KNOXVILLE, Tenn. — A $10.8 million tax refund scam built on stolen identities and forged documents has collapsed, with two key players now behind bars. Luis Carvajal, 52, of Loudon, Tenn., was sentenced Nov. 3, 2016, to 30 months in federal prison for his role in a conspiracy to file false tax returns and launder the illicit proceeds. U.S. District Court Chief Judge Thomas A. Varlan handed down the sentence after Carvajal pleaded guilty to both charges.
Amado Valdez-Morales, 50, of Oak Ridge, Tenn., a Honduran citizen and previously deported felon, received a steeper 42-month sentence for the same tax fraud and money laundering conspiracies, plus an additional charge of illegal re-entry. Valdez-Morales admitted his guilt on all counts. His criminal status as a deported immigrant adds another layer to a case steeped in systemic exploitation of the nation’s tax infrastructure.
The scheme relied on phony identification documents to file fraudulent federal income tax returns, targeting refundable tax credits meant for low-income families and workers. By fabricating wages and dependents, the conspirators tricked the IRS into issuing millions in illegitimate refunds. The fraud siphoned more than $10.8 million from U.S. taxpayers, with funds funneled through shell accounts and cash withdrawals to disguise their origin.
Carvajal was hit with a crushing financial penalty: he must forfeit his Loudon residence, $376,152 in seized funds, and faces a money judgment of $7,859,000. Valdez-Morales, though less flush, was ordered to forfeit $630 in seized cash and received a $2.5 million money judgment. Upon completing his sentence, he will be turned over to immigration authorities for deportation to Honduras—no second chances.
They aren’t the first to fall. The conspiracy already claimed several others: Bertha Del Pilar Vargas, 48, and Martin Ayala, 45, a married pair from Knoxville; Mayra Edith Blair, 41, also of Knoxville; and Nery Irrael Grande-Jinenez of Durham, N.C.—all previously sentenced for their roles in the sprawling fraud ring. Investigators say the network operated with precision, exploiting gaps in verification systems.
The probe was a joint hammer blow from the Internal Revenue Service, Homeland Security Investigations, U.S. Postal Inspection Service, and the Tennessee Highway Patrol Identity Crimes Unit. Assistant U.S. Attorneys Frank M. Dale, Jr. and Jennifer Kolman prosecuted the case, weaving together financial trails, digital evidence, and witness testimony to dismantle the syndicate. The convictions send a clear warning: steal from the system, and the system will come hard.
Related Federal Cases
- Kalena Winston Pleads Guilty to $70K Tax Fraud Scheme · Kansas
- Knoxville Couple Vargas, Ayala Jailed for $10M Tax Fraud · Tennessee
- Murfreesboro Woman Sentenced for Identity Theft Tax Fraud · Tennessee
- Mark Stinson Sentenced in $2.8M Payroll Tax Fraud · Tennessee
- Scotty Lumley Extradited for Bank Fraud & Tax Fraud in Morocco · Utah
Key Facts
- State: Tennessee
- Agency: DOJ USAO
- Category: Fraud & Financial Crimes
- Source: Official Source ↗
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