Refund madness; without oversight; waste not, definitely want not; and other highlights of recent tax cases.
Pittsburgh: Ephrem F. Lijalem, a resident of Carpentersville, Illinois, and operator of tax refund stores in Pittsburgh, has pleaded guilty to aiding or assisting in the preparation or filing of false federal income tax returns.
Lijalem operated Cititax Tax Refund stores; he and taxpayers defrauded the IRS out of $7.2 million in illegal refunds. The government maintained that Cititax preparers at stores owned by Lijalem in Pittsburgh regularly falsified Schedules C for clients with non-existent business, inflated income, and altered expenses to maximize refunds.
Sentencing is May 31. He faces a total sentence of six years in prison, a fine of $500,000 or both.
Alamogordo, New Mexico: Nonprofit exec and CPA firm partner Marion L. Ledford, 67, has been sentenced to a year and six months in prison for tax evasion after submitting a personal income tax return in 2016 that substantially underreported his taxable income for 2015.
Ledford, who pleaded guilty in 2019, was a director for the Robert W. Hamilton Foundation, a nonprofit providing scholarships to high school graduates in Otero County, New Mexico. He controlled the foundation’s finances without oversight. For more than five years, Ledford wrote checks to himself totaling $1,785,300 from the foundation’s accounts.
He filed returns, prepared by the CPA firm where he was a partner, for 2011 to 2016 that reported some of his income but he provided no information regarding the receipt of this additional income and did not report the additional money he embezzled.
In addition to stealing from the foundation, Ledford avoided payment of $629,289 in taxes owed to the U.S.
After his prison term, Ledford will be subjected to three years of supervised release. He was also ordered to pay $1,785,300 in restitution to the Hamilton Foundation and will pay $629,289 to the IRS.
Seattle: Hyung Il Kwon, an owner of TK Mac, a company that owned and operated two smoke shops in the state of Washington, has been sentenced to 26 months in prison.
Kwon, of Henderson, Nevada, schemed to cheat Washington out of more than $10 million in tobacco excise taxes. He also evaded more than $850,000 in federal income taxes. At sentencing, the judge noted that Kwon has a prior state conviction from a similar tobacco fraud and said Kwon has “almost no respect for the law whatsoever when it gets in the way of making money.”
Between 2009 and 2017, Kwon engaged in two schemes that involved two tribal smoke shops on the Puyallup Reservation that sold significant quantities of tobacco products to TK Mac, the non-tribal tobacco distributor. Most of the sales were in cash, and TK Mac failed to report the purchases to the state.
Beginning in 2013 and continuing until 2017, Kwon and his conspirators engaged in a money-laundering scheme: The two tribal smoke shops wrote checks to TK Mac as if the shops had purchased tobacco products from the non-tribal store. In fact, TK Mac simply provided the tribal smoke shops with large amounts of cash equal to the checks. No tobacco products changed hands but TK Mac received an excise tax credit.
Washington suffered losses of more than $10 million.
The president of the company that owns the tribal smoke shops, Anthony Edwin Paul, was recently sentenced to 14 months in prison and a $5,000 fine and ordered to pay $1,764,818 in restitution. Paul’s subordinate, Theodore Kai Silva, who operated the scheme on behalf of the tribal smoke shops, has been sentenced to four years of probation with six months of home confinement, and been ordered to pay $25,000 in restitution. Kwon’s conspirator and business partner Tae Young Kim will be sentenced this month.
The government has seized more than $5 million from Kwon and Kim. Kwon has also been ordered to pay a $10,000 fine and $5,098,249 in restitution to the Washington State Department of Revenue, plus restitution to the IRS.
Gig Harbor, Washington: Jeffrey Zirkle, former exec of an electronics recycling firm, has been sentenced to six months in prison for tax fraud.
He was the owner and co-CEO of Total Reclaim, a recycler of electronic waste. In 2019, Zirkle was sentenced to 28 months in prison for defrauding clients by secretly exporting electronic waste to Hong Kong despite presenting his business as an environmentally friendly recycling service.
This recent, second criminal case stems from Zirkle using company funds to pay for his personal expenses and failing to report the transactions on his income tax returns.
Following the prosecution of Zirkle and his partner for fraud, a new CEO took over Total Reclaim. That executive discovered Zirkle had embezzled by charging hundreds of thousands of dollars in personal expenses on company credit cards. Investigation determined that as much as $480,000 went for personal items and that Zirkle never reported those benefits on his income tax returns.
Many of the charges involved the purchase of luxury goods: more than $4,000 at Louis Vuitton Las Vegas, $4,000 as a down payment on a motocross bike and more than $15,000 for the partial payment of a vintage 1966 Chevrolet Chevelle. Zirkle also spent more than $17,000 in corporate funds on a single day to purchase home appliances and more than $15,000 on a home irrigation system. Even after his sentencing on the fraud charges in April 2019, Zirkle continued to use the corporate credit card for his own expenses.
In October 2021, Zirkle pleaded guilty to filing false returns from 2008 to 2017. He negotiated a settlement with Total Reclaim regarding the expenses and was ordered to pay $125,549 in restitution for the tax loss.
In the earlier case, an EPA investigation concluded that Total Reclaim had secretly exported millions of pounds of monitors containing toxic materials such as mercury. Zirkle and his co-defendant had concealed this by submitting fraudulent documents to auditors and customers and had falsified more documents when the practice was discovered.
Zirkle will be on 18 months of supervised release following his prison term.
West Des Moines, Iowa: Resident Jeffrey Allan Kock has been sentenced to 97 months in prison for multiple federal offenses, including money laundering and making false claims for tax refunds.
Kock, convicted in September, made false claims for refunds on two 1041s. He fraudulently requested federal refunds of $20,671 and $10,921,192, which were initially paid. He used some of the money to purchase three luxury automobiles, which were eventually seized by the IRS. Kock also tried but failed to purchase an expensive home.
Shortly after the second fraudulent refund was paid, the IRS recovered most of the fraudulently obtained proceeds.
Kock worked in the local restaurant and bar industry during 2014 to 2018, earning sufficient income to require filing individual income tax returns. IRS records showed that Kock did not file individual returns for these years.
The court also ordered $404,440.85 in restitution and a special assessment of $925.
Minden, Louisiana: Tax preparer Deborah Cooksey, 56, has been sentenced to two years in prison to be followed by a year of supervised release for filing false returns.
Cooksey, who pleaded guilty in September, owned and operated Cooksey’s Tax and Notary Services, the primary business of which was the preparation and e-filing of individual income tax returns. She received all fees from the preparation and filing of client’s individual tax returns into a business account under the name of Cooksey’s Tax and Notary Services. She did not report all fees earned from the preparation and filing of clients’ returns during tax years 2013 and 2014.
In April 2015, she prepared and e-filed her own 1040 for 2013 on which she reported Schedule C income of $522,662. In fact, she knew her gross income for 2013 was $1,356,682.
Cooksey agreed to be permanently enjoined from preparing, assisting, advising or counseling in the preparation or filing of federal returns for anyone other than herself. She is prohibited from maintaining any association with a tax prep business, or instructing, teaching or otherwise training any person in the preparation of federal returns. She was also ordered to pay $547,043 in restitution.
