Prosecutors say Collins used money from the scheme to buy a 2016 Maserati, a house and more than $300,000 in precious metals, gold and silver bars among them. He filed the returns through made-up entities, one of them called the Marvin C Collins Estate, and admitted to all five charges on Jan. 20, about three weeks before his trial was set to start.
“Despite repeated warnings, Collins continued submitting false tax returns for fraudulent refunds exceeding $13 million,” said John Abram, acting special agent in charge of IRS Criminal Investigation’s San Francisco field office.
What a redemption scheme is and why it can cost you
Prosecutors say Collins’ returns relied on what’s known as a redemption theory. Judges have rejected it many times, but it has a following among sovereign citizens and tax protesters.
Promoters of redemption theory believe the government keeps a hidden account holding millions in each person’s name and that the right paperwork lets you tap it, the Justice Department said in a 2011 lawsuit against a Michigan tax prep business and the people behind it. In practice, it tends to show up on a tax return as made-up income paired with made-up withholding, according to a 2017 report from the Treasury Inspector General for Tax Administration, which oversees the IRS.
Withholding is the tax that comes out of your paycheck during the year, and if more is withheld than you owe, the extra usually comes back as a refund. That’s why claiming withholding that was never paid can make it look like the IRS owes you money.
A return like this can be costly even if the IRS never sends a check. The IRS counts redemption claims among the arguments it officially treats as frivolous, and federal law sets a $5,000 penalty for a return built on one.
How to protect yourself from bogus refund pitches
When it comes to your taxes, the IRS has been clear that there’s no secret shortcut to a big refund. In 2023, it warned about social media posts encouraging people to make up income and withholding figures on a Form W-2, and said those who try it can face penalties, including the $5,000 frivolous return penalty.
For starters, be wary of anyone who promises a big refund through a method they call secret, or who tells you to file under an estate, trust, or business that doesn’t really exist. You should also make sure any withholding on your return matches the W-2 your employer actually sent you.
If you’re unsure about a strategy someone is pitching, you can look it up in the IRS guide The Truth About Frivolous Tax Arguments, which lays out common theories alongside the court rulings that rejected them. It’s also wise to get a second opinion from a credentialed preparer, such as a CPA or enrolled agent, whom you can find through the IRS’s directory.
Even if someone else talked you into it, your name is the one on the return, and that means the penalties can land on you.
Godwin Oluponmile is a content specialist, SEO strategist and copywriter with seven years of expertise in finance, Web 3.0, B2B SaaS and technology. His work has been featured in publications such as Entrepreneur, HackerNoon, Blocktelegraph and Benzinga.
