The owners of a tax preparation businesse in South Carolina have been charged with filing phony income tax returns to steal hundreds of thousands of dollars from the District of Columbia.
The elaborate scam siphoned money via the troubled D.C. tax office even after federal agents uncovered an unrelated scheme in which fake property tax returns were used to rip off $48 million from the government over two decades.
Carolyne R. Jones, 50, and Johanna R. Jones, 47, were charged with wire fraud, mail fraud and identity theft. The sisters are accused of filing 173 fraudulent tax returns in the names of their clients to pocket $800,000 for themselves.
Like the $48 million property tax scheme, this scam was not caught by the District’s internal controls, but unraveled only after a D.C. tax office form was accidentally mailed to a former client of the Joneses.
The investigation began in February 2008 after a post office worker forwarded an incorrectly addressed letter to a Columbia, S.C., woman stating that she was paid $4,300 in income tax refunds from the District the previous year.
The woman called the D.C. tax office and reported that she had never worked in D.C. and never received a refund.
After further investigation, investigators learned the woman’s tax return was one of dozens filed by the South Carolina tax preparers that had similar characteristics.
All of them listed addresses around Columbia, S.C., and included fraudulent W-2 forms from one of two companies: Banktec in Houston and David Allen Co. in Raleigh, N.C.
Prosecutors said the scam began in 2005 and escalated each year, from 16 bogus tax returns for $47,000 in 2005 to 50 returns for $310,000 in 2008.
The District of Columbia wired the refunds to bank accounts in South Carolina. To conceal their involvement, the sisters provided incorrect addresses on the tax returns.
Of the 173 bogus tax returns filed, only 13 were blocked by the D.C. tax office, court filings said.
The D.C. tax office has been embarrassed by a series of scandals since 2007, most notably the theft of $48 million by former tax manager Harriette Walters.
Forensic auditors hired by the city to dissect the Walters case later blasted “a failure of controls, a dysfunctional work environment and a lack of oversight” at the tax office.
Chief Financial Officer Natwar Gandhi has promised that he has overhauled the system.
