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Financial Planning > Tax Planning > Tax Loss Harvesting

Top 9 Biggest Tax Scams of 2013

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Schemes to defraud the taxman likely sprang to life the second the first penny was collected. But who could have imagined that billions would be paid out every year to those brazen enough to ask the government for refunds they didn’t deserve?

Last year, the IRS mailed out fraudulent refunds worth $3.6 billion. That was at least an improvement over the $5.2 billion doled out in 2012.

Still, it’s hard to fathom how a system could miss the half-million dollars to an address in Bulgaria that was used on 700 income tax returns.

For its part, the IRS said it spotted more than 12 million suspicious returns seeking a total of $40 million. So maybe the batting average isn’t so bad.

Looking at a list of the top tax fraud cases for 2013, it’s not surprising to see that identity theft is a part of many of them. That crime topped the IRS’ 2013 list of top tax scams.

Of course, identity theft isn’t the only way fraudsters try to outfox the government. Last year, even a former big-city mayor was nailed for simply failing to pay all of his taxes.

Check out our Top 9 Tax Scams of 2013 Countdown:

Kwame Kilpatrick (Photo: Wikimedia Commons)

9. Kwame Kilpatrick: $195,500 owed in back taxes

The amount owed by former Detroit Mayor Kwame Kilpatrick is a drop in the bucket when compared to the Motor City’s budget deficit, but it’s another reminder of how far the city’s fortunes have fallen. Kilpatrick, who was ordered to repay $4.5 million after his conviction on corruption charges centered on acts while he was in office, owed the city another $854,000 because of a conviction on state charges. Oh, and there’s the 28-year prison term he faces. Ironically, because he was mayor when the offenses occurred, taxpayers paid more than $800,000 to Kilpatrick’s lawyers to defend him.

 Miles Julison (Photo: Multnomah County Sherriff’s Office)

8. Miles Julison: $400,000 sought from IRS

The self-described “bond servant of Jesus Christ” tried the patience of a judge for his claim that the U.S. District Court in Portland, Ore., had no jurisdiction over him. A jury disagreed, finding he had falsely claimed he was owed a tax refund of more than $400,000. The claim after he had filed a tax return stating he had made more than half million in “other income” and that the entire amount had been withheld. Somehow, despite the fact that the claim was false, the IRS mailed him a check. Julison even held a seminar at a local motel explaining to others how they could file false tax forms. None of his schemes involved bonds. No explanation has been forthcoming about his stated connection to Jesus.


7. California Tax Prep Company Employees: $1.35 million falsely claimed

Most of the big cases involving stolen identities used to file fake tax returns involved individuals, but what makes eight workers at two California tax preparation offices stand out is that they were professionals. The employees, who worked for either Total Tax Preparations Inc. or Nancy L. Olson & Associates, ran their scam from 2008 to 2012, according to the government.

Charged with 25 counts of income tax fraud, identity theft, conspiracy and other violations were Barbara J. Connor, 56; Denise Gray, 53; Nancy L. Hilton, 68; Curtis D. Lowe, 27; Kawasaki D. Morris, 34; Staff Voundy, 51; Vincent Voundy, 46; and Michael J. White, 51. The indictment claims they sought about $3 million in illicit refunds and actually received about a third.

6. Rashia Wilson: $3 million falsely claimed

The self-styled “queen of IRS tax fraud” earned 21 years in prison for filing fraudulent tax returns using stolen identities. While collecting food stamps, Wilson bought an Audi worth $90,000 and spent more on jewelry, trips and parties. Prosecutors said Wilson shelled out $30,000 for a birthday party for her daughter that included carnival rides. All told, she was found guilty of stealing at least $3 million from taxpayers. The judge who sentenced her was so put off by her behavior he refused to allow her to hug her kids before she was hauled away to prison.

Cheryl Womack (Photo: Wikimedia Commons)

5. Cheryl Womack: $7 million in taxes evaded

Cheryl Womack was a big wheel in Kansas City, and she had the money to go with her clout. In 2002, she unloaded her interest in the National Association of Independent Truckers, which sold liability insurance to drivers, for a cool $35 million. That should have allowed Womack to live the good life. She started out in style, buying wine worth $1.5 million. Then things got a bit sticky, according to the IRS, which filed charges in November. The agency said that when Womack put up half her collection for auction in 2008, the $1.6 million she netted never showed up on her tax returns. Instead, the IRS says, it was diverted to a company in the Cayman Islands — along with millions more she had stocked away in at least 19 accounts there, prosecutors alleged.


4. 45 Busted in South Florida: $11.5 million in fraudulent tax refunds

The biggest instance of identity theft used to file for fraudulent tax refunds hit the news in October. The defendants face charges that they sought a total $38.6 million; the IRS paid out nearly a third of that total. The defendants swept up were part of an investigation that involved 30 separate cases, which shows just how widespread the problem has become.

3. David Pinski & Michael Senatore: $12 million in fraudulent tax refunds

The two men used identity theft to file more than 8,000 phony tax returns. Pinski, of Fort Lee, N.J., and Senatore, of Moscow, Pa., were tripped by a simple mistake: the thousands of tax forms they filed came from just a few IP addresses. Although they asked for $65 million in tax refunds, they only received $12 million before the scheme was stopped. In November, the pair admitted their crimes and face up to 15 years in prison.

2. Beda Singenberger: $184 million tax evasion scam

If there’s one lesson criminals should have learned by now, it’s to never commit their misdeeds to paper. Singenberger, a Swiss financial advisor, should have a corollary to that rule named after him: never put a list of the clients you helped cheat on their U.S. taxes in a mailbox. Singenberger did just that, and the list somehow found its way to U.S. authorities in 2009. The list included the names of more than 60 clients whose money had been placed in secret offshore accounts. Singenberger’s clients were slowly being arrested through last year, while Singenberger remains free in Switzerland. He has been indicted in the United States for consipracy to cheat the IRS.

1. Paul Daugerdas: $7 billion tax-loss forgeries

Creativity is the hallmark of tax shelters, and sometimes, things are taken a little far — make that way too far. Daugerdas was in charge of the Chicago office of Jenkins & Gilchrist, a Texas law firm. For his part in a scheme to forge $7 billion in tax losses in clients’ accounts, Daugerdas faces 58 years in prison after being convicted of conspiring to defraud the IRS, evade taxes and commit mail and wire fraud. Prosecutors have won other convictions in the case and one partner in the firm was sentenced to eight years in prison and ordered to repay nearly $200 million.

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