In a tax audit two years ago, IRS agents spent hours poring over records from the U.S. Navy Veterans Association and listening to assurances from the group's founder, Lt. Cmdr. Bobby Thompson, and his attorneys.
The IRS gave the charity a "clean bill of health."
That left the Navy Veterans free to continue a nationwide telemarketing campaign which, according to tax returns, brought the group another $27.6 million in 2009 — donations the public was led to believe would help veterans and America's fighting troops overseas.
What the IRS did not know — and its tax audit did not uncover — was that Thompson had stolen his identity from a civilian in Washington state, was impersonating a Navy commander and using his elaborately constructed but phony Navy Veterans charity to swindle the gift-giving public.
Now, after being indicted by an Ohio grand jury, "Thompson'' is sought on a nationwide warrant on charges of identity theft, racketeering, money laundering and stealing more than $1 million just from the residents of Ohio.
"Thompson" ran the Navy Veterans for eight years from a run-down duplex behind a cigar factory in Ybor City. He abandoned it last fall as he was about to be exposed, moved to New York City and vanished in June. His whereabouts and real name remain a mystery.
The IRS, which by policy does not comment on "any examination of any entity,'' declined to comment for this report, and the agency refused to address how it gave a thumbs-up to a charity that used fictional offices and falsified tax returns to collect donations from the public.
IRS agents, who missed the chance to stop Thompson's fraud in its tracks in 2008, opened a criminal investigation this summer. In July, the agency raided the home of Tampa resident Blanca Contreras, one of Thompson's assistants. She now sits in jail in Ohio, indicted on state charges of taking more than $416,000 in cash from a Navy Veterans bank account in Tampa.
In fooling the IRS, Thompson was assisted by a trio of well-credentialed lawyers:
• Helen Mac Murray, Navy Veterans general counsel. Former chief of consumer protection for the Ohio attorney general, she has been recognized the past six years as an Ohio "super-lawyer."
• Samuel F. Wright, who has worked as special counsel and lobbyist for the Navy Veterans. A decorated Navy captain and former U.S. Department of Labor attorney, Wright now represents the Reserve Officers Association.
• Darryll K. Jones, tax counsel for the Navy Veterans. A professor at Florida A&M University College of Law and an expert on nonprofits, Jones is a former judge advocate general for the Army.
The three lawyers and their firms were paid nearly $400,000 by the Navy Veterans from 2007 until Thompson disappeared last summer, according to records released by the Ohio Attorney General's Office.
In statements in recent months, all three attorneys said they believed the Navy Veterans Association was a legitimate charity and that Thompson was the Navy commander and veterans advocate he held himself out to be.
Mac Murray, who said her firm has given lengthy testimony and continues to cooperate with the Ohio attorney general's investigation, declined to answer questions from the St. Petersburg Times about her involvement with the Navy Veterans tax audit. Her firm, MacMurray, Petersen & Shuster, was paid $277,102 to represent the Navy Veterans.
Wright said he "participated in the preparation for the audit" but was not present the day of the tax examination in September 2008.
Jones, the law professor hired as tax counsel, said Thompson presented to IRS agents "lots of receipts, lots of records," even examples of the "care package" items the Navy Veterans said it was sending to thousands of troops in Iraq and Afghanistan.
Jones' opinion of the presentation to the IRS?
"We put on a good case."
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The IRS first awarded tax-exempt status to the Navy Veterans in August 2002, 33 days after receiving an application that listed the group's treasurer as "Charles Thompson" and its address as a rented mailbox on Waters Avenue in Tampa.
The application said the group consisted of 119 members who had spent $6,703 the previous few months for groceries and medical care for veterans. It said the Navy Veterans did not envision taking in more than $10,000 annually for the next few years.
But the organization grew much faster, according to tax returns it filed with the IRS. Three years after the Navy Veterans was certified tax-exempt, it reported annual income of $3.2 million. Last year it reported $23.8 million, with chapters in 41 states and a membership roster topping 66,000.
In mid-2008, the IRS notified the Navy Veterans it would conduct a tax examination of the nonprofit's Connecticut chapter. No one will say what prompted the audit.
For the three years starting in 2006, the Connecticut chapter reported income of $197,204, $198,354 and $197,205 — just below the $200,000 threshold that would have triggered the state requirement that a charity submit an independent audit.
When the IRS conducted its audit in September 2008, none of the group's Connecticut chapter officers attended. Chapter Cmdr. B.R. "Rick" Taylor of Norwich, Lt. Cmdr. James Butler of Bridegeport and chief financial officer Ed Disho of St. Petersburg are the officers shown on tax papers, but there is no evidence that anyone by those names resides at the addresses listed.
Handling the audit was the national director of development for the Navy Veterans, who called himself "Commander Thompson.''
Jones said two IRS agents met with Thompson and his attorneys for a full day, not in Connecticut, but at an office suite rented by the Navy Veterans in Washington. Thompson produced the documents the IRS wanted to see, Jones said.
"The IRS sat there all day long and went through the records,'' he said. "They issued a no-action finding.
"The chapter was examined and it was given a clean bill of health."
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After years of the Navy Veterans in Connecticut reporting annual income of nearly $200,000, revenues fell to $31,272 the year after the IRS audit. The only assets the chapter reported to the IRS in 2009 were two laptop computers and a typewriter.
Also after the audit, previous chapter officers' names were deleted from IRS papers and Thompson's name was added. His address was listed as the mailbox at a UPS store in Washington that is the group's national headquarters.
According to a resolution appended to the 2009 tax return, the Connecticut chapter abruptly went out of business.
The reason given? State membership had fallen and "a reinvigoration of the membership roll" could not be foreseen, the resolution said. The Connecticut chapter was dissolved at a meeting in Hartford on Dec. 31, 2009. Signing the document was Blanca Contreras, the newly appointed acting secretary of the Connecticut chapter — now in jail on charges she helped "Thompson'' run the phony charity.
The Times first encountered Thompson in August 2009 for a story about the abbreviated Navy career of Hillsborough County Commissioner Kevin White. Asked about the Navy Veterans' $500 contribution to White, Thompson refused to discuss his military background and said nobody from the Navy Veterans would ever talk to the Times.
That prompted the newspaper investigation that exposed the Navy Veterans as a phantom group that Thompson used to funnel donations from the public into dozens of political campaigns.
The newspaper found that Thompson had lifted thank-you letters from troops and altered them to look like real soldiers were thanking the Navy Veterans for care packages and letters that were sent by other groups.
The Times found that the Navy Veterans used a phony CPA to seek accreditation from the Better Business Bureau, a fictional legal expert to claim the group was exempt from making tax papers public and political cronies to pose as Navy Veterans members at political gatherings.
Attorneys general in nine states opened investigations. Following cease-and-desist orders in New Mexico, Florida and Ohio, the two telemarketing companies hired by the Navy Veterans canceled their contracts, and Thompson's attorneys quit, saying they no longer knew how to reach him.
"We now know Mr. Thompson lied to us as he lied to so many others,'' Mac Murray said in a statement e-mailed this week. "As soon as we uncovered his deceit, we turned over thousands of documents to investigators, provided over 20 hours of testimony and continue to give them, as we are able, extraordinary cooperation in the effort to bring Bobby Thompson to justice."
As the Times prepared to publish the stories exposing the organization, Mac Murray advised a reporter that leaving e-mail and voice mail messages seeking comment from the Navy Veterans might constitute criminal stalking, and she warned that the group "will not lightly permit itself to be disparaged" by the newspaper.
In the six months leading up to the publication of the newspaper investigation and in the three months afterward, Mac Murray's firm was paid $252,823 to represent the Navy Veterans. The payments ceased after Thompson disappeared.
Jones was paid $10,000 to assist in the tax audit and $7,341 to prepare a report commissioned by Thompson that said the Navy Veterans governance documents met federal requirements.
To write the report, Jones said Thompson handed him some 1,000 pages of Navy Veterans membership records, papers that Jones now says did "appear to be similar" to one another.
He said he never suspected the records Thompson furnished at the IRS audit were phony, and he never became suspicious of Thompson because his trappings were not extravagant.
"He was living in a roach-infested place that had been described to me as a dump,'' Jones said. "If he were living large, I'd have felt differently."
Jones said he never had a clue, until told by a reporter, that the total income reported to the IRS by the Navy Veterans exceeded $99 million.
"That's incredible,'' Jones said. "I thought it was peanuts he was spending."