Tax Fraud A Better Child Foundation Denise Thomas John Shelby Watts (Sentence: 78 months) Action Date: February 26, 2001 Location: Los Angeles, CA On February 26, 2001, John Shelby Watts, formerly of Hawthorne, California, was sentenced in the Central District of California to 78 months imprisonment and ordered to pay restitution of $56,372 to the IRS. On May 11, 2000, Watts was convicted after a six-day jury trial on 14 counts including causing false income tax refund claims to be filed, conspiracy to defraud the United States, and witness tampering. Watts conspired with others to defraud the United States by filing fraudulent tax refund claims in 1998. As part of the scheme, Watts filed tax returns in the names of various individuals claiming refunds based on the Earned Income Tax Credit, a refundable tax credit available to certain low-income working individuals. None of the individuals whose names appear on the returns filed were entitled to the credit. The evidence at trial established that Watts and his ex-wife, Denise Thomas, orchestrated a multiple filer scheme that involved causing numerous tax returns in the names of individuals they recruited to be filed electronically with the IRS. Watts made the individuals whom he and Thomas recruited promise to pay him half or more of the tax refunds they would receive. Watts and Thomas recruited individuals in several different ways, including through a non-profit organization called "A Better Child Foundation" which Watts purportedly founded to provide free school uniforms to needy children. In 1997, Watts approached Los Angeles Unified School District officials and asked that they distribute the foundation's applications to parents. Parents who returned the applications, which contained their social security numbers and information about their dependent children, were later contacted by Watts and offered the opportunity instead to obtain a payment of up to $900 as financial assistance. Watts then used the information on the applications to file tax returns that claimed the earned income credit based on false earned income amounts that he and Thomas created. Watts arranged for the refund checks to be sent to one of three addresses that he controlled. In some cases, he had the recipients cash the checks and provide him with half of the amount or sometimes more. The evidence at trial also showed that Watts contacted at least one of the public assistance recipients for whom he filed tax returns and attempted to convince her to give false information to the IRS special agents investigating the matter. Denise Thomas was not charged in this case.