Extreme and outlandish; General nonsense; tat's all, folks; and other highlights of recent tax cases.
Mansfield, Texas: Tax preparer John Anthony Castro, 40, a would-be lawyer who falsely inflated dozens of returns, has been convicted on 33 counts of tax fraud.
Castro, owner of the virtual tax prep business Castro & Co. and who graduated law school but repeatedly failed the bar exam, held himself out as an "international tax expert" and "federal practitioner" and falsely claimed to be a graduate of West Point.
He marketed to clients globally, claiming to be an expert on certain tax issues related to Australian ex-pats, among other things. Between 2017 and 2019, he filed more than 1,900 returns for individuals from all over the world.
Castro promised his clients a significantly higher refund than they would receive from other preparers, claiming he knew how to identify and claim deductions that others did not. He added that there was no risk as he would split the additional refund amount with clients for his fee.
He did not share the returns with clients before filing but instead informed them of the amount of the anticipated refund. He often filed returns for clients without their permission or knowledge and in other instances claimed deductions that had no basis in fact, including any expense related to preventing an illness qualified as an "impairment-related work expense."
Others deductions included expenses related to commuting to and from work; the full value of one's mortgage and utilities as long as the taxpayer had some type of Schedule C business to claim; those related to drycleaning for work clothes; and the full value of a cell phone bill even when their employer provided them with a work phone. For one client, Castro deducted more than $26,000 in expenses that he claimed related to a nascent cupcake business that had generated only $250 in revenue.
In 2018, an undercover IRS agent contacted Castro for assistance and asked to meet him in person. Castro's office told the agent that in-person meetings required a $5,000 retainer and they spoke via email instead. The undercover agent submitted a W-2 and a 1098-T showing wages of $142,217.
About two weeks later, one of Castro's employees called the agent to discuss deductions, noting that Castro would make any decisions regarding what items would be included on the tax filing. The agent denied having any unreimbursed employee expenses, charitable contributions or other items that could lead to deductions.
A month later, Castro sent the undercover agent his tax analysis and said that if the agent used another preparer, he would receive a refund of $373 but that Castro could get him $6,007 and that Castro would take half. The analysis said the return would include $29,339 in deductions but did not specify which deductions would be used. Castro filed the agent's return, which claimed $29,339 in fraudulent deductions, including $2,400 in employee expenses and $28,600 in other expenses that the undercover agent never discussed with Castro.
Castro engaged in a similar pattern with other clients. When the victim-taxpayers learned what he had done, many demanded copies of their returns. Castro refused to engage in conversation and delayed providing returns for months, often berating individuals in emails, threatening legal action or filing amended returns without clients' permission or knowledge that removed all deductions, causing the taxpayer-victim to then owe the IRS tens of thousands of dollars. Many of the victim-taxpayers have since been audited or had to file amended returns.
During the trial, Castro admitted that his positions were "extreme, outlandish" and unsupported by the law. He also admitted to a bevy of prior falsifications and vindictive actions.
Castro faces up to 99 years in prison.
Quincy, Massachusetts: Business owner Su Nguyen has pleaded guilty to filing false returns for his company that hid more than $10 million in corporate income.
Between 2016 and 2020, Nguyen owned and operated General Employment Services, a temporary employment agency. Clients paid General by check for work by employees. Nguyen deposited a small number of checks in a bank account that he used for business and reported that income to the IRS. He cashed most of the checks at a nearby check casher and used that cash himself and to pay some employees' wages.
Nguyen cashed more than $10 million in client checks and did not report that income or the wages paid in cash to the IRS; Nguyen and General failed to pay more than $2 million in taxes.
Each count of aiding and assisting the filing of false returns carries up to three years in prison, up to a year of supervised release and a fine of up to $250,000. Sentencing is Sept. 5.
Newark, New Jersey: Walid Khater, of Mesa, Arizona, has admitted that he conspired to obtain more than $4.4 million by defrauding the IRS.
Walid and his conspirator, Omar Khater, of Fairfield, New Jersey, were relatives who worked together and with others to steal victims' IDs that they used to file false returns and steal federal refunds.
They electronically submitted tax documents to the IRS falsely claiming that the individual taxpayers listed on those documents had earned certain incomes or won thousands — in some cases millions — of dollars through gambling and lotteries. The false filings also claimed tax withholdings on the purported income or gambling winnings. The Khaters and others typically submitted these fraudulent tax filings using the names and personal ID information of individual taxpayers without their knowledge or permission.
The fraudulent filings caused the IRS to pay refunds totaling $4.49 million, which the conspirators directed to various bank accounts that they controlled.
Khater pleaded guilty to one count of conspiracy to commit wire fraud and one count of conspiracy to defraud the IRS. The charge of conspiracy to commit wire fraud carries a maximum of 20 years in prison; conspiracy to defraud the IRS carries a maximum of five years. Both may carry a fine of $250,000, or twice the gross gain or loss from the offense, whichever is greater. Sentencing is Oct. 9.
Omar Khater previously pleaded guilty to the same charges and will be sentenced on June 12.
Rodeo, California: Business owner Salman Salman has pleaded guilty to one count of tax evasion.
Salman was charged in connection with filing false 1040 joint returns for himself and his wife for tax years 2016 through 2019. He admitted to underreporting income he and his wife had from businesses he owned and operated, including a tattoo parlor and two investment groups. Salman admitted that he both understated income from his companies and claimed false and overstated expenses.
He failed to disclose more than $3.4 million in income he received from his companies.
Sentencing is Sept. 18. Salman faces up to five years in prison, a $250,000 fine and restitution of at least $438,247 to the IRS. He may also be ordered to serve supervised release and to pay additional assessments.
Brookland, Arkansas: Ronnie Lyn Drummond, who owned and operated an IT business that provided services to various governmental entities, has pleaded guilty to tax evasion.
Drummond failed to timely file returns for the tax years of 2008 to 2012. When Drummond eventually filed returns for these years, his calculations reflected tax obligations that he failed to pay.
Between 2014 and 2017, he received gross receipts of $1,044,043.05. To conceal them from the IRS, Drummond cashed most of the checks he received. The tax loss, excluding interest and penalties, was $177,357.98.
Drummond was indicted on May 4, 2023, and charged with one count of tax evasion and one count of failure to file taxes. In exchange for his guilty plea to tax evasion, the remaining count was dismissed.
Tax evasion is punishable by not more than five years in prison, not more than three years of supervised release, and a fine of up to $100,000.
