Pierce County tax preparer sentenced for filing false returns | U.S. District Court

A former tax preparer who enriched himself by filing false tax returns for low income people was sentenced today in U.S. District Court in Tacoma to 30 months in prison, three years of supervised release and $2.4 million in restitution for a false claims conspiracy, announced U.S. Attorney Jenny A. Durkan.

Cleo J. Reed, 62, operated We ‘B’ Tax Service in University Place from October 2007, until July 2010. During that time period Reed filed more than 1300 fraudulent tax returns resulting in a tax loss of $4.2 million. Reed took a cut of the fraudulently inflated tax refunds he claimed for his clients. At sentencing U.S. District Judge Benjamin H. Settle ordered Reed to serve six months of home detention as part of his supervised release following his prison term.

“This defendant made tax cheats and criminal conspirators of the poor to enrich himself,” said U.S. Attorney Jenny A. Durkan. “By submitting the false returns he raided the federal treasury, taking money away from the very programs that could help these families move from welfare to work.”

According to records filed in the case, Reed operated a scheme where he had co-conspirators recruit low income clients for whom he could prepare false tax returns. Reed would inflate the wages the clients allegedly earned, so that they could maximize their refund under the Earned Income Tax Credit. Reed paid the recruiters a fee for each low income person they brought in to the scheme. Reed submitted their tax returns at times without even meeting or speaking to the client. When the tax refund was approved by the Internal Revenue Service, Reed kept a portion of the refund as his fee. The large number of returns filed by Reed claiming an Earned Income Credit triggered the investigation of his business. Undercover agents posing as clients met with Reed and he described how he would falsify their income to boost their tax returns. He also discussed how he put recruiters to work – paying young single mothers to find him other single moms to expand the scheme.

The IRS searched Reed’s office on April 15, 2010. He pleaded guilty in March 2013.

The case was investigated by the Internal Revenue Service Criminal Investigation (IRS-CI) and was prosecuted by Assistant United States Attorney Arlen Storm.