To his fellow enlisted sailors, Leonard Damon Washington offered what looked like a sweet deal: a way to get a federal tax refund by taking advantage of a special military tax break that few tax preparers knew about.
More than 140 sailors from 2006 to 2010, many of whom served aboard the San Diego-based guided missile destroyer Higgins, paid $1,000 each to Washington to have him prepare their tax returns, according to court documents.
The sailors got tax refunds totaling $877,531.
Washington used the money he received to pad his military salary and pay for airline flights, restaurant tabs, stays at fancy hotels and jewelry.
But the Internal Revenue Service got suspicious. The returns of Washington's clients claimed a military exemption that does not exist and routinely listed gambling debts as deductions, according to court documents.
On Thursday, Washington, 38, who left the Navy in 2010, pleaded guilty in San Diego federal court to tax evasion and filing false tax returns.
He faces a possible eight years in prison when sentenced Feb. 5. Until then he remains in the downtown federal jail.
Under a plea bargain, Washington will pay nearly $50,000 in back taxes for his own 2010 tax return that understated his income, as well as restitution for the refunds made to sailors due to the fraudulent returns.
The sailors who innocently trusted Washington have been informed of the problem with their returns for possible repayment, officials said.
Washington "perpetrated a scheme that systematically defrauded the government, his fellow service members and the taxpaying public," said IRS special agent Erik Martinez.