The royal treatment; tit for tat; false certifications; and other highlights of recent tax cases.
Belle Vernon, Pennsylvania: Businessowner Andy Ha has pleaded guilty to harboring illegal aliens for financial gain and to failing to pay employment taxes.
From September 2022 to April 2024, Ha owned a temporary staffing agency, Prosperity Services, that provided workers to area companies. Ha paid for more than 25 workers who were not legally authorized to be in the U.S. to stay in a former hotel, and his business paid for vans to transport those workers to and from work.
He also provided Prosperity's tax preparer with spreadsheets listing only workers who were legally authorized to be and work in the U.S. That information was reflected on the company's quarterly employment returns, representing less than 10% of the actual total number of workers employed by Prosperity. Ha then also signed those returns, knowing them to be false and causing a tax loss of at least $3.1 million.
Sentencing is July 22. Ha faces up to 15 years in prison and fines totaling up to $500,000 or twice the gain from the offense, or both.
Delray Beach, Florida: Financial professional Stephen T. Mellinger III has pleaded guilty to orchestrating a nearly decade-long scheme to promote an illegal tax shelter and commit wire fraud. He also pleaded guilty to assisting in the preparation of false returns for tax shelter clients.
Mellinger was a financial advisor, insurance salesman and securities broker operating in Florida, Michigan, Mississippi and other locations. Beginning in late 2013, he conspired to promote a tax shelter whereby clients would claim false tax deductions for "royalty payments" to reduce their taxes.
As Mellinger knew, the payments were merely a circular flow of money to give the appearance of business expenses. Typically, a client would send money to bank accounts controlled by Mellinger and other conspirators, who then sent the money, minus a fee, to a different account that the client controlled.
Mellinger and a co-conspirator, a relative, collectively earned some $3 million in fees from the scheme. In total, he and his co-conspirators helped clients prepare returns that claimed more than $106 million in false deductions, which caused a tax loss to the IRS of some $37 million.
In January 2016, Mellinger learned that several of his clients were being investigated and that the federal government had started seizing their funds. Mellinger and a relative subsequently stole more than $2.1 million of funds from some of those clients.
Sentencing is Sept. 16. Mellinger faces up to five years in prison for conspiring to defraud the IRS and commit wire fraud, and three years for aiding in the preparation of false returns.
Los Angeles: Tattoo artist Daniel Joseph Winter, once called "Hollywood's Go-To Tattoo Artist" in the media, has pleaded guilty to filing false returns through which he evaded more than $641,000 in federal income tax.
Winter, who pleaded guilty to one count of subscription to a false return, operated his tattoo business in the Los Angeles area, New York and Vancouver, Canada, specializing in single-needle, fine-line tattoos and catering to high-end clients. He accepted payment almost exclusively in cash and earned at least $1.7 million from his business from 2021 to 2023. He declared no wages, salaries or tip income on federal returns, reducing his taxes by more than $641,000.
At his hearing, Winter presented a cashier's check for $641,959 to pay the taxes he owed due to the underreporting. He also admitted that he knew he was required to report all his income.
Sentencing is Aug. 11, when Winter will face a maximum of three years in prison.
Shelbyville, Tennessee: Daycare operator Rebekah Proctor has pleaded guilty to one count of willful failure to collect, account for and pay over a tax and to one count of wire fraud.
Proctor operated Franklin Springs Academy, and though she withheld income taxes and FICA from employees' paychecks and owed the employer's portion of the taxes, she failed to account for and pay the taxes to the IRS for the first quarter of 2022.
She also fraudulently applied for and received an undeserved Paycheck Protection Program loan. She made several false certifications on her April 2020 application for more $100,000 in PPP funds, including that she was current on her federal tax obligations and that the loan funds would be used to retain workers and for other business expenses. Proctor used the funds for personal expenses.
She agreed that the restitution owed to the IRS for her employment taxes alone is $893,232.26, which includes unpaid taxes plus penalties and interest. She further agreed that restitution owed to the SBA is $223,800, comprised of two sets of PPP money.
Sentencing is July 11. She faces up to five years in prison on the tax offense and up to 30 years for wire fraud.
Charlotte, North Carolina: Two businessmen have been sentenced for failing to account for and pay over to the IRS more than $150,000 in trust fund taxes over five quarters in 2016 and 2017.
Richard Brasser and Gregory Gentner were each sentenced to a year and a day in prison to be followed by a year of supervised release.
Their company, rFactr, sold software that leveraged social media for sales platforms; Brasser was CEO and Gentner the COO. From 2015 through 2017, they caused rFactr to collect more than $600,000 in trust fund taxes from the wages of employees but did not account for the taxes by filing 941s and did not pay over the withheld taxes to the IRS. Brasser and Gentner also had a history of non-compliance with rFactr's employment tax obligations from 2013 to 2017.
In total, between 2015 and 2017 the two caused rFactr to owe more than $1.1 million in employment taxes.
Red Bank, New Jersey: Business owner Francis Esposito has admitted to filing a false return and causing more than $200,000 in tax losses for 2018.
Esposito was the sole or majority owner of numerous entities. For tax years 2015 through 2018, he derived certain income through these entities that he failed to report on his 1040. For those years, he had almost $3 million in unreported income, resulting in a total tax loss of some $1,149,372.
The charge of filing a false return carries a maximum three years in prison and a maximum fine of $250,000 or twice the gain or loss from the offense.
New Bedford, Massachusetts: Valentina Martinez, 50, who previously worked for a national tax prep service, has been sentenced to a year of supervised release under home confinement for stealing federal funds by filing false returns to obtain fraudulent federal refunds.
After preparing returns for clients and providing them copies of their returns, Martinez added fraudulent claims for business deductions without clients' knowledge and e-filed the false returns.
She caused the refunds to be deposited onto debit cards that she used to make ATM withdrawals, including paying for a Florida vacation and other personal purchases. Her scheme was discovered and her employment terminated when a taxpayer client complained to the tax prep service about a missing refund. By then, she had filed at least 12 false returns.
Martinez, who pleaded guilty in December, was also ordered to pay $41,823 in restitution to the IRS.
