When in Doubt, Fraud it Out


Do you ever get that feeling like you shouldn’t have to do something? Sometimes there’s just no explanation for why you shouldn’t have to do it – sometimes you just feel like you should be able to play by a different set of rules. That’s usually a recipe for trouble, isn’t it? Today’s Fraud of the Day, from the Star Herald, highlights the case of one couple who found that playing by their own rules led them down a road of fraud and regret.

Exemption is a funny thing – many people find themselves “exempt” from responsibilities on their own terms. A Nebraska couple decided they were exempt from filing taxes for a string of years. Investigators found that the couple failed to file taxes from 2003 to 2006, and 2008 through 2011. Surprisingly the couple claimed – under oath – that they believed they didn’t have to file tax returns because they were not federal employees, nor did they live in the District of Columbia. (Ohh! I need to use that excuse.) The court didn’t see it that way.

Think that was enough trouble for our love birds? Think again. Investigators also found that the couple actually did file returns in 2008. In fact, they filed a total of 67 tax returns, many seeking refunds of $2.5 to $5 million. The couple admitted to filing the returns to “get justice” for perceived wrongful court judgments issued against them in other, unrelated cases. So, how much did they try and get away with? They claimed a total of $48,453,484 in phony refunds. (If you are going to claim that high, why not just round up to $50 million?)

So, how were the fraudsters caught? The Internal Revenue Service (IRS) Frivolous Return Program Unit flagged their returns and sent a warning letter to the couple, threatening to charge $5k for fraudulent filings. The couple continued to file claims in that manner for months after receiving the warning letter.

In the end, the husband was convicted of one count of conspiracy to defraud the United States, one count of endeavoring to obstruct the due administration of IRS laws and 13 counts of presenting false claims to the United States. His wife didn’t fare much better. She was convicted of one count of conspiracy to defraud the United States and six counts of presenting false claims to the United States. Both were sentenced to six years in federal prison, followed by three years supervised release.

They didn’t play by the rules. The couple claimed they didn’t think they had to file tax returns and came up with bogus excuses to explain their behavior. But let’s face it, the couple seemed to live by the mantra: “when in doubt, fraud it out.” I wonder what their mantra in prison will be: “fraud as crime, serve the time?” At least they have six years to think of a good one…

Source: Today’s ”Fraud of the Day” is based on “Couple Sentenced for $49 Million Tax Fraud,” written by Maunette Loeks and published by the Star Herald on September 18, 2012.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.