Cleanup in aisle four; have con, will travel; out of fashion; and other highlights of recent tax cases.
Brookfield, Connecticut: Grocer Lizbel Sanchez, a.k.a. Lizbel Diaz, has been sentenced to two years of probation and ordered to pay a $400,000 fine for a federal tax offense.
Sanchez is a minority owner of Danbury Food Corp., which operates a local C-Town grocery store. Sanchez and Danbury Food paid several employees in cash and failed to collect, account for and pay over the federal income taxes and FICA taxes. She also failed to account for and pay over Danbury Food's share of FICA taxes and its FUTA obligations of those employees who were paid in cash.
The federal tax loss was $408,121.85 for 2016.
Sanchez, who previously pleaded guilty, has paid $408,121.85 in restitution to the IRS. She also has acknowledged similar conduct for Danbury Food in 2017 and 2018, and for other businesses in which she had an interest in 2016, 2017 and 2018. Additional tax losses will be addressed by the IRS.
New York: A federal court has permanently barred Brooklyn-based Maria Cuervo and Danays Enterprises & Travel from operating a tax preparation business. The defendants consented to the injunction.
The judgment also requires Cuervo to disgorge to the United States $150,000 in fees that the government alleged she received for preparing federal returns that make grossly incompetent, negligent, reckless or fraudulent claims.
The government alleged that the defendants prepared clients' returns that reported fraudulent filing statuses, including improper claims of head-of-household status. The United States further alleged that the defendants prepared returns that claimed fraudulent dependent exemptions, as well as losses designed to improperly reduce reported taxable income.
Lowell, Massachusetts: Money manager Steven Xigoros, 55, has pleaded guilty to a scheme to defraud his clients of millions of dollars and to filing a false return.
Between 2015 and 2021, Xigoros used his position as an accountant, tax preparer and investment advisor to induce clients to entrust their money to him for various investments, to purchase securities and to lend him money for purported business ventures. Xigoros then used those funds for his own expenses, including to pay gambling debts.
He defrauded his clients of more than $3.5 million, including the entire life savings of one elderly couple who entrusted $1.3 million to him. Xigoros also failed to pay taxes of some $1.16 million to the IRS. He was arrested at Newark Liberty International Airport while boarding a flight to Greece to flee prosecution.
Among his charges, wire fraud provides for up to 20 years in prison and three years of supervised release; aggravated ID theft provides for two years in prison to be served consecutively to the sentence imposed for wire fraud and a year of supervised release; and filing false returns provides for up to three years in prison and a year of supervised release. All three also carry a fine of up to $250,000 or twice the gross gain or loss, whichever is greater. Sentencing is Feb. 23.
Seffner, Florida: Tax preparer Thomas Johnson has pleaded guilty to one count of aiding in the filing of false returns.
For tax years 2014, 2015 and 2016, he worked for a tax prep business where, to maximize clients' federal refunds, he prepared 1040s that falsely reported fictitious educational expenses. Many other returns that he prepared contained fictitious information for Schedules C.
Tax loss from the single false return to which he pleaded guilty is nearly $14,000. The tax loss for other tax returns that Johnson had a role in preparing, and which contained similar false statements, is some $188,940. He also caused large tax losses from many other returns that contained false education credit entries.
Johnson faces a maximum of three years in prison.
Peoria, Arizona: Clothing store owner Sung Hwan Lee, 64, has been sentenced to two years in prison, to be followed by three years of supervised release, after previously pleading guilty to tax evasion.
Lee owns and operates BBB Fashion, a chain of stores in and around Phoenix and Tucson, Arizona. Between 2012 and 2016, he schemed to avoid paying taxes he owed on income. At his direction, his employees gave him the cash received from sales and then prepared false sets of records omitting the cash receipts.
Lee underreported his income for tax years 2012 through 2016 by $9,355,894, resulting in a federal tax loss of $3,696,786.
BBB's bookkeeper, Young Bok Lee, previously pleaded guilty to conspiracy to defraud the United States and is scheduled to be sentenced on Dec. 1.
Strongsville, Ohio: Dentist Douglas Smith has been convicted of attempting to evade payment of income taxes.
From March 2006 to July 2016, Smith attempted to evade paying income taxes for the tax years 2004 to 2012. He placed his assets, including a home, into a trust, purchased gold bars and coins and filed for bankruptcy. From 2014 to 2017, Smith again attempted to evade paying income taxes by depositing his paychecks in the bank account of a second holding trust. Smith had failed to file an income tax return since 1992 and owed more than $490,000 in federal back taxes and penalties.
In April 2008 and March 2009, the IRS notified him of its intent to collect taxes owed. Around 2006, Smith began to transfer his assets into a trust that he controlled to evade the collection of taxes and payment of his mortgage. In October 2010, the IRS filed a tax lien against Smith, his trust and its trustee. In August 2011, the IRS again sent Smith a letter notifying him that their next action was to recommend administrative seizure and sale of any of his assets to satisfy the federal liens.
In January 2012, federal authorities seized some $250,000 in cash, gold bars, and gold and silver coins from Smith's home for non-payment of income taxes to satisfy federal tax liens. After the seizure, Smith purported to transfer all his assets, including his home, to a second trust to defeat collection efforts and avoid foreclosure of his home.
The IRS continued to attempt to collect unpaid income tax from Smith and, around December 2015, served a levy on Smith's employer. Smith then filed for bankruptcy and made false statements about his assets to shield them from IRS collection.
Sentencing is Feb. 7.
Charleston, South Carolina: Tax preparer David Washington, 55, has pleaded guilty to aiding and assisting in the preparation of fraudulent income tax returns.
Washington operated a scheme of claiming false business losses and inflating refunds for taxpayers whose returns he was preparing to offset reported income. Clients provided correct tax information to him with the expectation that he would accurately file the returns.
Washington faces up to three years in prison and a fine of $250,000.
Taos, New Mexico: Resort exec Diane Mariani has been sentenced to three months in prison and nine months of home detention for failure to collect or pay over tax.
Until 2015, Mariani was co-owner, operator and treasurer of Taos RPM, and beginning in 2015 was co-owner, operator and treasurer of Mountain Resort Management, d.b.a. Snakedance Condominiums, Bumps Market and Hondo Restaurant. Mariani was responsible for paying employees of Snakedance and Mountain Resort and knew she had a duty to withhold federal income taxes. From 2015 through 2018, she withheld at least $203,137 in trust fund taxes from the employees she paid and failed to pay those taxes to the IRS.
Upon completion of her prison and home detention sentence, Mariani, who previously pleaded guilty, will be subject to three years of supervised release. She was also ordered to pay $203,137 in restitution for the IRS and a $150,000 fine.
