The United States has recently sued Judy Grace Sellers to bar her from promoting an alleged scheme involving fraudulent tax refund claims. The government’s amended complaint for a civil injunction alleges that Sellers, of Chipley, FL, helps her customers create false documents to support a fraudulent “Secured Party Creditor” argument. According to the lawsuit, this argument maintains that the federal government has created a “strawman” for each U.S. citizen and an account exists at the Treasury Department for the strawman. Sellers allegedly assists her customers in preparing documents to obtain funds from their Treasury accounts.
According to the amended complaint, this scheme, also called the “commercial redemption” scheme, involves Sellers’s customers filing fraudulent tax returns with false IRS Forms 1099-OID. The government alleges that the forms falsely claim huge amounts of tax withholding and that the returns claim large tax refunds based on the false withholding amounts. I am not sure why they are pursuing her civilly and not criminally. Civil suits are typically limited to contract law.
Sellers’s customers have allegedly filed federal income tax returns claiming false refunds exceeding $6 billion. The amended complaint states that, in 2008, Sellers referred some customers to Teresa Marty for assistance with the Form 1099-OID submission process. The complaint alleges that, in 2009, the U.S. District Court for the Eastern District of California barred Marty from preparing federal tax returns for others as a result of her participation in the Form 1099-OID scheme.
Claiming bogus tax refunds based on false Forms 1099-OID is one of the IRS’s “Dirty Dozen” tax scams for 2011. In the past decade, the Justice Department’s Tax Division has obtained injunctions against hundreds of tax fraud promoters and unscrupulous tax preparers.