SANTA ANA - Two Inland Empire men who ran the Fontana-based Old Quest Foundation have been convicted of running a tax fraud scheme that resulted in more than 400 fraudulent federal income tax returns being filed with the IRS that cumulatively sought more than $250 million in fraudulent refunds, according to federal officials.
Arturo S. Ruiz, 55, of Moreno Valley, who was the chief executive officer of Old Quest, was found guilty Wednesday of one count of conspiracy to defraud the United States and 41 counts of filing false claims against the United States, including four of his own federal tax returns.
Francisco J. Mendoza, 51, of San Bernardino, who was the president of Old Quest, was also found guilty of one count of conspiracy to defraud the United States and 37 counts of filing false claims against the United States, according to officials.
Ruiz is facing a maximum sentence of 215 years in federal prison, and Mendoza faces a statutory maximum sentence of 195 years.
This is how Ruiz and Mendoza did business, according to authorities.
Ruiz and Mendoza fraudulently told Old Quest clients they each could receive tax refunds of hundreds of thousands of dollars by accessing "secret government accounts" through a process that included the filing of IRS forms, federal authorities stated.
During presentations in the Southland, members of Old Quest promoted the secret account theory and other anti-tax arguments.
Ruiz and Mendoza falsely told clients who attended seminars that they had employees who were attorneys, accountants, CPAs and former IRS employees to give their scheme the appearance of legitimacy.
Taxpayers who signed up were required to pay fees as high as $10,000, and were made to promise to "donate" to Old Quest 25 percent of any tax refunds they received, federal authorities stated.
Old Quest filed false income tax returns that routinely sought hundreds of thousands of dollars, and sometimes, millions in income tax refunds, federal officials stated.
Bank records showed that Old Quest received approximately $1.9 million from clients who used the fraudulent scheme, a figure that includes kickbacks from tax refunds erroneously issued by the IRS.
When customers received IRS letters warning that their tax returns were frivolous, Old Quest employees assured customers that the IRS sent letters only to "intimidate" them because the "IRS did not want to pay," according to authorities.
After several refund checks were erroneously issued and the IRS froze the bank accounts of the customers who had received them, Ruiz and Mendoza instructed their employees to open new accounts for customers at different banks in an attempt to avoid further IRS scrutiny, authorities stated.
Prior to the tax refund scheme, federal officials stated that Ruiz and Mendoza had promoted a "land patent" program to many of the same clients, according to the evidence at trial. Under this program, Ruiz and Mendoza promised to eliminate the clients' mortgages through an obscure and mysterious process, again in exchange for substantial fees, authorities state. The land patent program quickly failed, and dozens of clients lost their homes to foreclosure.
In addition to selling the fraudulent schemes to customers across the Southland, Ruiz and Mendoza failed to report to the IRS hundreds of thousands of dollars of their own income, and they filed their own false federal income tax returns that fraudulently sought refunds, officials stated.
The evidence at trial showed that Ruiz bragged about not paying taxes for more than 25 years, federal officials stated.