1099 Mortgage Fraud Scheme

This guy was duped! And to make matters worse, it was by people from his Church! During the economic downturn, many taxpayers lost their homes and felt victimized by the system that allowed this terrible thing to happen. Years later, when a group of taxpayers were told that there was a remedy and that they could legally get some money back, they jumped on it and told all of their friends and family about it. I guess no one thought to check with a tax professional? Anyway, the scheme went like this…The taxpayer filed a Form 1099 with the IRS that looked like it was issued by the bank that had held their mortgage. Wells Fargo or Bank Of America or one of the other big banks. The 1099 showed $500,000+ in income with a large amount of Federal Withholding Tax deducted. Usually between $100,000 and $200,000. The taxpayer then filed a tax return and was issued a refund of most of the money withheld. The fraudster told the taxpayers that once they received the refund that all was well. The IRS would never say anything. Unfortunately, this was very wrong. There was no Federal Withholding actually paid into the IRS and the agency figured it out very quickly and came after the taxpayer. When I spoke with the Revenue Officer on this case, she disclosed that there were many, many other similar cases, all for people who were related or went to the same church. We ended up representing several of them. Not only did the taxpayer have to repay the funds, hundreds of thousands of dollars that they had already spent, but they were also penalized with a $10,000 civil penalty. Thankfully, we were able to get the penalty abated for the compliant taxpayers. The moral of this story is to never believe things that seem too good to be true without much investigation!