Man Sentenced In Tutoring Service Tax Scheme
MINNEAPOLIS (WCCO) – A Minneapolis man has 11 years in prison in front of him after being sentenced Monday in connection to a bogus tutoring service built around a tax scheme, according to the Minnesota district of the U.S. Attorney’s Office.
The office said 43-year-old William J. Morris Jr., and his mother, 64-year-old Carolyn Louper-Morris, also of Minneapolis, ran an online K-12 tutoring service called CyberStudy 101 and marketed it to low-income families that qualified for the Minnesota Education Tax Credit.
Louper-Morris was sentenced to 12 years in connection to the scheme in September, according to the attorney’s office.
The charges say in 2001, Morris and Louper-Morris told families they wouldn’t have to pay for the service, and would even get “free computers.” All they’d have to do is give CyberStudy the authority to file tax returns on their behalf and to collect their Minnesota Education Tax Credit.
The credit reimburses low-income families the costs of supplemental education, like tutoring. Residents have to list the qualified expenditures on their Minnesota tax return, even if they aren’t normally required to file a return. The credit reduces the amount owed and often results in a tax refund. Families are allowed to claim up to $1,000 per child, with a maximum of $2,000.
CyberStudy cost $999 for one child, then $1,799 for families with two or more children in 2001. Investigators found that the service didn’t offer all of the courses or features promised. Court documents say the computers were from K-Mart, to which CyberStudy promised to pay $529 for each of the more than 2,000 computers, but they didn’t pay. The tab ran up to more than $1.2 million.
The attorney’s office said in tax returns filed with the Minnesota Department of Revenue, CyberStudy made it appear as though students’ families had gotten loans from third parties to pay for the tutoring, when in fact the company’s only source of revenue was the education tax credit.
The charges said Morris and Louper-Morris filed at least 1,800 false tax returns for tax years 2000 and 2001, and because of that they were wired tax credits totaling more than $2.1 million.
The attorney’s office also said Morris understated his own income on his 2001 federal income tax return by failing to report more than $400,000 from CyberStudy. With the money, he and his mother made a $300,000 payment on a home and bought a $74,000 Mercedes SUV, $7,500 mink coat and a chinchilla-trimmed hat.
The IRS-Criminal Investigation Division, U.S. Postal Inspection Service and Minnesota Department of Revenue worked together on the investigation.
Morris’ 11-year sentence is for one count of conspiracy to commit mail and wire fraud, five counts of wire fraud, five counts of mail fraud and one count of filing a false tax return, according to the attorney’s office. He and his mother are also ordered to pay more than $2.3 million to the Minnesota Department of Revenue and more than $1.2 million to the Sears Holdings Corporation, which came into being in the 2005 K-Mart and Sears merger.
The judge said at sentencing he considered the fact that the crimes involved exploiting the people Morris and his mother had promised to help.
Kelly Jackson, the lead Special Agent at the St. Paul field office of the IRS Criminal Investigation Division, said the sentencing emphasizes their “aggressive pursuit” of people who break the law and victimize others, and promised to continue to hold criminals accountable.