1099 OID fraud is a common
scam
A scam, or a confidence trick, is an attempt to defraud a person or group after first gaining their Trust (emotion), trust. Confidence tricks exploit victims using a combination of the victim's credulity, naivety, compassion, vanity, confidence ...
used to obtain money from the U.S.
Internal Revenue Service
The Internal Revenue Service (IRS) is the revenue service for the Federal government of the United States, United States federal government, which is responsible for collecting Taxation in the United States, U.S. federal taxes and administerin ...
(IRS) by filing false tax refund claims.
Form 1099-OID
In the United States, a Form 1099-OID is a tax form intended to be submitted to the Internal Revenue Service by the holder of debt instruments (such as bonds, notes, or certificates) which were discounted at purchase to report the taxable differ ...
is intended to be submitted to the IRS by the holder of debt instruments (such as bonds, notes, or certificates) which were discounted at purchase to report the taxable difference between the instruments' actual value and the discounted purchase price. In 1099-OID fraud, the filer of a tax return fills out the form themselves with a false
withholding
Tax withholding, also known as tax retention, pay-as-you-earn tax or tax deduction at source, is income tax paid to the government by the payer of the income rather than by the recipient of the income. The tax is thus withheld or deducted from the ...
amount and submits it to the IRS in an attempt to reduce tax liability. Promoters of the fraud allege that the withheld amount exists in a secret bank account, a claim that originates from the
redemption movement
The redemption movement is a pseudolaw movement, mainly active in the United States and Canada, that promotes fraudulent debt and tax payment schemes. The movement is also called redemptionism. Redemption promoters allege that a secret fund is ...
. The IRS initially overlooked the fraud because it lacked time to verify withholding data; however it has since taken notice and responded with both criminal prosecutions and public awareness campaigns.
In one egregious case, Ronald L. Brekke of
Orange County, California, was convicted on March 17, 2012, in
federal court in
Seattle, Washington
Seattle ( ) is the List of municipalities in Washington, most populous city in the U.S. state of Washington (state), Washington and in the Pacific Northwest region of North America. With a population of 780,995 in 2024, it is the List of Unit ...
, of
conspiracy
A conspiracy, also known as a plot, ploy, or scheme, is a secret plan or agreement between people (called conspirers or conspirators) for an unlawful or harmful purpose, such as murder, treason, or corruption, especially with a political motivat ...
and
wire fraud
Mail fraud and wire fraud are terms used in the United States to describe the use of a physical (e.g., the U.S. Postal Service) or electronic (e.g., a phone, a telegram, a fax, or the Internet) mail system to defraud another, and are U.S. fede ...
in which 1,000 people, most of them
Canadian
Canadians () are people identified with the country of Canada. This connection may be residential, legal, historical or cultural. For most Canadians, many (or all) of these connections exist and are collectively the source of their being ''C ...
, filed fraudulent United States tax refund claims with the IRS. The scam totaled $763 million, but the IRS paid out only $14 million. Mr. Brekke received $400,000 from his clients.
References
{{reflist
Tax fraud
Personal taxes in the United States
Fraud in the United States
Confidence tricks