Federal prosecutors have charged the president of a nationwide tax preparation service with committing a series of electronic frauds that bilked two banks of over $1 million.
Richard M. Hersch, president of Quik Tax Dollars Inc., a tax preparation service based in Bryn Mawr, Pa., was arraigned this week on charges of filing false claims, conspiracy, and money laundering.
Mr. Hersch's company was one of many designated by the Internal Revenue Service to transmit Federal income tax returns electronically, a service that speeds the refund process to taxpayers.
IRS officials said Tax Quik also had relationships with Banc One Corp. and Beneficial Corp. to provide taxpayers with so-called "refund anticipation loans," whereby financial institutions advance money to consumers due tax refunds for a fee.
Prosecutors said Mr. Hersch used this access to IRS computer systems to illegally obtain $1,131,000 in refund anticipation loans from Banc One and Beneficial by filing over 400 false tax retums.
Leading Players
Banc One and Beneficial are two of largest players in the refund-anticipation loan business, which a number of financial institutions have entered since the IRS started accepting electronic returns in the mid-1980s.
The business has attracted banks because of the perceived low credit risk and relatively high fees charged for these short-term loans.
The indictment of Mr. Hersch is "one of the largest electronic filing cases ever prosecuted and represents the first time that an officer of a large tax preparation firm has been prosecuted for abusing the electronic filing system," said Donald Stern, the U.S. attorney in Boston who is heading the case.
25,000 Returns a Year
Quik Tax marketed its tax refund service through relationships with check-cashing centers around the country, and was filing about 25,000 legitimate electronic returns a year, said Fred Aufiero, branch chief of the criminal investigation division of the IRS.
During the 1991 tax filing season in early 1992, Mr. Aufiero said, Mr. Hersch filed 145 tax returns using fictitious names and Social Security numbers.
Within two days after the false returns were electronically filed, the IRS sent acknowledgments that the returns had been received and were free of mathematical errors, although this is not a guarantee the return is free from fraud, Mr. Aufiero noted.
Change in Tactics
Upon receiving the IRS acknowledgment, Beneficial and Banc One issued refund anticipation loan checks.
These Mr. Hersch allegedly laundered through various bank accounts.
For the 1992 tax filing season, investigators said, Mr. Hersch changed his scheme because IRS computers were modified to check Social Security numbers as part of the acknowledgment.
He then is alleged to have begun surreptitiously inflating the refunds due to actual Quik Tax clients, pocketing the difference after the banks issued the refund loans.
Mr. Aufiero said the two banks were stuck with most of the losses after the IRS discovered the suspect returns and froze the government refund checks of returns filed by Quik Tax.
"Mr. Hersch was able to take advantage of the speed of electronic filing system to get money from the banks before we could discover the fraud," Mr. Aufiero said. He added that Banc One had even given Mr. Hersch a checkbook in which he could write out refund-anticipation loan checks himself after receiving the IRS acknowledgments.
If convicted, Mr. Hersch faces could face five to 20 years in prison, fines of up to $250,000 on each false-claims charge, and a $500,000 fine for each money-laundering charge.
