A Cortlandt Manor resident was arrested on federal tax deadline day and accused of filing tens of thousands of false tax returns in what U.S. Attorney Damian Williams described as one of the largest frauds ever perpetrated by a tax preparer.
Rafael Alvarez, 60, former owner-operator of ATAX New York in the Bronx, was accused of overseeing a scheme from 2010 to 2020 that shorted the Internal Revenue Service of more than $100 million in tax revenue.
His alleged manipulations of federal tax returns were so prevalent, according to the grand jury indictment unsealed on April 15 in Manhattan federal court, “that he became known among ATAX customers as ‘the Magician,’ due to his ability to make deductions, expenses, gains, and losses appear or disappear in order to reduce the customers’ tax liability.”
ATAX was a high-volume business that prepared about 90,000 tax returns from 2010 through 2020, according to the indictment.
Alvarez and his staff allegedly concocted bogus tax deductions, such as medical expenses and charitable contributions. They falsified capital gains and losses, and they invented residential energy credits.
Many of the numbers, the government claims, were completely fictitious and unsupported by evidence.
Alvarez also recruited people without legal residency status to work for him, the indictment states, and used threats to dissuade them from reporting his schemes to the authorities.
In 2015, he directed an employee to impersonate a former employee to gain use of a Preparer Tax Identification Number for filing tax returns, the government claims. In 2017, Alvarez and the impersonator successfully continued the deception in an interview with an IRS agent.
The business generated about $15 million in gross revenue during that period, according to the criminal complaint, much of which went to Alvarez as sole owner of ATAX.
Alvarez was charged with conspiracy to defraud the United States, aiding and assisting preparation of false tax returns, attempted interference with administration of IRS laws, making false statements, and aggravated identity theft. If convicted, the charges carry maximum prison terms ranging from two to five years.
Alvarez has been on the IRS radar for many years. From 2010 to 2019, the agency filed eight federal tax liens against him, totaling $968,114. Most of the liens were for failure to collect employment taxes, and $309,220 was for his and his wife’s personal income taxes.
In 2021, former U.S. Attorney Audrey Strauss accused Alvarez and ATAX of tax fraud in a civil complaint that essentially made the same charges as now alleged in the criminal complaint.
ATAX employed more than 40 tax preparers from 2016 to 2019 who had filed more than 36,000 federal tax returns.
About 91% of the returns claimed refunds, according to the complaint. The IRS audited 36 of those returns and determined that 89% of the customers owed money. The average tax deficiency was $4,588 per return.
Three months after the civil case was filed, Alvarez admitted responsibility for understating customers’ tax liabilities. He was permanently barred from acting as a federal tax return preparer and from operating a tax preparation business. He agreed to pay $159,600 to settle the case. And he agreed not to make any public statements that contradict his admitted conduct.
The government agreed to drop its charges but reserved the right to accuse him of criminal liability.
The criminal case was investigated by the U.S. Attorney’s illicit finance and money laundering office, the IRS criminal investigations office, the FBI and the U.S. Treasury inspector general for tax administration.
