An ex-California Franchise Tax Board employee turned Inglewood-based tax preparer was sentenced Monday to 63 months behind bars for defrauding the IRS out of millions of dollars by declaring bogus withholdings to fraudulently claim refunds of more than $5 million.
Cubby Wayne Williams, 64, of Alhambra, was also ordered to pay more than $492,600 in fines and restitution, and serve one year on supervised release following his prison term, according to Assistant U.S. Attorney Ranee Katzenstein.
Williams was found guilty in October of 22 counts of assisting in the preparation of false tax returns for his clients and four counts of subscribing to false tax returns for himself.
Williams, who owns and operates the Inglewood-based tax services company Williams Financial Network, filed tax returns claiming that his clients had accrued Original Issue Discount interest income, according to evidence presented at the four-day trial in Los Angeles federal court.
OID is a form of interest that accrues over the life of a bond or other debt instrument, but is not payable as it accrues. Financial institutions use IRS Forms 1099-OID to report such accrued, but unpaid, income, and any tax withholdings on it.
U.S. District Judge Percy Anderson said from the bench that Williams had “used his clients, some of whom were his friends, to commit hundreds of acts of tax fraud.”
Tax offenses, the judge said, impose large losses on society, leading to “loss of faith in our institutions” and the belief that there are “two systems of justice — one for white collar defendants and one for other defendants.”
Williams fraudulently claimed OID withholdings on 22 tax returns for his clients for the tax years 2013 through 2016, and sought hundreds of thousands in bogus tax refunds. Williams took a cut of many of the refunds often by directing the Internal Revenue Service to deposit a portion into a bank account under Williams’ control.
When his clients complained that their returns had fallen under IRS scrutiny, had been corrected and that they now owed money to the IRS, Williams told them the IRS had made a mistake and they were still entitled to their tax refunds. When the same clients informed Williams they were being audited, he assured them he would represent them before the IRS and resolve any issues, but he ultimately did little other than to submit further phony documentation.
According to prosecutors, Williams’ scheme included many false returns in addition to the returns charged in the indictment, through which Williams attempted to fraudulently obtain more than $5 million in tax refunds and, in fact, got nearly $3 million for himself and his clients.
During the trial, Eric Krepp, an IRS employment tax specialist, told jurors he was working as an IRS tax auditor in El Segundo in 2015 when he met with Williams about one of the tax preparer’s clients, whose returns showed unsubstantiated interest income.
Williams initially gave him nothing to back up the client’s withholdings, Krepp said, but eventually provided a “hand-written” document that raised questions.
None of Williams’ clients have been charged in the scheme, Katzenstein said.
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