A San Mateo man has been indicted by a federal grand jury on charges that he fraudulently obtained a $5 million tax refund from the Internal Revenue Service, court records show.

Seth Sundberg, 34, the branch manager of a mortgage and financial business, was charged with mail fraud, falsifying a tax return and false claims in an indictment handed down Wednesday in U.S. District Court in San Jose.

On his return for tax year 2008, Sundberg allegedly claimed to have paid $5.7 million in taxes as a result of receiving “original issue discount” interest income, a form of taxable interest that is reported as it accrues, whether or not a taxpayer receives interest payments from the issuer.

Sundberg, who is also a principal for a San Carlos investment company, claimed he was owed a refund of just over $5 million, and the IRS issued a check in that amount to him in May, the indictment said.

Sundberg, who is representing himself, was booked at Santa Clara County Jail on Sept. 9. He remained in custody Thursday and could not be reached for comment.

The prosecution is an outgrowth of a larger IRS investigation into fraudulent tax returns filed on behalf of taxpayers, including jail inmates, Special Agent Quyen Madrigal of the IRS criminal investigation division wrote in an affidavit filed in support of a criminal complaint.

Authorities learned of Sundberg’s alleged scheme after staffers at a federal prison in Lassen County overheard an inmate urging an acquaintance to contact Sundberg because he “had had success,” Madrigal wrote.

The inmate wrote Sundberg a letter saying, “It was quite a surprise hearing from you. My father had been keeping me informed of your dealings in his bragging upon you. I am glad things are going well for you,” the affidavit said.

Federal prosecutors are seeking forfeiture of $322,000 in cashier’s checks, $117,473 in cash and $75,729 in silver and gold coins.

@IRSTax

The IRS says an online scam is preying on victims’ fears of tax collectors and draining their bank accounts.

Here’s what happens: A e-mail message pops up with a subject line that says something like “Notice of under-reported income.”

The message encourages the user to install an attachment to view their tax statement.

But when the user clicks on it, it downloads the zeus trojan virus, which hacks into the victim’s bank account.

Researchers say the scam is emptying more than $1 million a day out of victims’ accounts.

The IRS says not to open any attachments or click on any links that claim to be from the agency.

@IRSTax

It’s a warning you’ll want to hear before you file your taxes.  This year, someone is preying on customers of one of the country’s largest tax preparers.  So far, the con artists are having great success in Middle Tennessee.

Calls started coming into NewsChannel 5 on Friday morning, from residents who say they’re out thousands of dollars.

“I have no idea how they got my account information at all,” said Shay Edmonds of Madison, who is among the victims.

Edmonds said she’s gotten her taxes done at H&R Block for eight years, and has never had any problems.

This year, she opted to get her return issued on an H&R Block Emerald Pre-paid Card.  Just a few hours after receiving it, though, she got a text message that didn’t quite make sense.

The text asked her to verify her account information.  Edmonds said she never responded, but believes by that point, the damage was done.

“When I woke up this morning, almost $3,000 was gone from the card,” she said.  “I had planned on paying bills. I have children that I’m supporting on my own.”

When Edmonds called H&R Block to report the missing money, she learned she wasn’t alone.

“They said they call center was blowing up, that’s what one woman told me,” she said.

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