Inglewood-based Tax Preparer Sentenced to Over 5 Years in Federal Prison for Scam that Sought $5.6 Million in Bogus Tax Refunds

          LOS ANGELES – A tax preparer who formerly worked at the California Franchise Tax Board was sentenced today to 63 months in federal prison for defrauding the IRS out of millions of dollars by declaring bogus withholdings used to fraudulently claim substantial tax refunds.

          Cubby Wayne Williams, 64, of Alhambra, was sentenced by United States District Judge Percy Anderson, who noted Williams’s lack of remorse, saying, “The public needs to know that white-collar criminals can’t buy or plead their way out of responsibility.” Judge Anderson also ordered Williams to pay $490,289 in restitution to the United States Treasury.

          At a four-day trial in October, a federal jury found Williams guilty 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 owned and operated the Inglewood-based tax services company Williams Financial Network.

          Williams filed tax returns claiming that his clients had accrued Original Issue Discount (OID) interest income. 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 this accrued, but unpaid, income and any tax withholdings on it.

          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 these refunds often by directing the IRS to deposit a portion into a bank account under his control.

          When his clients complained that their returns had fallen under the scrutiny of federal tax officials, resulting in money being owed 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 fraudulent documentation to the IRS.

          Between 2012 and 2019, Williams submitted 222 false client tax returns claiming approximately $5,648,809 in fabricated income tax withholdings, according to court documents.

          “[Williams] submitted these false federal income tax returns despite repeated warnings from the IRS that the returns were frivolous, and continued in his conduct even after learning that he was under criminal investigation,” prosecutors wrote in the government’s sentencing memorandum.

          IRS Criminal Investigation investigated this case.

          This matter was prosecuted by Assistant United States Attorneys James C. Hughes and Ranee A. Katzenstein of the Major Frauds Section.