DC Tax Collector “Spreading the Wealth” with $48 Million Stolen Property Taxes

July 10, 2009

Harriette Walters, a mid-level manager in the D.C. Office of Tax and Revenue, stole $48 million over twenty years from the District tax coffers. Receiving a 17 1/2 year sentence on Tuesday, she will also “make restitution for the $48 million that she stole…pay $12 million in tax payments to the federal government and $3.2 million to the District.”

Ms. Walters’ lawyer explained his client’s behavior as follows:

The ability to play the role of benefactor was a particularly strong motivating factor in the continuation of the scheme,” he wrote. “While Ms. Walters recognizes that spreading the wealth she obtained through illegal conduct does not justify or excuse the conduct, it is equally clear that Ms. Walters was genuinely desirous of helping others.

How did a mid-level manager engineer a tax-assessment scam that escaped oversight for twenty years? The scheme worked by approving and issuing fraudulent property tax refunds. The US Department of Justice explained the tax fund laundering scheme as follows:

The District of Columbia tax code imposes property taxes on real estate in the District and provides a mechanism for property tax refunds when, for example, an individual or company overpays real estate taxes. According to the affidavits filed in support of the arrest and search warrants, from 2004 through the present, Harriette Walters, Diane Gustus, and other D.C. government employees were involved in preparing or approving fraudulent property tax refund requests to generate over 40 separate fraudulent refund checks averaging over $388,000 each. Those fraudulent tax refund checks were deposited primarily into sham corporate accounts controlled by Harriette Walters’s relatives, including Turnbull’s “Chappa Home Services” and “Legna Home Services” accounts, and Richard Walters’s “Helmet Plumbing and Heating” account.

The fraudulently obtained funds then allegedly were distributed through cash, cashier’s checks, and wire transfers to the co-conspirators and family members, who used the funds to purchase homes, vehicles, jewelry, luxury clothing and houseware items, and other real and personal property, among other things.”

The Washington Post details how she spent millions on trips to Las Vegas and “charged more than $2.3 million on credit card purchases at high-end department stores, such as Nordstrom and Neiman Marcus.”

Ten other co-conspirators have already received sentences. Among them was a former IRS employee. He was sentenced last year to almost 4 years in prison and had “Used Funds to Purchase at Least Four Jaguars, a Townhouse and Vacations to the Bahamas.” A bank employee who helped deposit stolen funds and prepare cashier’s checks payable to other co-conspirators was sentenced to 6 1/2 years in prison.

These events make clear how citizens can suffer from complex tax systems and over-taxation, which requires a taxing agency to also disperse funds. A simpler and more transparent tax system (for example, with more clearly defined tax bases) could make scams like this easier to spot. A tax collecting system that relies extensively on the moral rectitude of tax collectors and has insufficient checks can attract workers looking to take advantage of the system.

Setting up stronger oversight and transparency for government payments from tax offices should seem like a priority. But similar problems continue at the same tax office, only this time they are sending out mistaken refund checks by accident. The Washington Post asked:

How many checks went out? And how many were cashed? No one knows for sure, but Natalie Wilson, spokeswoman for the tax office, said the instances appear to be isolated. “These were processing errors.”

So which is worse? Tax collectors stealing or haphazardly giving tax dollars away. Either way, normal taxpayers ultimately lose.


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