Opinion ID: 3168445
Heading Depth: 2
Heading Rank: 1

Heading: Defendant Angulo’s Tax Fraud Conspiracy

Text: The particular form of tax fraud Defendant Angulo and Zuloaga engaged in is called the “OID method” of tax fraud because it involves submitting false and fraudulent Internal Revenue Service (“IRS”) Form 1099-Original Issue Document (“OID”) and OID tax returns. An IRS Form 1099-OID is used by financial institutions to report customers’ interest income earned in connection with certain kinds of debt instruments, such as certificates of deposit and bonds. A Form 1099OID, similar to a Form W-2, is sent to both the IRS and to the taxpayer and reports 2 Case: 15-10998 Date Filed: 01/11/2016 Page: 3 of 17 the interest income and any income taxes withheld from the interest income on behalf of the taxpayer. Through the OID method of tax fraud, taxpayers falsely report on the OID tax returns that they received sizable interest income from financial institutions and, concurrently, that an equivalent amount of tax payments had been withheld by the financial institutions. As a result of these false OID returns, the taxpayers fraudulently claim that they are entitled to substantial tax refunds based on the overpayment of the fictitious withheld income taxes. By early February 2009, Defendant Angulo and Zuloaga were engaged in the business of preparing and electronically filing fraudulent OID tax returns. To perpetrate the scheme, Angulo and Zuloaga instructed their clients to provide financial records, such as information about their mortgages, credit card debts, student loans, and equity lines, including balances and credit limits on each account, as well as checking, money market, savings and other bank account statements. Angulo and Zuloaga then used that financial information to prepare fraudulent OID tax returns, listing their clients’ various account balances or credit limits as Form 1099 interest and dividend “income” from financial institutions. In reality, the items listed represent money the clients had already spent or owed. Angulo and Zuloaga then caused the clients to report a corresponding amount as 3 Case: 15-10998 Date Filed: 01/11/2016 Page: 4 of 17 federal income tax withheld by the financial institutions from their so-called interest income, thus fraudulently entitling them to large tax refunds. 1 At the direction of Angulo and Zuloaga, one of their employees created fictitious Form 1099-OIDs using word processing templates that resembled the forms created by the financial institutions for reporting to the IRS. Angulo and Zuloaga also purposely omitted their names as tax preparers on the tax forms so that it would appear that the clients had prepared the returns themselves. They also instructed clients to tell the IRS that they had prepared their own returns. As payment for their tax preparation services, Angulo and Zuloaga took thirty percent of the refunds received by their clients. Later investigation revealed Angulo and Zuloaga prepared and submitted 45 OID tax returns between February 2009 and November 2009. Together, the returns claimed $5,421,761 in fraudulent refunds on behalf of clients, and the IRS actually issued $1,679,056 in fraudulent refunds as a result of the scheme. Angulo and Zuloaga obtained a total of $461,939.71 from the refund payments from their clients. 1 The OID scheme is based in part on taxpayers who contend the U.S. Treasury has secret accounts that they should be able to access for their personal debts and expenses. The OID method is premised upon an outlandish and completely fictional doctrine known as the “redemption doctrine,” that falsely proposes that people with social security numbers can avoid personal debts, such as car and home loans, and be reimbursed for personal expenditures from secret “straw man” accounts maintained in each person’s name by the U.S. Treasury. Under this theory, the person “redeems” the funds in his or her “straw man” account by submitting personal income tax returns to the Internal Revenue Service using the 1099-OID and OID tax return. 4 Case: 15-10998 Date Filed: 01/11/2016 Page: 5 of 17 When IRS investigators began interviewing some of their clients, Angulo and Zuloaga interfered with the investigation in several ways, including: (1) giving their clients legally baseless questionnaires to give to IRS investigators and instructing the clients to refuse to speak to the investigators unless they answered the questionnaires; (2) continuing to file returns and to resubmit questioned returns with additional fraudulent documentation and fanciful legal arguments; (3) mailing packets of documents to the IRS stamped with legally irrelevant language, such as “accept for value . . . exempt from levy”; (4) returning IRS notices sent to Angulo and Zuloaga with the same legally irrelevant markings; and (5) making false statements to investigators. When an IRS agent attempted to serve Defendant Angulo with a summons to obtain information about her tax preparation activities, Angulo identified herself as Leslie and claimed not to know the identity of Sharon Angulo. At a subsequent judicial enforcement hearing, Defendant Angulo falsely stated to the court that she did not prepare anyone’s taxes.