Has a Montgomery Business Been Unfairly Targeted by the IRS or Is it a Scam?

Published: Jan. 12, 2007 at 4:46 PM CST|Updated: Feb. 13, 2007 at 4:46 AM CST
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MONTGOMERY, Ala., Jan. 13, 2007 --- Is a Montgomery businessman running a tax preparation and filing scam that brings people from all over the State of Alabama to file their tax returns or to a small office looking for what some term "free money" from a special government program for those on disability or Social Security?

According to a Treasury Department special agent's affidavit filed in federal court in support of a search warrant, an IRS agent says there is "probable cause to believe," based upon information recounted in the affidavit, that 48-year-old "Michael T. Chappell," the owner of Rocket Refund, also known as Recordmatic, in Montgomery "and others" are "knowingly and willfully defrauding and attempting to defraud" the U.S. and the State of Alabama by preparing and electronically transmitting fraudulent federal and state income tax returns to the IRS and the Alabama Department of Revenue for the tax years 2003 through 2006.

Tyrone Chappell, Jr., the son of Michael Chappell, and vice president of the company says the allegations are not true.  "We ain't doing nothing wrong.  We haven't been doing anything wrong in 12 years.  If we were doing something wrong like that there would have been an arrest warrant, or we'd be in jail or we'd all have an attorney.  So we're not going to do anything but we're going to sit back, and let happen what happens... My pa pa was in business 35 years, my dad's been right here for the last 12 years.  You can't do that for 35 and 12 years and get away with it with the IRS."

As to what people were told about when to expect their checks, the young Chappell, Jr. told WSFA's Ashley Anderson, "People started calling and we started answering the phones telling people..everyone wanted to know about the checks..We told them to expect it after the 12th.  We told somebody, we never promised them, we just told them to maybe expect a check, you know, not expect a check, but maybe expect a check because that's what we were told earlier in the year.  We were saying expect a check as in expect a check to be this much amount of money okay somewhere from here to there."

Rocket Refund has two offices in Montgomery -- one on Lower Wetumpka Road and one on Air Base Boulevard.  The location on Lower Wetumpka Road was recently searched by federal agents for everything from federal tax documents to "Palm Pilot" type handheld computers and checks and other related banking items on accounts in the name of "Rocket Refund, Recordmatic, Michael Chappell, Angela Chappell and/or Ashley Brooke Chappell" according to court documents.

Tyrone Chappell, Jr., says, "Right now the reason they don't have the refund check is the IRS...They don't have it today because the IRS came and seized our files.  We don't have refund checks today or tomorrow because of this. They came in and boxed up our whole business and took it off.  Basically the whole principality of the thing is -- we're a business that gives a lot of free money to poor people -- the IRS don't like that."

Asked by WSFA's Ashley Anderson about "free money" the young man says, "It's not a free money but it's a terminology 'free money' in it's a refund. You know you pay something for it but it comes as free money...Nothing's free in life, so it's not free, somebody's got to pay for it somebody's paying something for it.  We take the same cut out of every check ...--it's $350.  We charge $20 less than the leading competitor around here  -- so that's what we do.  Some people that have  to pay money back we charge a minimum of $125 just so we can take care of our customers and help them out The people who get money back we charge $350  and the people who don't even get money back we drop the processing fee down so they won't have to
pay as much money to us as they do."

In the affidavit, the government special agent alleges he also has "probable cause to believe that Michael T. Chappell and others in his employ are currently gathering names, Social Security numbers and other pertinent identifying information as well as dependent names, dates of birth and Social Security numbers which will be used to file additional fraudulent and state income tax returns in the upcoming electronic filing season which is set to begin on January 12, 2006."

The young vice president of the business says nothing like that is going on:

"Basically what happened was we tried to secure people's dependents early this year and make sure there wasn't dependent fraud.  So, we were trying to help the IRS with the dependent fraud.  That means if you were going to sell your child or his social security number or your social security number to somebody so they can come and claim them on income taxes, what we did is we took the people in early that's been getting claimed that's been getting their kids and their nephews and their brothers and sisters claimed on other people's income taxes.

