A decades-long tax fraud scheme in the Bronx has come to an end. Rafael Alvarez, a 61-year-old New York tax preparer, has pleaded guilty to conspiracy to defraud the U.S. and steal government funds and aiding and assisting in preparing a false and fraudulent tax return. Alvarez’ crimes are alleged to have cost the government $145 million.
Alvarez was charged on superseding information. Generally, being charged on information means that a defendant has agreed to plead guilty and waived the right to an indictment—that’s what appears to have happened here. Initially, however, Alvarez was charged with an indictment on April 10, 2024. The superseding information was filed on December 17, 2024, and he waived the indictment the same day.
The Scheme
Alvarez was the CEO, owner, and manager of ATAX New York, LLC, a high-volume tax preparation company located in the Bronx, New York (ATAX also did business as ATAX New York-Marble Hill, ATAX Marble Hill, ATAX Marble Hill NY, and ATAX Corporation). According to court documents, Alvarez had prepared tax returns for years, beginning in at least 1990.
From about 2010 to 2020, Alvarez’ company, ATAX, prepared approximately 90,000 federal income tax returns for customers. In his role, Alvarez prepared tax returns for customers and recruited and supervised ATAX workers who prepared tax returns for customers.
During this period, Alvarez and his employees submitted false information to the IRS in ATAX customers’ tax returns. This false information included bogus itemized tax deductions on Schedule A (such as medical expenses, charitable contributions, and job-related expenses), made-up capital losses, phony business expenses, and fraudulent tax credits, including filing fraudulent claims for residential energy credits. Examples of improper deductions include fraudulent Schedules E for customers who never had rental properties, as well as understating income and overstating and making up expenses for repairs, supplies, cleaning and maintenance, and utilities on Schedule E. Alvarez and his team also overstated or created moving expenses (remember, some of the years were pre-Tax Cuts and Jobs Act), invented tuition expenses, and elected head of household filing status for married and single taxpayers.
These tricks made their customers’ tax liability disappear—earning Alvarez the moniker “The Magician”—while increasing customers’ tax refunds. According to court documents, many of the numbers that Alvarez entered were completely made up and not supported by any evidence or documentation.
Alvarez’ employees were in on the scheme, the government claims. They understood that Alvarez added false information to tax returns, and they did not make corrections, even transferring bad information over from year to year. According to early court documents, to stay under the radar, Alvarez recruited employees without legal status in the United States—if they questioned his actions, the government alleges that he would threaten to report them to the authorities.
Reaction
Edward Y. Kim, the acting U.S. Attorney for the Southern District of New York, noted that Alvarez’ customers called him “the Magician” but said that “there was no magic to what Alvarez was doing – he was committing a serious federal crime by falsifying tens of thousands of tax returns and, in the process, depriving the IRS of $145 million in tax revenue.” Referring to the matter as “one of the largest ever tax frauds by a return preparer,” Kim said it should serve as an important reminder to tax professionals that the Department of Justice “will vigorously investigate and prosecute tax offenses.”
Sentencing
Sentencing is scheduled for April 11, 2025—just a few days before Tax Day. Alvarez faces up to eight years in prison. A request for comment from Alvarez’ attorney was not immediately returned.
As part of his plea agreement, Alvarez has already agreed to pay $145 million in restitution to the IRS and forfeit over $11.84 million in fraudulent proceeds he received from his criminal conduct.
Investigation
The IRS, Criminal Investigation, the Federal Bureau of Investigation, and the Treasury Inspector General for Tax Administration (TIGTA) assisted with the investigation.
In an email about the case, TIGTA noted that the agency generally doesn’t investigate tax practitioners who prepare fraudulent tax returns—that’s the purview of IRS Criminal Investigation (TIGTA may help, depending on the circumstances). However, TIGTA does investigate tax preparer misconduct. You can contact TIGTA if a tax preparer stole a portion of your tax refund, stole or misused your identity, disclosed your tax return to an unauthorized person, or falsified their qualifications.
You can also submit complaints about tax preparers who are acting improperly directly to the IRS. That includes tax preparers who filed a tax return without your knowledge or consent, altered your tax return documents, or misdirected your refund. It also includes some of the behaviors that the government alleged Alvarez was involved in, like using an incorrect filing status to generate a larger refund, creating false exemptions or dependents to generate a larger refund, fabricating or omitting income to generate a larger refund, and inventing false expenses, deductions or credits to produce a larger refund.
If your tax return or refund was affected by the behavior, you can file a complaint and change your tax account by filing Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit.
If the behavior did not impact your tax return or refund, you can still report a tax return preparer for improper practices. Those include failing to enter a preparer tax identification number (PTIN) on a tax return or improperly using a PTIN belonging to another individual, refusing to provide you with a copy of your return, failing to sign tax returns they prepare and file, not returning your records or holding the records until the preparation fee is paid, preparing client returns using off-the-shelf tax software or IRS Free File, or falsely claiming to be an attorney, certified public accountant (CPA), enrolled agent (EA), enrolled retirement plan agent, or enrolled actuary.
The IRS can’t resolve all disputes, including how much the preparer charged to prepare your tax return (consider contacting the Consumer Financial Protection Bureau and your local authorities) and state and local tax matters.
Bottom Line
Be smart. If a tax preparer offers you a tax solution that sounds too good to be true, it probably is. While it’s unclear from court documents whether the authorities are investigating or pursuing Alvarez’ clients, the IRS makes clear that you sign your tax return under the penalty of perjury. Know what’s in the return and why it’s there. If your tax preparer can’t or won’t answer your questions, find a competent tax preparer who will.
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