1099-OID fraud

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1099 OID fraud is a common scam used to obtain money from the U.S. Internal Revenue Service (IRS) by filing false tax refund claims.[1] People have claimed refunds based on the theory that the U.S. federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.[2]

In reality, form 1099-OID is intended to be submitted to the IRS by the holder of debt instruments (such as bonds, notes, or certificates) which were discounted at purchase to report the taxable difference between the instruments' actual value and the discounted purchase price,[3][4] some misinformed filers do not understand the purpose of the form and misfile it attached to their tax returns. Others intentionally misreport on the form, aiming to reduce tax payments, or to generate large refunds, the method works because the IRS does not cross-check tax returns with reported 1099-OID information. Peter J. Reilly, writing for Forbes, explained that "[w]hat is amazing about the OID scheme, is that it has absolutely nothing to do with OID, other than using the same form". Essentially, the fraudulent filing of the 1099-OID form is successful because the inconsistencies on the form are not noticed, and tax refunds are computed with the inaccurate information submitted on the form.[5]

Ronald L. Brekke of Orange County, California, was convicted on March 17, 2012, in federal court in Seattle, Washington, of conspiracy and wire fraud in which 1,000 people, most of them Canadian, filed fraudulent U.S. tax refund claims with the IRS. The scam totaled $763 million, but the IRS paid out only $14 million. Mr. Brekke received $400 thousand from his clients.[6][7]

References[edit]

  1. ^ See generally "Common Fraud Schemes," Federal Bureau of Investigation, U.S. Dep't of Justice, at [1]
  2. ^ "IRS Releases the Dirty Dozen Tax Scams for 2012". US Internal Revenue Service - Feb. 16, 2012. Retrieved 2012-06-27. 
  3. ^ "Form 1099-OID" (PDF). irs.gov. Internal Revenue Service. Retrieved 21 October 2016. 
  4. ^ "Publication 1212 - Main Content". irs.gov. Internal Revenue Service. Retrieved 21 October 2016. 
  5. ^ Peter J. Reilly (18 August 2016). "The OID Fraud And Criminal Gullibility". Forbes.com. Forbes, Inc. Retrieved 21 October 2016. What is amazing about the OID scheme, is that it has absolutely nothing to do with OID, other than using the same form. 
  6. ^ Chang, Andrea; Hsu, Tiffany (March 17, 2012). "Orange County man convicted of tax fraud". Los Angeles Times. Archived from the original on April 19, 2012. 
  7. ^ "American convicted in cross-border scam". CBC News. Associated Press. March 17, 2012. Retrieved March 14, 2017.