The 'Magician' Admits To $145M Federal Tax Fraud Scheme

CORTLANDT MANOR, NY — A Westchester County man, who was a tax preparer in the Bronx, has admitted to filing thousands of false tax returns causing more than $100 million in fraudulent tax loss to the federal government.

The guilty plea of Rafael Alvarez, a/k/a "the Magician," to two counts stemming from his $145 million tax fraud scheme to file tens of thousands of federal individual income tax returns that included false information designed to fraudulently reduce the individuals' tax burden, was announced on Tuesday by Edward Y. Kim, the Acting U.S. Attorney for the Southern District of New York.

As part of his guilty plea, Alvarez agreed to pay the IRS $145 million in restitution and forfeit over $11.84 million in fraudulent proceeds he received from the criminal scheme.

"Rafael Alvarez became known as 'the Magician' by his customers for his supposed ability to make their tax burden disappear," Kim said. "But, as today's guilty plea shows, there was no magic to what Alvarez was doing — he was committing a serious federal crime by falsifying tens of thousands of tax returns and, in the process, depriving the IRS of $145 million in tax revenue. Today’s guilty plea, in one of the largest ever tax frauds by a return preparer, should serve as an important reminder to tax professionals that this Office will vigorously investigate and prosecute tax offenses."

According to court documents, from 2010 to 2020, Alvarez was the CEO, owner, and manager of ATAX New York, LLC, also doing business as ATAX New York-Marble Hill, ATAX Marble Hill, ATAX Marble Hill NY, and ATAX Corporation (together, "ATAX"). ATAX was a high-volume tax preparation company located in the Bronx, which prepared an estimated 90,000 federal income tax returns for its customers during this period.

Alvarez both prepared tax returns for ATAX customers and recruited, supervised, and directed other ATAX employees who in turn prepared tax returns for customers. During this period, Alvarez and his employees submitted false information to the IRS in ATAX customers' tax returns. This false information, which included bogus itemized tax deductions, made-up capital losses, fake business expenses, and fraudulent tax credits, ended up fraudulently reducing the customers' tax liability and increasing the customers' tax refunds from the IRS.

In total, the scheme cost the IRS $145 million in tax revenue.

As part of his plea agreement, Alvarez agreed that he was a leader of the scheme and attempted to obstruct or impede the administration of justice when he and an employee made false statements to an IRS agent.

Alvarez's scheme helped ATAX generate around $12 million in fraudulent proceeds over the ten-year duration of the fraud.

The 61-year-old from Cortlandt Manor pled guilty to one count of conspiracy to defraud the U.S. and steal government funds, which carries up to five years in prison, and one count of aiding and assisting in the preparation of a false and fraudulent U.S. individual income tax return, which carries up to three years in prison. Alvarez is scheduled to be sentenced on April 11.

Kim praised the investigative work of the IRS, Criminal Investigation, the FBI, and the Treasury Inspector General for Tax Administration in this case, which is being handled by the Office’s Illicit Finance and Money Laundering Unit. Assistant U.S. Attorney David R. Felton is in charge of the prosecution.

SEE ALSO: Tax Preparer Known As 'The Magician' Defrauds IRS Of Millions: Feds