Grains of truth; books by their covers; skin game; and other highlights of recent tax cases.
Houston: A federal court has permanently enjoined tax preparer Hollins Ray Alexander from preparing federal tax returns for others and from owning, operating or franchising a tax prep business in the future.
Alexander prepared returns on which he overstated clients' refunds by fabricating deductions or falsely claiming credits.
The injunction requires Alexander to send notices to each person for whom he prepared federal returns and post the injunctions in places where he conducts business, including social media accounts and websites. It also permits the U.S. to conduct post-judgment discovery, and required Alexander to disgorge $165,940.
Key West, Florida: Tax preparer Abel Raphael, 65, has been sentenced to 18 months in prison, to be followed by a year of supervised release, and ordered to pay almost $150,000 in restitution for aiding and assisting the preparation and presentation of false tax returns.
Raphael, who pleaded guilty in October, operated Abel Income Tax Service Inc. and admitted that he obtained an EFIN to e-file federal returns in the names of others. He prepared the returns using false deductions and credits.
Fremont, California: Businessman Roger Chi Quan, 55, of Milpitas, California, has pleaded guilty in connection with underreporting his 2017 business income by more than $4 million.
Quan owned and operated QXQ Inc., a manufacturer of circuit board test fixtures that shipped products to the U.S. and Asia. He admitted that since before 2014 QXQ had maintained two sets of QuickBooks bookkeeping files, one to record sales to customers in the U.S. and all of QXQ's expenses, and the second to record sales to customers in Asia; Quan directed QXQ's customers in Asia to wire payments to QXQ's bank accounts in New Zealand.
He admitted that he provided his tax preparer only with the U.S.-related QuickBooks file. Quan also acknowledged he did not provide his preparer with or disclose the existence of the bookkeeping file that recorded QXQ's sales to customers in Asia or the statements from his and QXQ's foreign accounts.
He also admitted that he had signature authority over at least 11 foreign bank accounts in 2017, one of which held a balance of at least $12,137,288.50. Quan admitted that he knowingly did not report the existence of these accounts.
Quan agreed his actions caused his 2017 federal income taxes to be underreported by $1,783,339. He agreed to pay $8,167,733 in restitution to the IRS.
Sentencing is Sept. 25.
Albuquerque, New Mexico: Businessman David Wellington has pleaded guilty to conspiracy to defraud the U.S.
In 2005, Wellington and his business partner, Stacy Underwood, also of Albuquerque, established National Business Services LLC, which was involved in the promotion, sale and creation of LLCs under New Mexico law. Through National Business, Wellington and Underwood created LLCs in New Mexico for their clients, obtained EINs and opened bank accounts in the names of the LLCs, allowing their clients to remain anonymous. Between 2005 and 2015, Wellington and Underwood organized at least 192 LLCs in New Mexico and opened at least 114 bank accounts.
In 2006, the pair created three LLCs in New Mexico for Jerry Shrock, of Meadowview, Virginia. Underwood was listed as the "Organizer" and National Business as the initial registered agent for all three. In 2011, Underwood opened a bank account for one of the LLCs and provided Shrock with online access to the account and a book of pre-signed checks. Between 2011 and 2015, $4,875,940 was deposited into and withdrawn from the account.
At that time, Shrock had an outstanding IRS assessment for unpaid taxes, penalties and interest of some $1 million. Shrock never filed federal personal or business returns, allowing him to generate and deposit income while evading personal and business taxes.
Wellington faces up to five years in prison to be followed by up to three years of supervised release. Underwood and Shrock both previously pleaded guilty and face up to five years in prison and up to three years of supervised release.
Spring Branch, Texas: Retired Air Force Brigadier General Scott A. Bethel, 59, has been sentenced to a year and a day in prison and three years of supervised release for wire fraud and filing a false return.
Bethel began working as a government contractor and advisor to the Air Force after retiring from active duty in 2012. He launched his own business, working directly with government staffing contracts simultaneously with the work for his contract employer.
Bethel sought hotel reimbursement from both his employer and the government, submitting false hotel invoices for instances when he stayed with personal acquaintances rather than at hotels and receiving some $15,140.50 from the Air Force to which he was not entitled.
He also falsified charitable deductions and business expenses from 2015 to 2019, resulting in a tax loss of some $139,687.00.
Bethel was also ordered to pay $154,827.50 in restitution.
Indianapolis: Dermatologist David Gerstein has been convicted after pleading guilty to submitting a false income tax return.
Between 2017 and 2020, he underreported his taxable income by at least $1.2 million and evaded $360,669 in income taxes.
Gerstein lied to his accountant that all income from his medical practice flowed into a single business bank account, and he only provided the accountants with records from that account. Gerstein actually had hidden accounts where he deposited business income, including checks from patients, payments from insurance providers and Venmo payments. He further broke up cash deposits of more than $10,000 and made multiple cash deposits on the same day.
Sarasota, Florida: Restaurateur Madeline Nikolson has pleaded guilty to one count of conspiracy to defraud the United States and to impeding and impairing the IRS in ascertaining and collecting personal and corporate income tax revenue.
Beginning at least as early as August 2013, Nikolson and her partner and co-owner of the restaurant schemed to defraud the IRS by removing the records of daily cash sales from the point-of-sale registers at the restaurant, leaving the record to consist only of credit card sales. They falsified and removed any reference to some $726,105 in sales income from their returns for 2016, 2017 and 2018, resulting in more than $100,000 of taxes due.
Nikolson faces up to five years in prison.
Milwaukee: Consultant Qasim Khan, who helped secure international business deals for clients, has pleaded guilty to filing a false return.
Khan owned and operated Global Focus Partners LLC, a consulting business through which he successfully brokered contracts between the Kingdom of Saudi Arabia and other businesses in the U.S. and abroad. For 2015 to 2017, he reported his income from U.S.-based businesses but did not report more than $350,000 in payments from companies in the United Kingdom and the Kingdom of Saudi Arabia. In total, Khan's multiyear scheme to omit foreign-source income from his tax returns caused a tax loss to the IRS of approximately $127,306.
Sentencing is Aug. 15, when he will face a maximum of three years in prison, as well as a period of supervised release, restitution and monetary penalties.
Sigourney, Iowa: Mark Lynn Haines, a seed dealer, has pleaded guilty to mail fraud and conspiracy to defraud the U.S.
He schemed to defraud and obtain money from 2015 to 2018 concerning sales of grain as organic when the grain was grown in violation of the USDA National Organic Program. Haines used treated seed, which is prohibited, and hid his violations.
Haines also conspired to impede and obstruct the IRS in assessment and collection of income taxes. Between April 2017 to April 2019, he obtained false invoices, backdated checks and exchanged checks to give the appearance of an expense that was not in fact incurred.
Sentencing is Aug. 18.
