May 20, 2002

OFFICE OF THE UNITED STATES ATTORNEY
SOUTHERN DISTRICT OF CALIFORNIA
San Diego, California

United States Attorney
Patrick K. O'Toole

For Immediate Release

NEWS RELEASE SUMMARY

Patrick K. O'Toole, United States Attorney for the Southern District of California, and Eileen J. O'Connor, Assistant Attorney General for the Tax Division, announced today that Gwendolyn Jones, Deborah Hughes, and Brenice Hughes pled guilty to conspiring to file more than 3,100 false tax returns with the Internal Revenue Service ("IRS") claiming refunds of $8.7 million. Gwendolyn Jones, Deborah Hughes, and Brenice Hughes operated a tax return preparation service under the name "Neighborhood Money Tree" at 4218 Market Street, San Diego, California, from approximately October 1998 to mid-January 1999. In mid-January 1999, defendants Jones, Deborah Hughes, and Brenice Hughes moved the location of the Neighborhood Money Tree to 4120 Alpha Street, Suite D, San Diego, California, and operated the business at this address until March 1999, when IRS special agents executed a federal search warrant on both locations. Defendants Jones, Deborah Hughes, and Brenice Hughes admitted to conspiring together, and with others, to prepare and file at least 3,140 tax returns for individuals for the tax years 1995 through 1998, which claimed $8,790,607.00 in bogus refunds. The IRS issued approximately $120,000 in refund checks.

Defendants Jones, Deborah Hughes, and Brenice Hughes admitted to soliciting recipients of Aid to Families with Dependent Children ("AFDC") and Supplemental Security Income ("SSI") by word of mouth and written flyers, claiming that such recipients may be eligible for hundreds or thousands of dollars from the United States, and that the individuals were entitled to the Earned Income Tax Credit ("EIC"), when the defendants knew that the individuals, in fact, were not entitled to claim the credit on their tax returns. The defendants admitted as part of the conspiracy that, in order for the clients to appear eligible for the EIC refund, defendants and others created false, sole proprietorship businesses to report on Schedule C of the clients' tax returns, reporting that the client owned a sole proprietorship business, when in fact, the client did not. The defendants would then file the false returns with the IRS.

To ensure that the defendants had control over the refund checks at all times, the defendants would list the business addresses of the Neighborhood Money Tree as the taxpayers' addresses, so that any refund check would be mailed directly to the Neighborhood Money Tree and not to the client. The defendants also admitted as part of the conspiracy that when a refund check was delivered to the Neighborhood Money Tree, or when defendants were notified that a refund check was available for pick up at the post office at 27th and C Streets, San Diego, California, defendants would escort the clients of the Neighborhood Money Tree to retrieve and subsequently cash the refund check, thereby controlling the proceeds of the refund checks. After the clients cashed the refund checks, the defendants would immediately take their fee from the cashed proceeds. At times, the fee for the defendants' services was set at a percentage of the refund check, usually twenty-five percent. At other times, the fee for the defendants' services was set at $200 per dependent claimed on the tax return. Defendants Jones and Deborah Hughes admitted to being the owners and supervisors of the Neighborhood Money Tree.

All tax returns prepared by the defendants sought the Earned Income Tax Credit as a refund. The Earned Income Tax Credit is a refundable federal income tax credit designed to assist low-income working families. For a taxpayer to qualify for the EIC, the taxpayer must: (a) meet the requirements of, and file, a federal income tax return under the filing status of married filing jointly or head of household; (b) have a qualified child; and (c) have earned income of no more than $26,673 in 1995; $28,495 in 1996; $29,290 in 1997, and $30,580 in 1998. To qualify as a head of household, the taxpayer must furnish over half the cost of maintaining a household in the United States for more than six months during the taxable year, which is the principle place of abode of a child or descendant who is unmarried or who qualifies as a dependent. (A qualified child must be under the age of 19 and live in the United States for more than six months during the tax year.)

The EIC reduces the federal taxes a qualified person may owe. If the EIC amount exceeds the tax liability of a qualified taxpayer, the remaining EIC will be refunded to the taxpayer in the form of a check drawn upon the U.S. Treasury. To qualify for the EIC, individuals must have "earned income." Sources of money such as AFDC, Welfare benefits, SSI, alimony, and unemployment compensation are not earned income and, therefore, not calculated when determining EIC.

DEFENDANTS

Gwendolyn Jones
San Diego, California

Deborah Hughes
San Diego, California

Brenice Hughes
San Diego, California

SUMMARY OF CHARGES

Title 18, United States Code, Section 286: Conspiracy to Defraud the United States by Making False, Fictitious or Fraudulent Claims Upon an Agency of the United States.

Maximum sentence of 10 years in prison and fine not to exceed $250,000.

AGENCY

This case was investigated by agents of the Internal Revenue Service's Criminal Investigation Division