2 Men Indicted in Electronic Tax-Return Scheme : Crime: Prosecutors allege that they made out phony W-2 statements and secured bank loans using the refunds as collateral.

Two Orange County men were indicted by a Los Angeles federal grand jury Wednesday--the first indication of a massive Justice Department investigation related to the illegal use of electronic tax returns in Southern California.

John H. Wyatt, 45, of Stanton and David D. Smyers, 51, of Garden Grove are charged with fraudulently obtaining $22,000 in tax-refund loans.

Special prosecutors from Washington--sent to Los Angeles to investigate this case and others--allege that Wyatt and Smyers together forged W-2 income statements, submitted them to the IRS for a refund and then got bank loans using the expected refunds as collateral.

Justice Department prosecutors say that the allegations against Smyers and Wyatt are not unique.

“Without getting into details, there are a number of cases . . . into electronic filing in the Southern California area,” said federal prosecutor Christopher L. Cardani. “Something will be happening fairly soon.”

Cardani refused further comment and attorneys for Smyers and Wyatt were unavailable.

Both Smyers and Wyatt are charged with one count each of conspiracy and various counts of making false statements.

Wyatt, who is awaiting arraignment in a federal jail, is facing up to 55 years in prison and $2.75 million in fines.

Smyers was released on $26,000 bail and could receive up to 40 years in prison and a $2-million fine.

The Justice Department alleges that Wyatt and Smyers submitted phony W-2 forms to three Orange County tax preparers--Baldwin Hill Tax Service, Wright Properties and Jackson Hewitt Tax Service.

The W-2 forms contained false tax withholdings, false Social Security numbers and false employer-identification numbers, according to Wednesday’s indictment.

The tax-preparation services, not suspected of any wrongdoing, electronically transmitted to the IRS completed tax returns based on those W-2 forms.

Once that was done, the men then allegedly applied to financial institutions for refund-anticipation loans.

These loans are essentially cash advances that banks and thrifts extend to taxpayers expecting an IRS refund.

Cardani said the men received the money three to five days after the 10 or so tax returns were transmitted to the IRS.

He refused to identify the financial institutions that loaned the $22,000.

The scheme--according to the indictment--lasted from Feb. 6 to April 25.