Escorted to prison; going to Disneyland; FATCA conviction; and other highlights of recent tax cases.
Durham, N.C.: Two individuals associated with a mental health company have pleaded guilty to health care fraud related to the submission of false claims to Medicaid and tax evasion.
Haydn Thomas, 44, formerly of Durham, pleaded guilty to one count of making a false statement relating to health care matters and one count of tax evasion. Catinia Farrington, 44, also formerly of Durham, pleaded guilty to one count of health care fraud conspiracy and one count of tax evasion.
According to case documents and information, Farrington owned Durham County Mental Health and Behavioral Health Services LLC and from 2011 through 2015 submitted thousands of false claims to Medicaid that resulted in Medicaid paying approximately $4 million to Durham County Mental Health. Also during this period, Thomas worked as the practice manager for an oral surgeon and provided Farrington with the name and Medicaid number of a dental patient, causing the filing of a false medical claim.
Farrington and Thomas diverted millions of dollars from DCMHBHS for their own personal use and evaded income taxes by, among other things, transferring money to various business bank accounts and paying personal expenses from the business bank accounts.
Farrington’s sentencing is Feb. 15; Thomas is set for sentencing on Feb. 21. Farrington faces a maximum of 10 years in prison for conspiracy to commit health care fraud and five years in prison for tax evasion. Thomas faces five years in prison for making a false statement relating to health care matters and five years in prison for tax evasion. Both also face periods of supervised release, restitution and monetary penalties.
Miami: Escort service owner Dennis Zarudny has been sentenced to two years in prison for filing a false return.
According to court documents, Zarudny was the director and 100-percent shareholder of Denzar Inc., which did business as “Elite Miami Escorts” and “Elite Escort Service” in the Miami area. According to Denzar’s website, the company was a “prestigious escort agency providing 24-hour outcall escort services & adult entertainment for upscale gentlemen and couples in South Florida.”
Zarudny previously pleaded guilty in April to filing a false individual income tax return for 2012 that underreported his total income from his escort business. For tax years 2011 through 2014, he also filed false corporate and personal income federal returns that substantially underreported his business income. Zarudny allowed his customers to pay for the escorts’ services by cash, check and credit card; he reported income from credit card transactions but did not fully report the income he received from customers who paid in cash and by check.
Zarudny was also ordered to serve a year of supervised release. A hearing to determine restitution to the IRS is on Dec. 7.
Owings Mills, Md.: Preparer Dawn Chapelle Cottman, 45, has been sentenced to seven years in prison, followed by five years of supervised release, for 14 counts of filing false returns, wire fraud and aggravated ID theft.
Evidence at trial showed that from 2009 until 2013 Cottman, who operated the prep business 40 AM Tax Service from her residence, e-filed hundreds of returns, then had the refunds directly deposited into her bank account instead of sending them to the taxpayers.
Many of the returns contained materially false information to inflate the refunds, including fictitious personal income amounts and dependent information that qualified taxpayers for the Earned Income Tax Credit and American Opportunity Credit. She also prepared and filed returns using the personal identifiers of other people without their knowledge and consent to fraudulently obtain a tax refund.
Cottman also paid various individuals to obtain the IDs of other people in whose names she filed the false returns; she had the resulting refunds direct-deposited into her bank account.
Cottman was also convicted of filing a false personal tax return for 2011, falsely claiming that her prep business had gross receipts of $152,100 when in fact more than $1 million of other people’s refunds were wired into her bank account. She also falsely claimed to have earned a net income of approximately $17,000 when she spent more than $250,000 that year on personal expenses, including trips to Disneyland, Las Vegas, Busch Gardens and Atlantic City.
Omaha, Neb.: Preparer Sharon Williams-Combs, 47, has been sentenced for preparing and filing false tax returns.
In April Ms. Williams-Combs was found guilty of 14 counts of
Williams-Combs worked for Jackson Hewitt inside a Walmart. She assisted clients in preparing and filing false returns, claiming that clients had personal business income from a business such as hairdressing or babysitting, when in fact the client did not have such a business or did not have the income in the amounts included on the fraudulent returns.
Chicago: A federal court has permanently barred Kathleen Sims-Crawford and KSC Business Support Services Inc. from preparing federal returns for others.
The order also prohibits Sims-Crawford from owning and managing a tax prep business. Sims-Crawford consented to the order.
According to the government complaint, Sims-Crawford prepared returns that reported false or inflated claims for the EITC, fabricated or inflated business losses, and false rental income or expenses. The complaint alleged that these returns fraudulently reduced clients’ tax liabilities and secure undeserved refunds, allegedly costing the U.S. hundreds of thousands of dollars.
New York: Adrian Baron, former chief business officer and CEO of Loyal Bank Ltd., an offshore bank with offices in Budapest, Hungary and Saint Vincent and the Grenadines, pleaded guilty to conspiring to defraud the U.S. by failing to comply with FATCA.
According to court documents, in June 2017 an undercover agent met with Baron and explained that he was a U.S. citizen involved in stock manipulation schemes and was interested in opening multiple corporate bank accounts at Loyal Bank. The agent informed Baron that he did not want to appear on any of the account opening documents for his bank accounts at Loyal Bank, even though he would be the true owner of the accounts. Baron responded that Loyal Bank could open such accounts and provide debit cards linked to them.
The following month, the agent again met with Baron and described how his stock manipulation scheme operated, including the need to circumvent reporting requirements under FATCA. Baron stated that Loyal Bank would not submit a FATCA declaration to regulators unless the paperwork indicated “obvious” U.S. involvement. Loyal Bank then opened multiple accounts for the agent. At no time did Baron or Loyal Bank request or collect FATCA information from the agent.
Baron, who was extradited to the U.S. from Hungary in July, is the second defendant to plead guilty in this case. Authorities said his guilty plea represents the first conviction for failing to comply with FATCA. When sentenced, he faces a maximum of five years in prison.
Jacksonville, Fla: Preparer Adrian George, 41, has been sentenced to 15 months in prison for conspiring to commit wire fraud and conspiring to aid in the preparation and presentation of fraudulent federal returns to the IRS, as well as five additional counts of aiding in the preparation and presentation of fraudulent tax returns.
According to court documents, George owned and operated Professional Tax Service South and taught his employees various ways to include false information in returns to inflate clients’ refunds.
At George’s direction, the employees offered to prepare fraudulent or “boosted” returns for clients, in exchange for cash payments from the proceeds of the resulting illegitimate refunds. After being in business for less than two years, George and his employees had prepared and filed 748 tax returns for clients, all of which requested refunds totaling more than $3.2 million.
