Convoy con; now needs counsel; third time’s the charm; and other highlights of recent tax cases.
Jacksonville, Florida: Gregorio Jose Fuentes-Zelaya of Orlando, Florida, and Dennis Alexander Barahona of Chelsea, Massachusetts, have pleaded guilty to conspiracy to commit wire fraud and conspiracy to commit tax fraud.
The pair established shell companies that purported to be involved in the construction industry. They obtained workers comp policies in the name of the shell companies to cover a minimal payroll for a few purported employees, then “rented” the insurance to work crews who had obtained subcontracts with construction contractors on projects in various Florida counties. Fuentes-Zelaya and Barahona sent the contractors a certificate as “proof” that the work crews had workers' compensation insurance, as required by Florida law.
The contractors issued payroll checks for the workers’ wages to the shell companies and the conspirators cashed these checks, then distributed the cash to the work crews after deducting their fee of some 6 percent of the payroll. The conspirators cashed payroll checks totaling some $22,793,748, with their fees totaling about $1,367,625. Neither the shell companies nor the contractors reported to government authorities the wages that were paid to the workers, nor did they pay either the employees’ or the employers’ portion of payroll taxes.
The estimated amount of payroll taxes due on wages totaling $22,793,748 is $5,766,286.
Fuentes-Zelaya pleaded guilty to five counts of wire fraud and two counts of tax fraud. Barahona has pleaded guilty to one count of wire fraud and one count of tax fraud. Each wire fraud count carries a maximum of 20 years in prison and each tax fraud count carries a maximum of five years. The pair also owe some $5,766,286 in restitution for the tax fraud; the U.S. will also seek forfeiture of $1,367,625, the approximate amount of proceeds obtained as a result of the wire fraud offenses, as well as funds seized from two bank accounts used in the scheme, with balances totaling $230,764.
Brockton, Massachusetts: Preparer Jose Miguel Spinola, 51, has been sentenced for preparing false returns for others as well as filing a false return for himself.
Spinola was sentenced to two years of probation, with the first six months in home detention, and ordered to pay $284,917 in restitution.
Last year, he pleaded guilty to
Between 2014 and 2017, Spinola prepared and filed income tax returns for clients that contained false, inflated and incorrect information. He added inflated and ineligible expenses to his clients’ Schedule A deductions for medical and dental expenses and unreimbursed employee business expenses, including meals and entertainment, business miles and work apparel. Spinola informed clients of the total tax refund they would receive from the IRS without telling the clients about the false expenses.
Pflugerville, Texas: Nicky Osborne, 50, a former trucking company CFO, has been sentenced to 46 months in prison for a fraud and tax evasion scheme.
Osborne, who previously pleaded guilty, admitted that while employed at Bison Global Logistics between 2012 and 2017 she schemed to submit false and inflated receivables to financing companies. Osborne also earned a substantial income at Bison and failed to report commissions from her fraud scheme as income.
She was also ordered to pay $596,425 in restitution to the IRS and $7,479,179.39 in restitution to ProBilling and Fund Service of Alabama. She will serve five years of supervised release after her prison term.
New York: City Council member Chaim Deutsch, 52, of Brooklyn, New York, has pleaded guilty to filing a false return in connection with outside income he received from his real estate management corporation.
Since 2014, Deutsch has served as the New York City Council member for the 48th District, which includes portions of Brooklyn. During at least a portion of that time, Deutsch was the sole owner of Chasa Management Inc., a real estate management business. Around March 2016, he filed a personal return for 2015 that included false and fraudulent information concerning his income and business expenses in connection with operating Chasa.
Since 2017, New York City Council members have been prohibited from earning most outside income.
In total, during the tax years 2013 through 2015, Deutsch’s failure to pay taxes on his income from Chasa evaded some $82,076 in federal taxes.
Sentencing is July 29. The charge carries a maximum of a year in prison, a maximum of a year of supervised release, a maximum fine of $100,000 and an order of restitution. Deutsch has agreed to restitution of at least $82,076.
Allentown, Pennsylvania: Resident Julio Polanco Suarez has been sentenced to 70 months in prison for conspiring to defraud the government and for aggravated ID theft.
Suarez, a citizen of the Dominican Republic, pleaded guilty to conspiring to defraud the government between March 2009 and September 2016. He and his conspirators obtained fraudulent U.S. Treasury checks by stealing victims’ identities and filing false returns that generated significant refunds. Suarez admitted that $1.5 million to $3.5 million in losses to the U.S. Treasury occurred.
Suarez faces deportation at the conclusion of his sentence of imprisonment. He was also ordered to pay $1,189,256.50 in restitution.
Three others have been convicted and sentenced in the investigation.
Suwanee, Georgia: A federal court has permanently enjoined tax prep services owner Tiffany Nakia Expose from preparing federal returns for others.
The complaint filed in the case alleged that Expose of Buford, Georgia, owned and operated Expose Tax & Financial Services Inc. and that she prepared returns that understated tax liabilities or overstated refunds, or both. Schemes included understating business income by fabricating or inflating reported business losses, fabricating or overstating itemized deductions, and claiming unsupported education credits.
Expose prepared and filed hundreds of false returns despite two attempts by the IRS to bring her into compliance, both of which resulted in penalties.
Claremont, New Hampshire: Residents William and Kelly Cote have pleaded guilty to conspiracy to defraud the IRS.
From 2011 through 2016, the Cotes filed false returns using the identities of Kelly’s sons and William’s stepsons while the sons were deployed overseas for the U.S. military; the returns collectively covered tax years 2011 through 2015. The Cotes falsely listed the sons as heads of households on the returns and deposited the refunds into their own joint bank account.
In 2013, the IRS audited the false 2012 return. During a call with the auditor, William impersonated one of the sons to discuss the details in the false 2012 return. That same day, the couple prepared and faxed an auditor lease agreement that falsely stated that one of the sons rented William and Kelly’s home.
The Cotes, who have pleaded guilty, received more than $36,700 in fraudulent refunds.
Alice, Texas: Preparer Tiffany Phenix has entered a guilty plea to aiding and assisting in the preparation of a false individual return.
She prepared returns for others at Phenix Tax Service and, as part of her plea, stipulated that she prepared 37 false income tax returns for clients and four false income tax returns for herself, resulting in an intended tax harm to the IRS of more than $284,000.
Phenix admitted preparing a false 2015 income tax return for a taxpayer which included creating a false W-2. She also claimed false wage amounts, a false Earned Income Tax Credit and a false refund.
Phenix agreed to pay restitution to the IRS. Sentencing is July 22, when she faces up to three years in prison and a possible $250,000 fine.
