U.S. District Judge Edward J. Lodge, recently issued a preliminary injunction barring Penny Lea Jones of Idaho Falls, Idaho, from preparing federal income tax returns for others, while the lawsuit is pending. The court found that Jones promotes a tax defier scheme that claims large fraudulent tax refunds for customers.
The court found that Jones repeatedly prepared federal income tax returns
claiming bogus refunds based on a tax fraud scheme known as the “redemption”
scheme. The court held that Jones prepared and filed 333 income tax returns
for customers in 2008 and 2009 claiming more than $93 million in fraudulent
refunds. The court said that the redemption scheme is based on a frivolous
theory that the federal government maintains secret accounts for its citizens,
and that taxpayers can gain access to funds in those accounts by issuing
IRS 1099-OID forms to their creditors.
The case against Jones is one of seven lawsuits the Justice Department
filed across the nation in October 2009 that seek to shut down tax preparers
who allegedly promote the redemption scheme. The defendants in those cases
allegedly prepared tax returns fraudulently requesting a total of $562.4
million in refunds. Under the scheme, participants file a series of false
IRS forms, including tax returns, amended returns, and Forms 1099 (including
Form 1099-OID) or Forms W-2, to request fraudulent tax refunds based on
phony claims of large income tax withholding.
The Internal Revenue Service (IRS) catches the vast majority of fraudulent
redemption-scheme tax refund claims without issuing any refund. Taxpayers
who submit the claims face substantial civil monetary penalties, and possible
In the past decade, the Justice Department’s Tax Division has obtained
more than 435 injunctions against dishonest tax-return preparers and tax-fraud