1099 OID fraud has been on the IRS “Dirty Dozen” for many years. It’s also called the “The overstated withholding scam”.
The IRS gives this easy warning: “Most tax preparers provide outstanding and professional service. However, people should be careful of shady tax professionals and watch for common warning signs, including charging a fee based on the size of the refund.”
You can report an abusive tax scheme or a tax return preparer, people should use the online Form 14242 – Report Suspected Abusive Tax Promotions or Preparers.
- Ronald L. Brekke
- Ronald assisted over 1,000 people in attempt to defraud the US IRS in over $763 million. The IRS only paid out $14 million.
- Brekke stole over $400,000 from this scam.
- Which turned into 12 years in prison and $6,206,998 in restitution
- https://www.justice.gov/archive/usao/waw/press/2012/June/brekke.html
- https://www.splcenter.org/resources/hatewatch/sovereign-tax-cheat-bilked-millions-treasury-gets-12-years/
- https://www.heraldnet.com/news/calif-man-gets-12-years-in-tax-scheme/
- https://www.theolympian.com/news/business/article25274542.html
- https://www.taxnotes.com/research/federal/other-documents/other-irs-documents/irs-criminal-investigation-report-highlights-gains-in-enforcement-penalties/f337
- “About two-thirds of Brekke’s customers were Canadians who had never paid income tax and were not owed any money by the U.S. Treasury.”
- https://www.seattlepi.com/local/article/Tax-cheat-sentenced-in-763-million-fraud-3655926.php
- “Kenneth J. Hines, the IRS special agent in charge for the Pacific Northwest, said his prosecution should show that national borders won’t protect tax frauds.”
- https://www.wklaw.com/california-man-arrested-for-masterminding-massive-tax-fraud-scheme/
- “Brekke would charge his victims a fee to file the “proper” paperwork.”
- https://web.archive.org/web/20120419011858/http://www.latimes.com/business/la-fi-tax-fraud-20120317%2C0%2C3391597.story
- “Brekke would draft false 1099 OID forms that listed his customers’ debts as income while also claiming that an equivalent amount had been paid earlier to the IRS, prosecutors said.”
- https://www.cbc.ca/news/world/american-convicted-in-cross-border-scam-1.1245588
- Customers become victims as they are convicted of fraud:
- “Donald Mason of Fort Saskatchewan, Alta., and John Chung of Kelowna, B.C., were arrested in October 2009 and the investigation led authorities to Brekke, whose promotional materials were found in Mason’s hotel room. They were convicted of fraud in connection with the case.”
- Customers become victims as they are convicted of fraud:
- Judy Grace Sellers
- https://www.irs.gov/compliance/criminal-investigation/chipley-sovereign-citizen-convicted-at-trial-of-3-point-4-million-tax-fraud-scheme-filing-a-false-lien-and-absconding-while-on-bond
- Judy Grace Sellers, from Florida, potentially 23 years in prison.
- Archived Web site: https://web.archive.org/web/20110223104816/http://commercialredemption.com/
- https://www.irs.gov/compliance/criminal-investigation/sovereign-citizen-sentenced-to-9-years-in-prison-for-3-point-4-million-tax-fraud-scheme-filing-a-false-lien-and-absconding-while-on-bond
- Penny Jones
- https://www.justice.gov/archives/opa/pr/federal-court-bars-idaho-woman-promoting-form-1099-oid-tax-scheme
- Penny Jones from Idaho, sentenced to 12 years in prison
- https://www.justice.gov/tax/pr/idaho-woman-pleads-guilty-conspiracy-and-filing-false-tax-returns
- https://www.taxnotes.com/research/federal/other-documents/justice-department-documents/doj-announces-sentencing-of-florida-man-for-tax-charge/fkfq
- Marquet Antwain Burgess Mattox
- https://www.justice.gov/usao-mdga/pr/georgia-man-convicted-filing-165-million-fraudulent-tax-returns
- In 2024 sentenced to over 19 years in prison and $3.2 million in restitution.
- His house was seized and auctioned off
- https://www.justice.gov/archives/opa/pr/united-states-sues-seattle-area-man-bar-him-promoting-alleged-form-1099-oid-tax-fraud-scheme
- John Lloyd Kirk
- Steven Hinz
- Pled guilty
- Sentenced to 9 years in prison, Ordered to Pay More Than $500,000
- Injunction against Steven ever filing taxes on behalf of any clients:
- https://descrybe.ai/case-details/c7315354
- Steven rejects US Courts jurisdiction
- Steven charged clients a portion of their returns
- Steven instructed clients to hid their income from the IRS
- When the IRS sought to recover improper refunds from two customers, Hinz refused to refund their fees.
- Steven’s Facebook:
- Steven links to this organization on his Facebook page: https://globalinformationnetwork.com/
- Other links:
- https://web.archive.org/web/20140228060918/https://www.vindy.com/news/2013/jan/31/fraud-schemes-lead-man-to–year-sentence/
- https://web.archive.org/web/20170318190225/http://www.vindy.com/news/2012/dec/27/man-bills-newspaper-m-for-using-his-name/
- “Phillips was arrested in Los Angeles in June after having been deported from the Philippines upon request of the U.S. government.”
- Steven R. Hinz, 41, billed the newspaper $3 million for each of two uses of his name in an Oct. 13 story that reported his guilty plea a day earlier in federal court in Cleveland.”
- https://case-law.vlex.com/vid/united-states-v-hinz-893557885
- “Occasionally, customers were told that if they chose the OID process, they, alone, would be liable for any consequences with the IRS.”
- https://www.casemine.com/judgement/us/5914f63cadd7b0493498ea82/amp
- https://foiaproject.org/case_detail/?title=on&style=foia&case_id=24836
- Karen Liane Miller
- https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/preliminary-injunction-issued-against-tax-fraud-promoter/1n8bv
- Plead guilty
- Sentenced to 18 months in prison and restitution of $939,835.62.
- The injunction explains how the OID fraud is done with detailed examples from real cases.
- Ronald Croteau
- https://media.ca11.uscourts.gov/opinions/pub/files/201511720.pdf
- In this one the fraudster filed IRS returns, when they replied that the filing was in error he replied to the IRS that he made a mistake and asked for the returns to be withdrawn. The IRS thanked him for acknowledging the error and withdrew the returns. The fraudster then refiled a different fraudulent return in hopes of getting the fraudulent return through the system. He repeated this several times.
- https://www.scientificamerican.com/article/a-tale-of-tax-returns-and-tax-scams/
- https://www.taxnotes.com/research/federal/court-documents/court-petitions-and-briefs/government-files-complaints-against-seven-individuals-for-roles-in-fraudulent/wmb6
- Gives specific details of different tax returns with claimed withholding values and fradulent return claims.
- https://www.expertinstitute.com/resources/insights/accounting-expert-witness-properly-allowed-tax-fraud-case-10th-circuit-concludes/
Background on the scam from reputable sources:
MCToon 