We tried to get them in early so we can go ahead and file them so they get the money for their dependents that they deserve the right to.  We made them show proof of that...

We've made 'em show that basically that is their dependent that is who they're with, proof that that is who they live with...People come in. They  don't understand what's going on.  We explain it to them.  We tell them what they need what they have to have in order to file income taxes and that's all we do.

We don't provide anybody with any social security numbers.  We don't provide anybody with any figures anything like that They bring their own.  They tell us.  We can't stop somebody from lying to us, but yet we can't say somebody is lying to us.  So, therefore, that's all we can do."

Special Agent Wilson says in his document that he was advised in October of 2006 that the Alabama Department of Revenue has been investigating Rocket Refund concerning allegations the business had  fraudulently prepared and electronically filed 2005 Alabama income tax returns under two separate tax EFINs.

Wilson says the Ala. Dept. of Revenue has interviewed "more than sixty individuals whose 2005 income tax returns were prepared and electronically transmitted by Rocket Refund.  Based on these interviews, it appears that Rocket Refund and Recordmatic operate as one entity.  All of the customers interviewed by the Department of Revenue claim to have conducted business with Rocket Refund, regardless of which EFIN their return was transmitted under..."

Wilson alleges the following based on information gathered by the Alabama Department of Revenue:

"The interviews conducted by the Dept. of Revenue have revealed evidence of numerous fraudulent 2005 federal income tax returns prepared by Rocket Refund.  Fraudulent activity uncovered to date includes the use of false Forms W-2, non-existent HSH income (often referred to as household income), exaggerated or fictitious Schedule A deduction and non-existent or inflated Schedule C. losses.  In addition, virtually all of the fraudulent returns claim an earned income tax credit (EIC).  These fraudulent federal income tax returns typically claim refunds ranging anywhere from $2,300.00 to $4,500 per return.

In the course of the interviews conducted by the Dept of Revenue, it was further determined that many of the taxpayers for whom 2005 returns were filed by Rocket Refund were actually unemployed during 2005.  In fact, many were drawing Social Security or disability payments.  The majority of the sixty plus taxpayers interviewed by the Department of Revenue have provided affidavits claiming that they were unaware that fraudulent items had been included on their 2005 returns.

In fact, several of those interviewed were not even aware that income tax returns had been filed in their names.  In those instances, the individuals admit to having provided Rocket Refund with their identifying information as well as that of their dependents, but claim that they were never told exactly what this information would be used for, only that would receive a check within a few days.  Virtually all of those interviewed by the Dept. of Revenue admit to having received a refund check which they picked up at Rocket Refund."

Wilson says a Ala. Dept. of Revenue Special Agent was contacted by an employee of H&R Block in Montgomery who had noticed "long lines forming outside the Rocket Refund location at 3314 Lower Wetumpka Road on a daily basis."

According to the filed affidavit, the H&R Block employee "telephoned Rocket Refund in an effort to find out what was going on."  The document states the employee gave a false name to the man who answered the phone and this employee inquired to the man "about the line of people outside the building."  The man supposedly, according to the H&R Block employee, asked the employee "if she was on disability or welfare" to which the employee gave a negative response and the man allegedly then asked if the caller "did hair."  The caller again responded negatively.  The caller "asked the man how he could prepare a tax return for someone on disability.  The man responded that they were trying to help people."  After this, the caller asked the man, according to Wilson's document, "if that was illegal and he hung up the phone."

The affidavit goes on to say that after that "a man who identified himself as "Mike from Rocket Refund" called the H&R Block office" and asked to speak to the person who had called him.  "Mike" then is said to have instructed the employee "not to call Rocket Refund anymore."

