Kentucky woman filed false claim for $9.7 million tax refund, grand jury charges

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A woman in northeastern Kentucky filed a false tax return to get a refund of nearly $10 million, a federal grand jury has charged.

The Internal Revenue Service issued a refund of $9,723,822 based on the return, but the government seized the money as part of its investigation, according to court records.

Karen Denise Smith, of Grayson, faces a charge of wire fraud in the case. The charge is based on filing the alleged fraudulent return electronically.

Smith filed the tax return in January 2020 to claim a refund for a trust. She is the agent for the trust, according to court records.

The return claimed the trust had a net operating loss of $10 million in tax year 2018 and claimed a refund of $9,723,822 after payment of an alternative minimum tax, according to a affidavit from Terrance Brown, a special agent with the Internal Revenue Service.

A review of IRS records showed the return was “wholly fictitious,” Brown said.

In an earlier court filing contesting the warrant to seize the refund, Smith said it was possible she failed to file a required form with the return, but believed the payment was justified.

“No fraud was ever contemplated or perceived by Smith,” she said in the document.

Smith, who is also known as Karen Hable Smith and Karen Denise Hable, faces up to 20 years in prison if convicted.

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