seeking to enjoin, among others, NADN, Rodrigues, Coolidge and Prokop from selling fraudulent tax schemes, including Tax Break 2000. NADN ceased operations in May 2004.
Overall, that is a pretty big scheme and a big prosecutorial coup for the government, despite the criminal conduct being over 10 years in the past. These “tax tool kit” type schemes were a big problem in the late nineties and early 2000’s, and are no longer as high of an enforcement priority, especially given the harm caused by identity theft schemes in recent years. Nonetheless, the judge issued fairly strong sentences:
Alan Rodrigues, NADN’s former general manager and executive vice president, was sentenced to serve 72 months in prison to be followed by three years of supervised release and to pay a $2,000 special assessment by U.S. District Court Judge Miranda Du of the District of Nevada. Rodrigues was ordered to pay restitution of more than $35 million to customers of NADN who purchased the fraudulent tax product. Weston Coolidge, a businessman who previously served as NADN’s president, was sentenced by Judge Du to serve 70 months in prison followed by three years of supervised release, and to pay a $2,000 special assessment for his part in the fraud. Coolidge was also ordered to pay restitution of more than $35 million to victims of the fraud. Joseph Prokop, who previously served as the National Marketing Director for Oryan Management and Financial Services, a company affiliated with NADN, was sentenced to serve 18 months in prison to be followed by 30 months home confinement and three years of supervised release. Prokop was also ordered to pay a $1,800 special assessment and restitution to victims of more than $35 million. At sentencing, Judge Du found that the defendants were responsible for fraud losses of more than $36 million and an intended tax loss of more than $60 million.
Daniel Layton, the author of this post, is the principal of Tax Attorney OC.