Tyrone Chappell, Jr. says, "Allegations were made, and mainly on our competitors H&R Block, E-Tax, Flash Tax a lot of them are mad because we've taken a lot of business from them and that's all it was.  And they're mad and they don't understand why we do have people lined up outside the door in November and December when taxes don't start until January and that's where it falls apart.  We weren't filing taxes we were pre-qualifying people for taxes, making sure they got the dependents they deserved and that was it.  That's the whole line.  And if somebody told you, you know, your dependent's been filed on and you don't get the money back, you'd be in line too trying to get your money back."

An Ala. Dept. of Revenue Special Agent supposedly told agent Wilson that "she had driven by the Rocket Refund office on Lower Wetumpka Road and independently confirmed the long line of people."

During a subsequent drive-by of the Lower Wetumpka Road business by Wilson and another federal agent, the agents "observed thirty to forty individuals milling around on the front porch and in the yard as of the business, apparently waiting to have their returns prepared...We also noted that many of the vehicles bore tags from outside Montgomery County."

Seven further drive-bys of the business "revealed a pattern of similar activity."

According to the filed affidavit, filing history for the business showed that for the years 2003 and 2004 Rocket Refund's electronically filed returns resulted in  more than 99 percent of the returns claiming refunds.  Wilson says a computer problem prevent him from getting the "exact filing numbers for 2005."  Wilson says based on his experience it is unusual for a return preparer to have more than a 90 percent refund rate.  "This affiant is also aware that such high percentages are often an indicator of a potential refund scheme being perpetrated by an unscrupulous return preparer."

Wlson says on November 20, 2006 he spoke with the President of the Alabama Better Business Bureau, who had told the IRS that the BBB was receiving numerous complaints about Rocket Refund and that those complaints were coming predominantly from Clarke, Washington, and Mobile counties and at least one complainant indicated they had received a mailer from Rocket Refund.  After this the BBB issued "a potential scam warning concerning the activities occurring at Rocket Refund" and the notice was published in "The South Alabamian newspaper."

In fact the item in the South Alabamian on 11/23/2006 quotes the then Southern District Supervisor for the Better Business Office in Mobile as issuing the warning and saying the offers of early refunds were being made to those "who receive Disability or Social Security payments each month."

Waller is quoted in the article as saying, "Several people have received post cards asking them to travel to Montgomery to fill out the necessary paperwork and provide personal information...We are still attempting to determine whether or not this is a legitimate service."

WSFA's Ashley Anderson caught up with one Mobile resident at the Rocket Refund office who had traveled to Montgomery to look into the possibility.

Michael Norwood says, "I was told that this was dealing with the government.  The government was going to release a certain amount of money and this would be one of the places that you'd be able to come and do a refund and receive a certain amount, a refund, government assistance, it was supposed to be like a government check.  I actually tried to call this place here, Rocket Refund, actually about a hundred times trying to get through but actually the line was busy the whole time so I decided to drive up from Mobile and see if this was actually going on here. So far, it's a gimmick...I was thinking when I got here, I'd be able to get a little, a better chance, since I'm on disability I  was thinking I'd be able to receive some funds from the government or actually get a refund back but that's false advertisement   -- it's not true."

According to Special Agent Wilson, the Alabama BBB president/CEO, e-mailed him information about 15 separate complaints about Rocket Refund.  The woman told Wilson one caller had indicated to her that "there had literally been busloads of taxpayers traveling from the Mt. Vernon and McIntosh communities in southwest Alabama to Rocket Refund to have returns prepared."

According to the provided information, "the callers advised that once at Rocket Refund they were given a blank sheet of paper and instructed to write down their names and social security numbers as well as the names and social security numbers of their dependents.

The customers were told that they would be charged $350.00 to have their returns prepared and that they could pick up their refund checks on either December 1 or December 15, 2006.  Some customers were told that the service being provided by Rocket Refund was an "early income tax deal."

"Others were told they were being allowed to file early because President Bush had given the State of Alabama money to assist those with low incomes and those on SSI.  Still other callers stated that they were advised by Rocket Refund that the money they were to receive had something to do with FEMA and hurricane relief."

