Convicted $736 Million Tax Fraud Involving 1,000 people

Ronald L. Brekke, 55, was convicted of tax fraud in a conspiracy that resulted in more than $14 million tax loss, involving over 1000 people with claims over $736 million.

The Orange County, California man was indicted and arrested in late 2010, after two of his Canadian co-conspirators were arrested in Bellingham after attempting to cash two refund checks exceeding $350,000 each. The two Canadians, Donald Mason and John Chung, were convicted in U.S. District Court in Seattle, and the investigation revealed that Brekke had been promoting the tax fraud scheme. Brekke faces up to 20 years in prison when sentenced by U.S. District Judge John C. Coughenour, on June 15, 2012. The jury also found that $291,064 seized from Brekke’s PayPal account at the time of his arrest was subject to forfeiture as the proceeds of his crime.

Brekke promoted a tax fraud scheme known as “1099 OID” fraud. Promoters of this scheme claim that the U.S. Treasury will pay out tax refunds equal to the value of a person’s personal debt. Brekke helped nearly 1,000 people claim over $763 million in fraudulent tax refunds by preparing phony tax forms on their behalf. The IRS flagged the vast majority of the filings as frivolous, but refund claims totaling approximately $14 million were paid before the IRS detected the fraudulent nature of the returns. Brekke had been repeatedly warned and fined by the IRS about the frivolous filings. He also had received information from the FBI that the scheme was illegal. In a recording played for the jury, Brekke told people at a seminar that some of the filings would slip through resulting in a big payout for some of the filers. In closing argument, prosecutors said that Brekke “knew the tax system’s vulnerabilities and exploited them… and the result was people getting free money who never paid a dime into the U.S. Treasury.”

The IRS has more information on this fraud scheme here: http://www.irs.gov/newsroom/article/0,,id=254383,00.html.

The case was investigated by the Internal Revenue Service Criminal Investigation (IRS-CI) and the United States Secret Service. The case was prosecuted by Assistant United States Attorneys Thomas Woods, Mary K. Dimke, and Tessa Gorman.