Canadian suspected of US tax fraud remains jailed in Las Vegas

A Canadian man will remain in custody in Nevada while the U.S. justice system tries to determine whether he participated in a fraudulent tax scheme, a judge ruled Friday.

Gaetano Fiore, 51, was arrested last month in Chicago on a federal charge of attempted theft of public money.

"The essence of the scheme is the claim that individuals, even those living outside of the United States, can obtain tax refunds from the Internal Revenue Service through a convoluted and fraudulent process," according to the criminal complaint.

U.S. Magistrate Judge Lawrence Leavitt refused to release Fiore because of the risk that he would fail to make future court appearances, but the judge said he would reconsider the matter if he received clarification of the defendant's immigration status.

Leavitt rejected the arguments of defense attorney Michael Gowdey, who said Fiore entered the United States legally and has friends in the Las Vegas area "who have indicated they are willing to house him as long as is necessary."

Gowdey commented on the ruling in an interview after the hearing:

"But for the fact that he is a Canadian citizen, he likely would be released on his own recognizance pending further proceedings. And simply because he doesn't reside in Las Vegas, is it fair to penalize him? These are allegations, and he hasn't been convicted of anything at this point."

Fiore, a native of Italy, is accused of helping two people with Canadian addresses fraudulently obtain tax refund checks totaling more than $850,000.

The complaint alleged Fiore caused those two checks to be sent to an unidentified Las Vegas attorney in May 2010 with instructions for the attorney "to transact the checks through the attorney's escrow account and then wire the funds to an account in Panama."

"Ultimately, the Las Vegas Attorney did not deposit the U.S. Treasury checks that Fiore caused to be sent to him," the complaint said.

Fiore also sought the services of an unidentified New York attorney who, for a fee, transacted about 28 U.S. Treasury checks totaling about $3 million, according to the complaint. Those checks included a check for more than $99,000 made out to "Gaetano Firoe."

The tax returns that generated those refund checks were false, according to the complaint.

"Not only was Gaetano Fiore fraudulently obtaining U.S. Treasury funds via the submission of his own false tax return, but apparently he was also receiving a fee or portion of the fraudulently obtained tax refunds of other individuals who were using his services in an attempt to obtain their ill-gotten funds," the complaint alleges.

According to the complaint, the scheme relied on tax reporting that involved "original issue discounts." An original issue discount, or OID, is defined as the difference between a bond or other obligation's redemption price at maturity compared to its acquisition or issue price.

"The IRS has encountered a widespread scheme involving persons obtaining fraudulent refunds from the IRS based on false OID overpayments," the complaint said.

According to the document, Fiore "appears to be a long-term Canadian promoter" of what is known as the "Form 1099-OID movement." He uses a Montreal address and travels back and forth to the United States.

Fiore "appears to not only be participating in the 1099-OID scheme, but to be coaching and promoting the scheme to multiple individuals in Canada, as well," the complaint alleged.

"The tax code is obviously quite complex, and there are a lot of different ways to make claims that are legitimate but complex," Gowdey told the Review-Journal.

According to the complaint, Fiore has ties to Ronald Brekke, a large 1099-OID promoter in the United States. A federal grand jury in Seattle indicted Brekke last year.

The Associated Press has reported that Brekke, 54, of Orange County, Calif., is accused of leading a tax fraud conspiracy in which hundreds of people claimed $763 million in refunds from the IRS -- more than $10 million of which was actually paid out.

Contact reporter Carri Geer Thevenot at cgeer@reviewjournal.com or 702-384-8710.