(WDEF) Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a Chickamauga, Ga., woman was sentenced in federal court Thursday for making false claims for tax refunds.
Kimberly Johnson, 43, of Chickamauga, Ga., was sentenced by U.S. District Judge Brian C. Wimes to four years in federal prison without parole. The court also ordered Johnson to pay $306,496 in restitution.
On Jan. 13, 2014, Johnson was found guilty at trial of one count of filing false claims for a tax refund. Johnson filed fraudulent tax returns that falsely claimed refunds due to over-withholding of taxes. This claim utilized fictitious 1099-OID tax forms (which are legitimately used to pay taxes on income received from the interest on bond investments).
Johnson was a branch manager for co-defendant Gerald A. Poynter, also known as “Brother Jerry Love,” 48, of Kansas City, Mo. Poynter pleaded guilty on Nov. 7, 2013, to being the leader of a conspiracy to defraud the government that utilized this fraudulent practice. He was sentenced to 13 years in federal prison without parole. Conspirators filed 284 fraudulent returns that claimed a total of $96 million dollars in refunds. The IRS mistakenly paid out $3.5 million on these fraudulent claims. Conspirators from eight states were involved in filing fraudulent tax returns in the largest federal false claims case that has ever been prosecuted in Missouri.
According to court documents, Johnson filed tax returns and amended returns for 37 people. She admitted that this was her sole livelihood at the time, and she benefitted by making tens of thousands of dollars. Despite notice after notice that Poynter and his scheme were frauds, she continued to file tax returns. Many of her low-income clients were fined $10,000 by the IRS for following Johnson’s fraudulent advice. The government believes Johnson’s intended loss was $3,682,647, and her actual loss was $306,496.
Johnson was convicted of filing a claim for a $61,959 refund in April 2009 on behalf of Marian Fine-Kennedy, 36, of Eugene, Ore. In actuality, Fine-Kennedy had not received interest income from the banks and lenders listed on the Forms 1099, nor had any money been over-withheld. Fine-Kennedy has pleaded guilty in a separate but related case.
Poynter and Fine-Kennedy are among 13 defendants who have pleaded guilty. Co-defendant Nkosi Gray, 40, of New Fairfield, Conn., was also convicted at trial and awaits sentencing.
1099-OID Tax Fraud Scheme
Conspirators utilized 1099-Original Issue Discount forms as part of their scheme.
These forms are legitimately used by tax filers who must pay taxes on income they receive from the interest on their bond investments. Tax on certain bonds must be paid as income accrues. Bond holders receive annual forms, called 1099-Original Issue Discount (OID), from the debt issuers.
However, the scheme described in the indictments utilized the 1099-OID forms in a nonsensical manner. Clients of the conspirators assembled financial documents such as mortgage and loan statements, car payments, foreclosure records, bank statements, credit card statements, and other records of debt and spending. Poynter and his staff used this debt information – rather than any actual bond income – to prepare and/or finalize false tax returns and improperly calculated Forms 1099-OID.
These tax returns falsely claimed that the filers had received interest and dividend income and that federal income tax had been withheld. The fraudulent returns claimed the government had over-withheld taxes from the clients’ purported interest and dividend income, making the clients appear entitled to more than $96 million in tax refunds.
In reality, Poynter’s clients had not earned – or paid tax on – such income. No financial institution had issued any 1099-OID forms. Instead, the income that was listed was calculated by what the indictment describes as an “arbitrary and capricious formula.” Conspirators simply added up the taxpayers’ debts and spending and listed those creditors as “payers” of interest and dividends.
OID Fraud Web Site
A Web site has been established to provide updated information about the status of this investigation. Updates about this investigation and related cases will be posted at www.justice.gov/usao/mow/divisions/OIDfraud.html
This case is being prosecuted by Assistant U.S. Attorney Daniel M. Nelson. It was investigated by IRS-Criminal Investigation and the Treasury Inspector General for Tax Administration (TIGTA).