COLUMBUS—The Ohio Department of Taxation (TAX) notified the Ohio Inspector General that, during a routine evaluation of submitted tax returns, TAX identified 59 individuals claiming false business-related expenses for Schedule C deductions. TAX also discovered that some of the 59 returns were filed using information technology resources belonging to or registered to the State of Ohio. An Ohio Department of Rehabilitation and Correction (ODRC) employee who had responded to a letter sent by TAX to the 59 individuals informed TAX that they were responsible for preparing the 59 returns. The ODRC employee provided to TAX a client list and proof of payments received for their tax preparation services.
The Ohio Inspector General reviewed spreadsheets provided by TAX that contained filing information for tax years 2018 and 2019. For these two years, TAX flagged 261 tax returns filed by individuals who claimed business losses on their Schedule C that TAX suspected were false, and that were believed to have been filed by the ODRC employee. Investigators learned there were 11 active State of Ohio employees, excluding the ODRC employee, that were included in the list of the 261 flagged returns. Investigators also discovered that the 11 active State of Ohio employees had filed returns using the same tax preparation software, FreeTaxUSA.com. Based on this information, investigators focused the investigation on the tax returns filed for the 11 active State of Ohio employees who had attempted to claim false business-related expenses.
Investigators conducted interviews and reviewed correspondence between the ODRC employee and the 11 State of Ohio employees and learned that many of the State of Ohio employees were unaware of the information the ODRC employee had reported on their tax returns to increase their refunds. Investigators also discovered that the ODRC employee had been using their State of Ohio email address for their tax preparation business from March 2015 through February 2020 and that some filings were completed using a computer owned by the State of Ohio, during times the ODRC employee was working and earning a salary for ODRC.
The report of investigation includes three findings, three recommendations to ODRC, and two recommendations to TAX. The report has been referred to the Cuyahoga County Prosecutor’s Office, Internal Revenue Service, and the Ohio Ethics Commission.
Ohio Inspector General Report of Investigation file number 2020-CA00004 is now available at: https://watchdog.ohio.gov/investigations/2021investigations.aspx