Chicago Tax Preparer Indicted for Causing More Than 150 Fraudulent Tax Returns Seeking Over $1 Million in Refunds

CHICAGO–(ENEWSPF)–March 27, 2014.  A Chicago tax return preparer was indicted on federal charges alleging that he was responsible for submitting more than 150 false federal individual income tax returns seeking over $1 million in refunds for individuals whom he knew were not entitled to them. The defendant, PHILLIP SMITH, allegedly was paid a portion of the tax refunds his clients received. The case is typical of federal tax prosecutions that occur throughout the year, but it serves as a reminder to taxpayers of the importance of voluntary compliance with their tax obligations as the April 15 filing deadline approaches.

Smith, 51, was charged with 11 counts of wire fraud and two counts of making a false claim to the Internal Revenue Service in an indictment returned yesterday by a federal grand jury. The indictment also seeks forfeiture of approximately $840,706 in fraudulently obtained refunds. Smith will be arraigned on a date to be determined in U.S, District Court.

“One of our top priorities is to maximize revenue by investigating abusive tax return preparers,” said James C. Lee, Special Agent-in-Charge of the IRS Criminal Investigation Division in Chicago. “IRS Criminal Investigation investigates tax fraud year round, not just at tax time. Taxpayers who might be thinking about cheating with next month’s deadline looming should think twice or they risk literally paying the consequences. We are committed to assuring honest taxpayers that everyone pays their fair share.” Mr. Lee also cautioned that taxpayers should choose carefully when hiring a tax preparer.

According to the indictment, in exchange for fees, Smith fabricated false Forms W-2 that purported to be issued by fictitious companies, knowing that his clients would use them to support false tax returns that would be submitted to the IRS. The bogus W-2s stated false annual wage and tax withholding amounts designed to fraudulently generate significant Earned Income Credits and tax refunds from the IRS. Smith fraudulently obtained employer identification numbers for the fictitious companies from the IRS, which he included on the bogus W-2s.

Between January 2010 and April 2013, Smith allegedly prepared and caused to be submitted to the IRS more than 150 false tax returns seeking more than $1 million in refunds.

In some instances, Smith directed clients to provide the bogus W-2s to reputable tax preparation businesses knowing that the tax preparers would rely on the false information and submit false returns on behalf of his clients, the indictment alleges. In other instances, Smith prepared the false returns and submitted them electronically for his clients, it adds.

At times, Smith posed as the employer during telephone calls with IRS representatives to verify his clients’ purported employment, and he created false employment verification letters and paystubs for his clients to submit to the IRS when it sought additional records, the charges allege.

The indictment details 11 examples of false returns in which Smith caused taxpayers to seek and obtain fraudulent refunds ranging from $5,292 to $9,864.

Each count of wire fraud carries a maximum sentence of 20 years in prison and a $250,000 fine, and each count of making a false claim on the United States carries a maximum penalty of five years in prison and a $250,000 fine. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

Zachary T. Fardon, United States Attorney for the Northern District of Illinois, announced the indictment with Mr. Lee. The government is being represented by Assistant U.S. Attorney Michelle M. Petersen.

The public is reminded that an indictment contains merely charges and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.