Jan.18, 2010

Like any other financial transaction, a tax refund that sounds too good to be true probably is — and it could be criminal to boot, says the new special agent in charge of the Internal Revenue Service's Pittsburgh office.

Agent Timothy Marsh said a focus of the office this year will be cracking down on paid tax preparers who deliberately falsify clients' returns.

"Some do it just to generate customers. They don't really get anything out of it," Marsh said.

But they do no favors for their customers, he said, because any extra refund will have to be paid back, plus penalties and interest, and the client could end up in jail, he said.

"In the end, they're the ones who are on the hook," he said.

Ella L. Alloway of Waterford in Erie County is an example of such a tax preparer, said IRS spokesman Andy Hrmoko. She was sentenced in August 2008 to a year and nine months in federal prison for tax fraud. She attracted customers, mainly Bosnian immigrants who spoke little English, by preparing fraudulent returns that inflated their refunds, prosecutors said during her sentencing.

Marsh said other fraudulent preparers alter signed tax returns to inflate the refund.

"They'll pay you what you were told you were going to get and then keep the rest," he said. Such preparers typically operate out of a motel room or other temporary setting, he said.

"They're long gone, typically, once it's all over," Hrmoko said.

Marsh, 46, a native of Flint Township, Mich., joined the IRS after finishing a business administration and accounting degree at the University of Michigan.

While people mostly associate the IRS with income tax returns and audits, its criminal investigations cover just about any dubious financial transaction imaginable, he said. The agency helps unravel drug dealer's money-laundering schemes, terrorist financing networks, investor scams and embezzlement, Marsh said.

Recently, the IRS helped the Drug Enforcement Agency investigate a cocaine ring believed to have shipped more than 200 kilograms of cocaine from San Diego to Pittsburgh and millions of dollars back to San Diego. The money and drugs were shipped in coffee cans that appeared to still have their factory seals.

The IRS helped turn up the evidence that led to the federal grand jury indictment last fall of Gregory Podlucky, former CEO of LeNature's Inc. of Latrobe, three other former executives and a business associate in connection with an $806 million scheme.

The agency also investigated Richard E. McDonald, former CEO of World Health Alternatives, a Wilkins medical staffing company. McDonald is charged with fraud and tax evasion in a stock scheme that prosecutors say cost shareholders more than $200 million.

The IRS helped convict Thomas Cousar of Alexandria, Va., a former McKeesport businessman, of padding bills for repair work his company did on the Pentagon after the Sept. 11 terrorist attack. He was sentenced in April to five years and three months in prison.

Hitting criminals with charges of failing to pay taxes on the illegally obtained income has been a reliable standby for the government since it was used on Chicago mobster Al Capone in the 1930s. Marsh said the IRS still uses that technique, but the focus has shifted to money laundering since it carries tougher penalties.

Using ill-gotten gains for purchases or to make a bank deposit amounts to money laundering, Marsh said.

A key part of each of the investigations was tracking the financial transactions to show how they were tied to the crimes.

"Following the money. That's what we do," Marsh said.