DOJ Shuts Down “Redemption Theory” Tax Fraud Ring

This week the US Department of Justice released the names of seven individuals who have been charged in a $120 million tax fraud scheme. According to the indictment, the false return scheme was national in scope, causing the filing of tax returns for at least 180 clients from 30 different states, and requesting more than $120 million worth of fraudulent tax refunds. The indictment alleges that the defendants and clients of the scheme collectively filed more than 380 tax returns, mostly from tax year 2008, reporting the amount of their personal debt obligations as both income and as federal tax withholding.

Other reports mention the scammers were promulgating a “redemption theory.” Here’s the scoop on this bizarre tax protestor theory according to Wikipedia:

Redemption theory involves claims that when the U.S. government abandoned the gold standard in 1933, the government pledged its citizens as collateral so that the government could borrow money. The movement also asserts that common citizens can gain access to funds in secret accounts using obscure procedures and regulations.

According to the theory, the government created a fictitious person (or “straw man”) corresponding to each newborn citizen with bank accounts initially holding $630,000. The theory further holds that through obscure procedures under the Uniform Commercial Code, a citizen can “reclaim” the straw man and write checks against its accounts.

The “straw man” argument is cited by the IRS as one of the 40 frivolous tax arguments which, if made, subjects the taxpayer to tougher penalties. The “straw man” argument is #18.

Huge Tax Fraud Scheme Uncovered in So-Cal

Just when I said that multiple-filers were a thing of the past, something very similar turns up in the news . . .

Who: Owners and others affiliated with Old Quest Foundation, Inc. and De la Fuente and Ramirez and Associates (55 indicted in all)

Where: Fontana and Rancho Cucamonga (San Bernardino County)

What: Most of the 55 indictments alleged conspiracy to defraud the United States

How: These groups arranged meetings during which they convinced taxpayers to buy into a scheme that involved claiming refunds to which they were supposedly entitled from a “secret government account.” Many of the people who were duped were required to pay fees to participate in the meetings, even bigger fees to sign up in the program, and then also a cut of the amount obtained from the false refund returns.

How Much: $5 million in refund checks were issued in error. The total dollar amount placed on this scheme is $250 million.

Common tax protestor arguments are listed here on the IRS website.

If you would like further guidance on what kinds of arguments are legitimate and what kinds of arguments might land you in prison, feel free to contact Montgomery & Wetenkamp: