The federal government calls them tax defiers – people who question the very legitimacy of the U.S. revenue collection system.
Prosecutors say a Placerville business that represented such true believers is at the center of a bizarre tax-fraud scheme that IRS officials began investigating in the fall of 2008. During the probe, officials and prosecutors found themselves bombarded with multimillion-dollar liens allegedly filed by the people under investigation. Government employees had their home addresses and Social Security numbers listed on some liens, court papers say.
On Wednesday, the case against Teresa M. Marty and her company, Advanced Financial Services LLC, may enter a new stage. Marty is scheduled to appear in federal court in Sacramento for a “change of plea” hearing, at which she is expected to join five co-defendants in accepting a deal with prosecutors.
If that happens, it will mark the end of an eight-year battle over what prosecutors in court documents have labeled a sprawling conspiracy that relied on a “bogus theory that the federal government maintains secret accounts for U.S. citizens” and that taxpayers can gain access to those accounts by filing false returns.
The scope of the alleged fraud is huge, one that Assistant U.S. Attorney Matthew Segal said during a January court hearing “touches districts all over the country.”
“There are hundreds of clients, $60 million in attempted loss, $8 million in actual loss,” Segal said then, before the loss figure was increased to more than $9 million.
The case has featured aggressive tactics by the defendants aimed at harassing federal agents, court papers say.
In January 2009, the IRS raided Advanced Financial and Marty’s home in Pollock Pines, and carted away tens of thousands of documents. At the same time, the agency assigned one of its revenue officers to look into a $388,735.08 tax refund that had been issued to Marty for the 2007 tax year.
The IRS contended the refund issued to Marty, a tax preparer and “certified wealth preservation planner,” was based on bogus information. The revenue officer sent her a notice that the government wanted the money back.
Marty did not repay the money.
Instead, federal court records say, she filed a $6 million lien against the IRS officer. Then, she filed another $6 million lien against an IRS compliance director working on the case. Then, after losing an administrative appeal, she filed another $6 million lien against the appeals officer.
When the federal government sued to shut down Marty’s company, she filed an $84 million lien against the Justice Department official who filed the suit, as well as another $84 million lien against the acting U.S. attorney in Sacramento.
At one point, court records say, she went so far as to hire an agency to collect the “debts.”
Having sufficiently gained the attention of federal law enforcement, Marty and a handful of co-defendants have since been the targets of civil and criminal actions involving more than $9 million in tax refunds mistakenly paid out, court papers reflect.
The refunds were paid after Advanced Financial filed 250 tax returns seeking $60 million in refunds for individuals in 26 states, the court papers say.
Such schemes have been in use for decades, particularly among so-called “sovereign citizen” groups that do not trust the government and use liens, which can be filed with the state online for a $5 fee, against officials they want to punish.
“It’s not just a moneymaking deal,” said Brian Levin, director of the Center for the Study of Hate & Extremism at California State University, San Bernardino. “Many of these people are true believers.
“Sovereign citizens have issued financial instruments through their own common-law court. They believe that the Federal Reserve is illegitimate, and they’ve done things like go after people by making up debts.
“It’s kind of like making up your own Monopoly rules, but with federal taxes, instead.”
Marty’s alleged scheme operated out of a brick and cinder-block office front on Placerville Drive, where she ran Advanced Financial Services and touted herself as a “certified asset protection planner,” court papers say.
“The returns Teresa Marty prepares for others fabricate the amount of tax withheld on behalf of her customer,” the Justice Department said in a 2009 complaint that led to a permanent injunction against Marty and her company. “The fabricated tax withholding reported to the IRS on her customers’ returns results in fraudulent refund claims by her customers in amounts as large as $2.7 million per customer.”
In essence, the government said, Marty would take a client’s debt owed to an auto lender, mortgage holder or credit card company and report it to the IRS as money that had been withheld by the agency and was due them in the form of a refund.
“While the IRS is able to detect and stop most fraudulent claims, Marty’s fraudulent tax return preparation has resulted in the IRS’ issuance of at least $6.9 million in erroneous payments to her customers,” court papers say.
That figure was increased to more than $9 million in later filings, and the government contends the overall figure in such schemes is staggering.
In a 2009 statement announcing the filing of seven lawsuits against so-called “redemption scheme promoters,” the Justice Department described them as “tax defiers who falsely tell customers that the federal government maintains ‘secret’ accounts of money for its citizens.”
“Promoters claim to be able to help customers access the secret funds by filing the false IRS forms,” the statement said. “Altogether, according to the IRS, redemption scheme participants … have requested a total of $3.3 trillion in fraudulent refunds.”
Included among Marty’s customers was a Placerville couple, Charles and Victoria Tingler, who signed a 1040X form in 2008 claiming interest income of $506,052 and federal income tax withholding of $508,835, court papers say.
Based on that filing, the IRS sent the couple a $363,843.39 tax refund on Nov. 24, 2008, which the couple placed in an El Dorado Savings Bank checking account and a $100,000 certificate of deposit that eventually earned them $549.59 in interest, court papers say.
The Tinglers pleaded guilty last year to making false claims against the government and agreed to cooperate with prosecutors and testify against their co-defendants at a trial if necessary.
Another of Marty’s clients, Esther Robertson, pleaded guilty two years ago to filing false claims against the United States and agreed to cooperate and testify.
Still, Segal predicted in January, “This case is going to trial. We’re so far apart” in plea negotiations.
But the dominoes continued to fall.
Two other defendants, Pamela Ann Harris, a client and Marty’s office manager, and Rebecca Bandera-Marty, Marty’s daughter-in-law, pleaded guilty last week to conspiracy to defraud the government and agreed to cooperate and testify if necessary.
According to her written plea agreement, Bandera-Marty admitted that, for tax years 2005, 2006 and 2007, Marty directed her to file on behalf of hundreds of clients more than 250 tax forms that “falsely claimed refunds based on earned, withheld interest income that had not been earned or withheld.”
She admitted that, as a result of this fraud, the IRS issued refund checks on 40 returns totaling more than $9 million.
Harris admitted to doing the same type of work for Marty, and was still doing it when IRS agents walked into Advanced Financial’s Placerville offices on Jan. 21, 2009, and departed with a truckload of evidence.
Apparently Marty felt she was left with little choice.
With a Sept. 19 trial date looming, and after it became clear she would be going to trial by herself, with at least five co-defendants testifying for the government, her lawyer notified the judge that Marty wanted to change her plea to guilty.
That brings us to Wednesday, and the last and biggest domino.
Denny Walsh: 916-321-1189