IRS Fraud Round-up

Admit it, you’re addicted to true crime shows. Well, the IRS has you covered with their Criminal Investigation (CI) unit. Each month they release a report of the cases that have been closed. Included in December’s round up are convictions and prison sentences for the following taxpayers and tax preparers. Enjoy.

Riverview, FL – Tax Preparer Fraud

Ashley Flournoy of Riverview was sentenced to two years in federal prison for her involvement in a conspiracy to commit tax fraud and aid in the preparation of false income tax return documents. The court had previously sentenced co-defendants Jamica Nelms, Capriesha Cummings, and Camille Harper, all from St. Petersburg, to varying prison terms for the same charges. From January 2017 to April 2019, the defendants, working as income tax return preparers, conspired to defraud the U.S. by submitting false income tax returns to the IRS. They documented fictitious businesses on Schedule C forms, allowing clients to maximize Earned Income Credit claims and increase their tax refunds. The group also fraudulently reported fuel taxes and education expenses to further increase tax refunds for their clients. The defendants collectively owe $1,006,881 in restitution to the IRS and are prohibited from preparing tax returns for third parties in the future. Tara K. Reed, IRS-CI Acting Special Agent in Charge, stressed the importance of vigilance in choosing tax preparers to prevent fraud and protect American taxpayers.

Orchard Park, NY – Trust Tax Fraud (employment taxes)

Julie Dotton, of Orchard Park, NY, who was convicted of willful failure to truthfully account for and pay employment taxes, was sentenced to four years’ probation, and ordered to perform 100 hours of community service. Dotton was also ordered to pay restitution of $1,585,538 to the IRS and $117,277 to the SBA.

Dotton was the President, CEO, and majority shareholder of Applied Sciences Group (ASG), a technology business, and was also the founding partner of the partnership KRP Holdings (KRP). By law, businesses must account for income tax, social security tax, and Medicare tax in the wages of individual employees, equal to a percentage of the wages earned by the employee. These taxes are commonly referred to as “trust fund taxes” because employers hold these taxes in trust for the government. For all of 2018 and three quarters of 2019, Dotton failed to submit payment of the trust fund taxes to the IRS on behalf of the employees of ASG and KRP, resulting in a loss of approximately $1,100,837 to IRS. Dotton also admitted that she obtained a Paycheck Protection Program (PPP) loan from the federal government in the amount of $117,277, to which she was not entitled.”

Greenbelt, MD – Tax Preparer Fraud

Ronald Eugene Watson, also known as Sabir Muhammad of Brandywine, Maryland, has been sentenced to 27 months in federal prison, followed by one year of supervised release, for 23 counts of aiding and assisting in the preparation of false tax returns. The sentence also includes an order for Watson to pay restitution of $268,634.35. Watson’s conviction, following an eight-day trial on March 9, 2023, revealed that he operated SW Accounting Associates (“SWAA”) in Largo, Maryland, where he prepared and electronically filed fraudulent Forms 1040, along with related Schedules A and C, for clients from at least 2015 to 2017.

Evidence presented during the trial demonstrated Watson’s inclusion of inflated and fictitious tax deductions, as well as false business profits and losses, resulting in unjustly larger tax refunds for clients. Witness testimonies revealed that Watson adjusted his preparation fees based on the requested refund amount, typically ranging from $500 to $1,500. The tax loss to the United States amounted to $325,330. Furthermore, Watson failed to file his own tax returns for two years and willfully submitted false tax returns in three other years, which is a violation of the IRS requirements to be a tax preparer.

Denver, CO – Covid Program Fraud

Chandler Simbeck has been sentenced to 37 months in prison, followed by three years of supervised release, for conspiring to defraud the United States, alongside an order to pay $151,000 in restitution. The case involved a conspiracy between Simbeck and Russell Foreman from March 2020 to October 2020, wherein they submitted fraudulent loan applications to the Small Business Administration (SBA).

Simbeck and Foreman established a limited liability company, Fusion Group, in June 2020, and applied for an Economic Injury Disaster Loan (EIDL) from the SBA. The application contained false information about Fusion Group’s establishment date, revenues, and costs of goods sold. Despite Fusion Group never engaging in any business activities, the SBA approved the loan, depositing $149,900 into Simbeck’s account. Subsequently, Simbeck withdrew funds, including checks and wire transfers, benefiting both himself and Foreman.

Simbeck also obtained a $1,000 EIDL grant through a misleading application in his name, and he attempted to secure Paycheck Protection Program (PPP) loans for two other businesses through applications containing false information. The fraudulent activities took advantage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, designed to provide financial assistance during the COVID-19 pandemic.

It’s worth noting that the oldest case dates back to a 2013 fraud incident, and in another case the CI pursued a taxpayer for over $151,000. Prosecuting tax fraud has no statute of limitations, regardless of the amount involved. As tax season approaches, it’s a good idea to remember the importance of sticking to the rules, and staying compliant with tax regulations. Unless orange is your color.