Tax Preparer ‘The Magician’ Pleads Guilty to Defrauding IRS of $145 Million

The Department of Justice seal is seen on a lectern ahead of a press conference in Washington on Nov. 28, 2018. Mandel Ngan/AFP via Getty Images

A New York tax preparer, nicknamed The Magician, pleaded guilty to duping the Internal Revenue Service (IRS) with fake returns filed on behalf of his clients for several years, according to the U.S. Department of Justice (DOJ).

Rafael Alvarez, 61, was charged with one count of conspiring to defraud the United States and stealing government funds and one count of assisting in the preparation of false tax returns, according to a Dec. 17 statement from the agency.

“The charges arise from Alvarez’s orchestration of a decade-long, $145 million tax fraud scheme to file tens of thousands of federal individual income tax returns that included false information designed to fraudulently reduce the individuals’ tax burden.”

Alvarez pleaded guilty on Tuesday and, as part of the plea, agreed to pay the IRS $145 million in restitution. The tax preparer also forfeited more than $11.84 million he collected from his criminal actions.

The charges stem from Alvarez’s actions roughly between 2010 and 2020, when he was the CEO and owner of Bronx-based ATAX New York, LLC, a “high-volume tax preparation company.”

Alvarez and his employees submitted false information about customers on their tax returns, like fake business expenses, non-existent capital losses, and false itemized tax deductions. This enabled them to reduce the tax liability of ATAX customers and increase IRS refunds for the clients.

In total, roughly 90,000 federal income tax returns were prepared by ATAX.

“Alvarez was so consistent at falsifying ATAX customer tax returns that he became known to ATAX’s customers as ‘the Magician,’” the DOJ stated.

The count of conspiring to defraud the United States carries a potential maximum prison sentence of five years, and the false returns count carries a jail term of up to three years. Sentencing in the case is set for April 11.

“Today’s guilty plea, in one of the largest ever tax frauds by a return preparer, should serve as an important reminder to tax professionals that this Office will vigorously investigate and prosecute tax offenses,” said Acting U.S. Attorney Edward Y. Kim.

According to the IRS, anyone who assists or prepares federal tax returns for an individual in exchange for a payment must have a preparer tax identification number (PTIN). The PTIN must be renewed every year. As of Dec. 2, close to 850,000 people had current PTINs in the United States.

Fraud Cases

Multiple legal actions have been taken against fraudulent tax preparers over the past months.

In November, a tax preparer from Somerville, Massachusetts, was convicted of preparing false tax returns. Between 2012 and 2020, Yves Isidor, the defendant, prepared and filed over 1,200 tax returns for clients. He added false tax claims like non-existent medical and dental expenses and charity gifts.

The clients received refunds to which they were not entitled. During the trial, six taxpayers testified they had no idea that Isidor had added false items to their tax returns.

“When someone hires an individual to complete your tax returns, they have a right to expect honesty, professionalism, and integrity. Most importantly, you expect them to provide accurate information to the IRS,” said Acting United States Attorney Joshua S. Levy.

“Yves Isidor lied to his clients, who had no idea that he had improperly filed tax returns on their behalf until they were contacted by investigators and alerted to the false information in their returns. Tax fraud is not a victimless crime. We all suffer when people like Yves Isidor lie and cheat the tax system.”

Earlier in October, another tax preparer was sentenced to 24 months in federal prison, also for filing false income returns.

The defendant filed 83 federal returns over a roughly three-year period that contained fake items like business expenses, tips, and salaries. Most of the clients neither owned a business nor discussed any business expenses with the preparer.

In April last year, the IRS warned against unscrupulous tax preparers who seek to “tempt taxpayers into fraud” through various schemes while charging high fees.

Even if a taxpayer is duped into filing a return with false information by the preparer, “taxpayers are legally responsible for what’s on their return,” the agency said. The IRS recommends that people use reputable professionals to file returns.