US Authorities Move To Shut Down Tax Scam

by Leroy Baker, Tax-News.com, New York

18 April 2006

The United States Justice Department has brought a lawsuit against nine people in a nationwide crackdown on a scheme named by the Internal Revenue Service as the number one tax scam on its so-called 'Dirty Dozen' list of dubious tax avoidance strategies.

According to the government complaints, filed in seven lawsuits across the country, the nine people have received a total of nearly $150,000 in erroneous tax refunds by submitting false forms with their federal tax returns to replace W-2 and 1099 forms that correctly reported their income.

The offences were allegedly encouraged by Peter Eric Hendrickson of Commerce Township, Michigan, who was convicted in 1992 on federal criminal charges for failing to file a federal income tax return and for a conspiracy involving a firebomb placed in a bin at a US Post Office in Royal Oak, Michigan on April 16, 1990, the last day on which tax returns could be postmarked that year.

Hendrickson testified at a co-conspirator’s trial that he wrapped a tea bag around the bomb’s tubing as a reference to the Boston Tea Party tax protest.

The lawsuits were filed in US district courts in California, Nevada, Michigan, Alabama, Florida and Kansas. In addition, the suit against Hendrickson, filed in the Eastern District of Michigan, asks the court to enjoin him from filing false tax forms and returns. A violation of the injunction would be punishable as contempt of court.

According to the complaint, Hendrickson claims that only government workers are subject to income taxes. Hendrickson tells people to not submit their W-2 and 1099 forms with their tax returns, and in their place submit substitute or corrected W-2 and 1099 forms that they create on which they change their reported income to zero. This scheme is number one on the IRS’s 2006 list of the 'Dirty Dozen' tax scams

“Federal law provides serious penalties for filing false tax forms,” commented Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division.

“People who engage in tax fraud schemes can expect to pay back taxes, plus interest and penalties, and may face criminal prosecution for evading taxes," she added.

The Justice Department says that enforcement efforts have "significantly increased" during the past year. According to the DoJ, since January 2001, the Justice Department has sought and obtained injunctions against more 170 tax return preparers and promoters, including 66 since January 2005, and it expects to obtain many more throughout the year.

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