Source: Office of United States Attorneys
A would-be lawyer who falsely inflated dozens of client tax returns was sentenced Tuesday to more than 15 years in federal prison for tax fraud, announced U.S. Attorney for the Northern District of Texas Leigha Simonton.
John Anthony Castro, 40, owner of the virtual tax preparation business Castro & Company, was indicted in January. Following a five-day bench trial before Senior U.S. District Judge Terry R Means, he was convicted on all 33 counts of assisting in the preparation of a fraudulent return and was immediately taken into custody. Judge Means sentenced him Thursday to 188 months in prison and ordered him to pay $277,243 in restitution.
“Far from an ‘international tax expert,’ this defendant was an international fraudster, plain and simple,” said U.S. Attorney Leigha Simonton. “Not only did he defraud the U.S. government, he bullied and berated clients who dared question his methods. Today’s sentencing should send a message to tax preparers nationwide: Lie on clients’ returns at your own peril.”
“Mr. Castro prepared and filed completely fraudulent and fabricated tax returns for one reason: greed,” stated Special Agent in Charge Jenifer L. Piovesan, IRS Criminal Investigation, Newark Field Office. “Today’s sentence highlights IRS-CI’s diligence in rooting out dishonest tax return preparers whose only motive is to cheat the system and make themselves richer in the process.”
According to evidence presented in court, Mr. Castro – who had graduated law school but repeatedly failed the bar exam – held himself out as an “international tax expert” and “federal practitioner.” (He also falsely claimed to be a graduate of West Point.)
He was successful at marketing to clients around the world, claiming to be an expert on certain tax issues related to Australian ex-pats, among other things. Between 2017 and 2019, he filed more than 1,900 tax returns on behalf of individuals from all over the world.
As part of his pitch, Mr. Castro promised his clients a significantly higher refund than they would receive from other preparers, claiming he knew how to identify and claim deductions that others did not. He added there was no risk, as he would simply split the additional refund amount with them to account for his fee. He would not share the tax return with clients before filing, but would instead simply inform them of the amount of the anticipated refund.
On many occasions, he filed tax returns on behalf of clients without their permission or knowledge. In other instances, he claimed deductions that had no basis in fact. For example, for one client, who made approximately $103,000 in income, Mr. Castro claimed over $90,000 in deductions related to unreimbursed employee expenses.
Mr. Castro claimed deductions based on extreme and unsupported legal theories, including deductions such as (1) those for any expense related to preventing an illness qualified as an “impairment related work expense,” (2) those for expenses related to commuting to and from work, (3) the full value of one’s mortgage and utilities as long as the taxpayer had some type of Schedule C business to claim, (4) those related to dry-cleaning for work clothes, and (5) the full value of one’s cell phone bill even when their employer provided them with a work phone. For example, with respect to one client, Mr. Castro deducted over $26,000 in expenses that he claimed related to a nascent cupcake business that had generated only $250 in revenue.
According to trial testimony, in February 2018, an undercover IRS – CI agent contacted Mr. Castro for assistance. The agent asked to meet with Mr. Castro in person, but Mr. Castro’s office told him that in-person meetings required a $5,000 retainer. They spoke via email instead.
On February 13, 2018, the undercover agent submitted a W2 and a Form 1098-T showing wages of $142,217. About two weeks later, one of Mr. Castro’s employees called the agent to discuss deductions, noting that Mr. Castro would make any decisions regarding what items would be included on the tax filing.
The agent denied having any unreimbursed employee expenses, charitable contributions, or other items that could lead to deductions.
On March 12, 2018, Mr. Castro sent the undercover agent his tax analysis. He said that if the agent used another preparer, he would receive a refund of $373, but that if he used Mr. Castro, he would receive a refund of $6,007. Mr. Castro would take half, netting him $3,008. The analysis said the return would include $29,339 in deductions but did not specify which deductions would be used.
Two days later, Mr. Castro filed the agent’s return, which claimed $29,339 in fraudulent deductions, including $2,400 in employee expenses, and 28,600 in other expenses that the undercover agent had never discussed with Mr. Castro or his employees.
According to evidence presented at trial, Mr. Castro engaged in a similar pattern with his other clients. When the victim-taxpayers learned what Mr. Castro had done, many of them demanded copies of their tax returns. Mr. Castro refused to engage in conversation and even delayed providing returns for months at a time. Mr. Castro often acted in a highly vindictive manner when questioned or challenged by clients or others, often berating individuals in emails, threatening legal actions, or by filing amended tax returns, without clients’ permission or knowledge, that removed all deductions, causing the taxpayer-victim to then owe the IRS tens of thousands of dollars.
During the trial, Mr. Castro took the stand in his own defense, and upon cross-examination, admitted that his positions were extreme, outlandish, and not supported by the law. He also admitted to a bevy of prior falsifications and vindictive actions.
Many of the victim-taxpayers have since been audited and/or filed amended returns, causing them significant financial hardship.
IRS Criminal Investigation conducted the investigation. Assistant U.S. Attorneys P.J. Meitl and Nancy Larson are prosecuting the case.
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