Tip of the hat to Rochester Business Journal for their article this month highlighting one instance of Canadians coming across the border to enjoy the [illegal] benefits of a U.S. tax scheme. The tax scheme is one commonly used by tax defiers, which also so happens to obtain illegal tax refunds in the process. The scheme involves filing of the relatively obscure Form 1099-OID along with a false tax return, with the false Form 1099-OID showing extravagant withholdings that were never actually withheld. The IRS, yet again, didn’t catch several of these and the perpetrators were able to obtain millions in refunds. I previously wrote about another scheme resulting in in a post that can be found here.
According to the DOJ press release:
Kevin Cyster, 52, of Burlington, Ontario, was convicted in September by a federal jury after a six-day trial in Rochester, New York. According to court documents and testimony at trial, Cyster was part of a group of Canadian citizens that filed tax returns with the Internal Revenue Service (IRS) that contained fraudulent Forms 1099-OID. On these tax returns, Cyster and his co-conspirators falsely claimed that nearly $10 million in federal income taxes had been withheld on their behalf by various Canadian financial institutions and paid over to the IRS. The testimony at trial established that these false Forms 1099-OID were created and filed with the IRS by an individual in California named Ronald Brekke, 55, of Orange County, California, and not by the financial institutions. No federal income taxes were paid over to the IRS on behalf of Cyster and his co-conspirators and they were not entitled to the refunds claimed on their tax returns. The IRS paid out more than $3.5 million of the requested refunds before detecting the fraud. Renee Jarvis, 51, of Ontario one of Cyster’s co-conspirators, testified that co-conspirators held meetings at Cyster’s home at which Cyster promoted the 1099-OID scheme.
The seven Canadians and others involved were caught in 2012. Hopefully, the IRS has raised its scrutiny of 1099-OID based refund claims since then.
Daniel Layton, the author of this post, is a former IRS attorney and former federal prosecutor. He is the principal of Tax Attorney OC.