In Montgomery, Michael Boyer, district manager of the Central Alabama Better Business Bureau says in the last 7-to-10 days they've received "a lot of inquiries...about the business.  A lot of the inquiries seem to originate from an ad that was placed specifically looking for people who had, or were currently on disability and to come down to this particular office in order to take advantage of a special government program."

Other allegations contained in the affidavit include a complaint from a tax practitioner in Jackson, Alabama.  "On November 28 a tax practitioner in Jackson, Alabama contacted the IRS to report a potential scam being conducted by Rocket Refund in Montgomery, Alabama."  This practitioner stated to Wilson that "Rocket Refund is contacting tax payers and advising them that they need to come to their location and bring Social Security numbers and other personal information to secure a refund from IRS. The taxpayers are asked numerous questions and advised to come back in 10 days to receive their refund."

Wilson says in his writing that he was also contacted by Elka Graham in the Alabama Governor's office and advised the office had received five complaints in one week about Rocket Refund.  "The calls had originated from southwest Alabama, Tuscaloosa, Alabama and Georgia.  All were reporting that they had either filed a return or been solicited to file a return at Rocket Refund..."

Wilson says Graham told him one of the callers said a bank had told a friend that her "refund check" from Rocket Refund was no good.

The IRS conducted an "undercover operation at the Rocket Refund location at 3314 Lower Wetumpka Road on December 8, 2006."

The undercover agent or UCA posed as a single mother of two with no W-2 income.

The agent "arrived at Rocket Refund at approximately 8:40 a.m. and got in line outside the front door.  Shortly before 9:00 a.m., an as yet unidentified black male came outside and began assigning numbers to those waiting to get in.

The unidentified black male then advised that customers would be allowed inside Rocket Refund in groups of ten to have their paperwork prepared.  The UCA received number nineteen and was part of the second group of ten customers to enter the building.  Once inside, the group was addressed by an as yet unidentified white female who advised the customers that in order to file they needed to be single, have a dependent and have a job through which they earned a small amount of cash income.

The white female then read out a list of who could qualify as a dependent and a list of what types of jobs earning cash income might apply.  The white female that instructed each client to go ahead and get out their ID's and the names and Social Security numbers of their dependents so that they would be ready when their turn came.  The white female then instructed the clients to raise their right hands and repeat after her.  Shen then had the customers repeat the words, "I ain't lying."  This resulted in a round of laughter."

"The UCA was then directed to a table with a computer on it.  Behind the table sat another as yet unidentified white female.  This woman created a manila folder with the UCA's name on it. The UCA noticed several boxes of similar looking folders sitting on tables against the front wall of the office.  The woman then took the UCA's personal information and that of the UCA's dependents.  The woman asked if the UCA worked and the UCA responded house cleaning.

The woman recorded this information by hand on a sheet of paper and placed the information into the manila file folder.  The woman never asked theUCA how much income the UCA had earned or if ther were any expenses related to this employment.  The woman also failed to ask the UCA about any other possible sources of income or any other potential deductions.  The woman told the UCA that she had all the information that she needed and that they would have an update on the UCA's check on December 15, 2006.

The UCA then inquired as to how much the check would be. The woman told the UCA to expect a check for $4,400.00.  The UCA was not charged anything by Rocket Refund and was not told that any fees would be deducted from the check.  The UCA departed Rocket Refund shortly before 10:00 a.m.  The entire undercover operation was recorded on both audio and video.  The UCA has since tried to telephone Rocket Refund on several occasions to check on the status of the promised check, however, those telephone calls have gone unanswered."

Rocket Refund's vice president says it has to do with the IRS and banks.   "Like I said, we thought the bank was going to release the money...say they release the money on the first okay instead of the 12th.  We call her on the first, tell her to come in...That's what we were told by the bank early on, but the bank changed their mind so we can't do nothing about it...We can't do nothing about that the money pays us and the people we serve but the IRS has a bank, I mean the IRS's bank...We were promised by the bank they would release the money early, the bank decided they couldn't do that until the 12th. Today is the first day that they can release the money."

