Retired federal employees busted for $4 million ‘sovereign citizen’ tax fraud scheme

A married pair of former Federal Aviation Administration employees from Washington was sentenced this week for their role in a tax fraud scheme.

Debra and Samuel Aaron, of Whidbey Island, were convicted on charges of conspiracy to defraud the government and making false or fraudulent claims.

The couple promoted the 1099 OID tax fraud scheme often used by so-called sovereign citizens.

Debra Aaron claimed more than $14 million in tax refunds on behalf of 30 people and was paid $4 million before the IRS caught on.

The couple used a shell company to launder the money from their scheme and claimed some of the funds were used to help impoverished women in third-world countries.

In fact, federal authorities said, the couple used the money to remodel their home and take “lavish” vacations to Las Vegas; Sedona, Arizona; and the Caribbean.

Retired federal employees busted for $4 million ‘sovereign citizen’ tax fraud scheme

See also: 

Former Federal Employees Sentenced To Prison For Tax Fraud

The IRS has repeatedly publicized 1099-OID fraud, warning taxpayers about submitting fraudulent claims.  The IRS website states:

False Form 1099 Refund Claims

In some cases, individuals have made refund claims based on the bogus theory that the 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. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.