Scheme Caused $14 Million Tax Loss, Enriching Defendant By More Than $600,000
A Canadian tax fraud promoter who was extradited from Canada and convicted at trial was sentenced today to nine years in prison for conspiracy and three counts of wire fraud, announced Acting U.S. Attorney Annette L. Hayes. FRANZIE F. COLACO, 54, of Brampton, Ontario, Canada was convicted in July 2014 following a two-day jury trial. COLACO conspired with Ronald L. Brekke and others to promote a scheme known as “1099 OID" fraud. Under this scheme, tax filers use fraudulent Form 1099-OID forms to claim tax refunds equal to the value of the filer’s personal debt. COLACO promoted this scheme throughout Canada and encouraged Canadian citizens to request refunds from the U.S. government. U.S. District Judge John C. Coughenour found COLACO responsible for more than $6.2 million in restitution to the Internal Revenue Service, and cited the “audacious nature of the scheme," in imposing the lengthy sentence on COLACO.
“This defendant promoted theft of U.S. tax dollars by convincing Canadians they could get rich at others’ expense," said Acting U.S. Attorney Annette L. Hayes. “This is a fraud - pure and simple - and one that will not go unpunished."
The IRS flagged the vast majority of the 1099 OID filings as frivolous, but refund claims totaling approximately $14 million were paid to followers of Brekke and COLACO before the IRS detected the fraudulent nature of the returns. About two-thirds of those filing for money they didn’t deserve were Canadians who had never paid any income tax in the United States and were not owed any money by the U.S. Treasury. Those submitting the phony claims were told to quickly move the money to Canada where it would be more difficult for the IRS to recover the money. COLACO personally collected over $600,000 in fraudulent refunds under the scheme.
“In all my years investigating tax crimes, this is one of the most egregious cases I have ever seen," said Special Agent in Charge Teri Alexander of IRS Criminal Investigation. “It is unfathomable that Colaco and his co-conspirators concocted a scheme wherein their followers could extract hundreds of millions of taxpayer funds, especially when many of their adherents were not even citizens of this country and had never paid a dime of income tax."
The IRS has been able to get just over half of the $14 million back, resulting in a restitution figure for COLACO and Brekke of $6,206,998.
Brekke, the leader of the scheme, was sentenced in June 2012 to 12 years in prison. Other defendants convicted and sentenced include Donald Mason who received a $360,000 fraudulent refund check. He unsuccessfully attempted to help his wife receive an additional $333,000. He was sentenced to 33 months in prison. John Chung received a $370,000 fraudulent refund check. He was sentenced to a year in prison. Finally, Wonita Chung helped promote the scheme, and unsuccessfully attempted to receive approximately $210,000 in funds. She was sentenced to 18 months in prison.
The IRS has more information on 1099 OID fraud here: http://www.irs.gov/uac/Newsroom/IRS-Releases-the-“Dirty-Dozen"-Tax-Scams-for-2014;-Identity-Theft,-Phone-Scams-Lead-List
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The case was investigated by the Internal Revenue Service Criminal Investigation (IRS-CI) and the United States Secret Service. The case was prosecuted by Assistant United States Attorneys Thomas Woods and Francis Franze-Nakamura.
Source: U.S. Department of Justice, Office of the United States Attorneys