In other allegations presented in the affidavit, Wilson says that in December an IRS agent conducted an audit of a taxpayer's 2005 Form 1040 and determined that the "return included a false filing status, a fictitious casualty losses, a false Schedule C and improper deductions for non-existent home mortgage interest and unreimbursed employee expenses."

The taxpayer supposedly told the IRS agent that the return had been prepared by Rocket Refund on Lower Wetumpka Road in Montgomery.  The taxpayer "stated that he had his returns prepared at Rocket Refund each year because the preparer claims that he gets everyone back a refund every year."

The taxpayer, according to the affidavit, then "placed a call to Michael Chappell at Rocket Refund and advised Chappell that he was being audited as they spoke."  The taxpayer then "handed the phone" to the IRS agent and allegedly stated, "Harassing another person aren't we."

Chappell then supposedly advised the agent he would be representing the taxpayer and that Chappell would be providing the IRS agent receipts to "prove his expenses."  The IRS according to the court document then advised Chappell that the taxpayer "had already admitted that he did not have a Schedule C business, did not incur a casualty loss, did not have any home mortgage interest or unreimbursed employee expenses ant that he had not provided Chappell with any records or receipts to substantiate the claims on the return.

Chappell advised the agent that the taxpayer did have such receipts and that Chappell would provide them.  Chappell then instructed the agent allegedly to leave the taxpayer's residence.  The agent asked the taxpayer if he wanted her to leave and Ivey supposedly responded, "If it will help my case."  The agent departed the residence and later documented the encounter with the taxpayer and Chappell and made the report available to Wison."

Tyrone Chappell, Jr. says the business does have a program to help those who may be self-employed and may not have filed before:

"What I'm talking about is people who have not been able to file before know some people don't file taxes. People who don't file taxes that actually find out about our self-employment program you can file on self employment okay.

People come in with their self employment that can file this year that's what we're doing is pre-qualifying and making sure they get their Social Security that's it."

As for what Rocket Refund hopes to do for it's customers.  The young vice president says they're going to eventually throw a party for their customers.

"Basically what we're going to do for our customers is we're going to have a big party on the two big days that the checks come in and it's going to be right down the street on Lower Wetumpka Road.  We're going right down here 2239 Lower Wetumpka Road at the viaduct and that's where we're moving to because we've got so many new customers this year that we had to move to a new building.

So we're gonna have a party with pizza and coke and give out checks all in one day and then we're going to send them over to our friends at Phillips Package Store and have them cash the checks if they'd like to because that's who cashes our checks.  They'll cash any Rocket Refund check that comes through us, any Rocket Refund check...You can't have a whole pizza yourself but you can have a couple of pieces and we're going to have just to show our customers the good faith and the good quality we serve.

Like I said, we've been in business 35 years.."

He doesn't know when that event might take place, "We don't know yet...what we're going to do is we're going to give it on the first two days the checks come back...the first two Fridays or Saturdays depending on when we can file, because right now we're on a hold.  The IRS is costing us thousands of thousands of dollars."

Now that the IRS has many, if not all of the business records, agents will most likely start trying to interview filers for themselves and delving more deeply into computer records kept by the business.  One interesting note, a quick Internet check reveals that questions about where to find Rocket Refund from people looking for some of the rumored money have popped up on sites devoted to answering people's questions on the Internet.  This story is just starting to develop and WSFA 12 News will keep you up to date with any new details as they emerge.

No indictment has been publicly filed in the case and all allegations are just that, allegations, until proven by the government in federal court or the issue is settled in another fashion.  The government conducts a limited number of these investigations (197 according to IRS figures in 2006) and roughly 68% resulted in indictments in that year. Of those actually indicted, 89% were incarcerated and served on average 18 months.  (*Incarceration includes confinement to federal prison, halfway house, home detention, or some combination thereof.  Data Source: Criminal Investigation Management Information System)

Reported by:  Ashley Anderson, Helen Hammons