Chestnut and Henry were arrested on January 15. Each of the three is charged with one count of conspiracy to defraud the United States, 11 counts of assisting preparation of false returns and four counts of filing false tax returns. Hines and Chestnut are each charged with one additional count of filing false tax returns. If convicted, the defendants face a statutory maximum sentence of five years in prison for conspiracy and a statutory maximum sentence of three years in prison for each false return.
The trio is accused of recruiting clients between 2008 and 2012 for a scheme utilizing fake IRS Forms 1099-OID (Original Issue Discount) claiming fictitious tax withholdings. These were used to claim refunds for taxes that were never paid to the IRS. The defendants allegedly collected fees based on a percentage of the refunds and also were charged with filing false income tax returns for themselves
Hines and Chestnut were permanently barred from preparing federal tax returns for others in 2013. They were found to have prepared thousands of phony returns.