Bait, switch and threaten; power corrupts; Herbal remedy; and other highlights of recent tax cases.
Jacksonville, Florida: Tax preparer Kenyan Shondre Scott has been sentenced to 18 months in prison for aiding and assisting others with the filing of fraudulent returns and for filing fraudulent returns on his own behalf.
Scott owned and operated a local prep business, which he had opened in 2009. Between February 2014 and April 2018, he prepared and filed returns for others in which he falsely claimed, among other things, that the taxpayers had owned businesses and had incurred deductible business expenses, were entitled to general business tax credits and educational tax credits, and had incurred deductible unreimbursed employee expenses.
On his own returns, Scott also underreported the income he had earned from his tax prep business in 2013 to 2016.
Scott, who pleaded guilty in February, was also ordered to pay restitution to the United States for a tax loss of $553,403.
New York: Construction exec Bilal Salaj of Morganville, New Jersey, has been sentenced to 19 months in prison for tax fraud.
Salaj, who previously pleaded guilty, operated a construction business in Manhattan. Initially he was the record owner of the business, but around July 2014 began operating the business under a new entity that, on paper, was wholly owned by a third party who worked for Salaj. He continued to exercise principal control and decision-making authority over the business, including accounting for and paying over federal payroll taxes.
Salaj schemed to evade a substantial portion of both the payroll taxes for the construction business and his personal income taxes for 2014 through 2018. He cashed or had cashed some $3.2 million in business checks payable to the construction company instead of depositing them into the company’s bank account. Salaj and a conspirator used a portion of that money to pay cash wages to employees of the construction business and spent most of the rest on personal expenses. Salaj did not withhold or pay over to the IRS any payroll taxes on the cash wages and did not report to the IRS or pay any personal income taxes on his cash income. He also withheld from his accountant any records relating to the cashed checks.
The scheme resulted in a federal tax loss of some $952,778.
He was also ordered to pay $952,778 in restitution to the IRS and ordered to serve three years of supervised release.
Chicago: Su Familia Income Tax has been ordered to pay more than $100,000 in restitution to 59 Illinois clients and is prohibited from misrepresenting the cost of services or taking payment from clients’ refunds.
The consent decree resolves a lawsuit the state attorney general filed against the preparer in 2018.
Su Familia offered tax prep for about $150 but signed consumers up for unnecessary and expensive tax-related financial products and deducted significant additional fees from refunds without clients’ knowledge. These undisclosed fees were typically $500 per person but could range up to more than $1,000, and in some cases, accounted for more than half of a client’s expected refund.
Su Familia gave clients fake returns showing a lower refund. When clients discovered the inconsistency and confronted Su Familia, the company threatened legal action.
The company is prohibited from advertising or performing tax prep services where the company is compensated with any proceeds from any refund anticipation check or refund anticipation loan. It also can’t misrepresent the cost of services, the manner by which clients can pay for services or the amount of the client’s expected federal refund. Su Familia must give clients an itemized bill that includes the total cost of services prior to or at the time of service and a copy of the finalized, signed return prior to filing.
For three years, Su Familia must also maintain a log of tax prep services the company provides to Illinois clients.
New York: Health care executive Chaim Stern, of Flushing, New York, has been sentenced to 30 months in prison, followed by three years of supervised release, for embezzlement and tax offenses.
Stern was the principal operator of three health care centers in Connecticut. Between approximately 2011 and 2018, he stole some $4.1 million from the pension plan of one of the operations, principally by diverting money to a purported charity that Stern controlled, as well as to himself and others. His other offenses included diverting more than $300,000 from an insurance plan and failing to pay millions in other health insurance claims.
From at least January 2017 through March 2018, Stern also failed to pay over employment taxes; the tax loss totaled $4,356,409.85.
Stern, who pleaded guilty in early 2020, has made some $4.1 million in criminal restitution. He has been ordered to pay additional restitution to victims and has agreed to pay some $2.4 million in restitution to the IRS.
Philadelphia: Luis Veras-Velasquez has pleaded guilty to aggravated ID theft related to a scheme to steal income tax refunds.
Veras-Velasquez possessed numerous documents containing the names, dates of birth and Social Security numbers of victim taxpayers. IRS records show that more than 20 of those identities were used to seek refunds without the knowledge or authorization of the taxpayer named on the return.
Veras-Velasquez fled to the Dominican Republic, where he remained for five years. Last September, he boarded a flight from the Dominican Republic to Mexico and was arrested.
He faces two years in prison.
Roanoke, Virginia: Former American Electric Power employee Gregory Thomas Holland has pleaded guilty to wire fraud and filing false tax returns.
He was employed at American Electric from 1982 until 2018, where he worked for many years in the credit department. Holland admitted that in 2001 he opened a personal checking account using the company’s name and address unbeknownst to anyone at the company. Beginning in May 2002, Holland began depositing checks into this account, written on behalf of AEP customers, and made payable to American Electric. Between May 2002 and January 2018, Holland deposited more than 300 checks into the account and used the money for such personal expenses as country club dues, car payments and clothing purchases.
He stole some $1.6 million dollars from American Electric, none of which he reported on his 1040s for 2011 through 2017.
Sentencing is Sept. 10. He faces a maximum of 20 years in prison.
Milton, Massachusetts: Deana Martin, 53, former owner of an illegal marijuana delivery service, has pleaded guilty to tax evasion, conspiracy to distribute marijuana, possession of marijuana with intent to distribute, and money laundering.
Martin owned and managed Northern Herb, which operated from 2015 to 2018. While Northern Herb purported to sell medical marijuana, it did not require a customer to provide proof of a medical marijuana card; allegedly Northern Herb also delivered marijuana to locations where third parties might have access to it. Northern Herb employed at least 25 workers and from May 2016 through July 2018 had revenue exceeding $14 million. Northern Herb did not pay taxes on its profits nor withhold taxes due from employees’ wages. Martin paid many of the employees in cash and did not collect or pay the IRS withholdings due nor file federal reports documenting payments to employees and independent contractors.
Sentencing is Sept. 1. On the tax count, Martin faces a maximum of five years in prison and a maximum fine of $100,000. She faces a maximum of up to 20 years in prison and a maximum fine of $1 million on the drug counts and a maximum of 20 years in prison and a maximum fine of $500,000 or twice the value of the money laundered on the money laundering counts. Martin also faces restitution and forfeiture.
