The following examples of abusive tax schemes are written from public record documents on file in the courts in the judicial district in which the cases were prosecuted.

Former Investment Advisor Sentenced to 40 Months in Prison

On September 2, 2009, in Dallas, Texas, Lanas Evans Troxler, a licensed investment advisor and estate planner, was sentenced to 40 months in prison and ordered to pay a $10,000 fine. According to court documents, as a licensed investment advisor and estate planner, Troxler sold financial and tax advice to his clients. Troxler did business as Trust Management Services, Troxler Insurance Agency, Contingent Liability Services, Troxler Financial Services, and Troxler Advisory Services and operated these businesses from at least 1998 through 2002. Troxler was convicted in April 2008 of corruptly endeavoring to obstruct and impede the due administration of the Internal Revenue laws, attempting to evade and defeat tax, and assisting in the preparation and presentation of false and fraudulent tax returns. The tax loss from Troxler’s activities was more than $630,000.  At trial it was proven that beginning in November 1997, Troxler set up a complex series of sham offshore entities in the Turks & Caicos Islands for himself and his clients to make the income appear to be foreign-earned. Troxler and his clients retained full control over their assets, businesses, and income earned from them, and the income was taxable and should have been reported on their respective federal individual and business income tax returns. Trial evidence showed that Troxler sent a series of letters to an IRS Special Agent and a former IRS Commissioner stating among others things that he was not a U.S. citizen but an inhabitant of Texas, a Republic established by the Spanish Land Grant.

Northwest Indiana Businessman Sentenced for Using Sham Trusts to Evade Taxes

On August 31, 2009, in Fort Wayne, Ind., Donald Sikma, a businessman from Dyer, Ind., was sentenced to 24 months in prison.  Sikma pleaded guilty in June 2009 to one count of filing false tax returns for the 1998 tax year.  According to court records, Sikma sheltered millions of dollars of income using a tax avoidance scheme promoted by the now-defunct Aegis Company.  As part of this scheme, Sikma transferred portions of his income to an offshore trust.  Sikma failed to report this income on his individual income tax returns.  Using the offshore Aegis trust and other sham trusts, Sikma fraudulently avoided paying at least $1.13 million in federal income taxes.  According to the plea agreement, Sikma has paid approximately $3.5 million in federal and state back taxes, including penalties and interest, and has agreed to cooperate with the IRS in continuing assessments.

West Virginia Resident Sentenced to 5 Years for Conspiring to Defraud the Internal Revenue Service

On August 31, 2009, in Clarksburg, W.Va., Booker T. Walton was sentenced to 60 months in prison to be followed by three years of supervised release.  Walton pleaded guilty on March 2, 2009, to one count of conspiracy to defraud the Internal Revenue Service (IRS) from November 1994 through October 20, 2003. Walton, who owned and operated Walton & Associates Financial Services in Morgantown, promoted and established alleged trust systems for clients, counseling and advising such clients on the use of the “trusts” in such a manner to unlawfully divert and substantially understate taxable income, and thus evade assessment and payment of income taxes.  Evidence presented at the plea hearing showed that Walton sold Aegis Trust packages. Despite the appearance that these trust entities were independent as required by law, the clients retained use, management, and control of the funds purportedly placed in the various trusts and bank accounts. The system funneled monies through various bank accounts in nominee names in order to conceal income and the payment of taxes.

Minnesota Man Sentenced for Role in Conspiracy to Defraud Internal Revenue Service

On August 20, 2009, in St. Paul, Minn., Christopher Craig Robinson was sentenced to 20 months in prison, two years of supervised release, and ordered to pay $100 special assessment.  Robinson pleaded guilty in November 2008 to conspiracy to defraud the Internal Revenue Service (IRS). According to court documents, from June 2001 through October 2004, Robinson and his co-defendants conspired to defraud the U.S. by impeding and obstructing the lawful functions of the IRS, impaired the collection of income taxes, and aided and assisted in the preparation of false tax returns. The conspiracy involved two false return schemes and a third scheme to defraud the U.S. through false non-profit organizations. In the false return schemes, the defendants prepared tax returns for themselves and others in which, despite earning income, the defendants and their clients attempted to pay no taxes and, instead, claimed fraudulent refunds by declaring all or nearly all of their earnings as tax deductible. Some of their returns were accompanied by declarations in which the defendants and others stated their wages were not taxable income. As part of the scheme to defraud the government through the use of false non-profits, the defendants structured their own businesses and the businesses of their clients as limited liability corporations, purportedly owned by non-profit organizations. The corporations then distributed their profits among bank accounts held by those organizations, which did not file tax returns or pay taxes. In reality, however, the bank accounts were controlled by the defendants or the defendants’ clients, and those clients then used that untaxed money to pay for personal expenses. The defendants charged their clients fees to participate in the various schemes. The defendants also charged and, in a few cases received, a percentage of any refund their clients obtained.

Georgia Chiropractor Sentenced for Tax Fraud

On August 18, 2009, in Atlanta, Ga., Michael J. Falite, of Cumming, Georgia, was sentenced to 24 months in prison, one year of supervised release, and ordered to pay $216,038 in restitution.  Falite pleaded guilty in June 2009 to charges of filing a false tax return.  According to court documents, Falite owned and operated “Falite Family Chiropractic,” based in Alpharetta, which was incorporated as an LLC in 2000. In 2002, Falite filed a tax return for the chiropractic practice using a fraudulent trust scheme. The 2002 tax return attributed 90-percent of the income from the chiropractic clinic to a non-existent company known as “Abundance Investments.” No tax return was filed by or on behalf of Abundance Investments, and no tax was paid on the income attributed to that company on the Falite Family Chiropractic tax return. Bank account records showed that Falite wrote checks from the chiropractic practice to Abundance Investments and other non-existent companies, which he then endorsed and deposited into bank accounts in names other than his own or Falite Family Chiropractic. The non-existent companies other than Abundance Investments to which Falite wrote checks had names that were designed to make it appear that the checks were for legitimate business expenses, such as “Sunshine Personnel,” “Chiro Equipment Leasing,” “Quantum Office Equipment Leasing” and “World Travel Leasing.” Bank account records established that the monies from the checks made payable to the sham companies and deposited into these accounts were actually used to pay off the Falites’ home mortgage, to purchase or make payments on automobiles, to open a Vanguard investment account and to pay other personal expenses.

Former UBS Banker Sentenced to 40 Months for Aiding Billionaire American Evade $7.2 Million Taxes

On August 21, 2009, in Fort Launderdale, Fla., former UBS banker Bradley Birkenfeld, of Weymouth, Mass., was sentenced to 40 months in prison. On June 19, 2008, Birkenfeld pleaded guilty to conspiring to defraud the United States. According to court documents and statements made in court, Birkenfeld worked as a private banker in Geneva, Switzerland, for UBS AG, one of the country’s largest banks. While at UBS, Birkenfeld assisted an American billionaire real estate developer evade paying $7.2 million in taxes by assisting the developer conceal $200 million of assets hidden offshore in Switzerland and Liechtenstein.  While at UBS, Birkenfeld routinely traveled to and had contacts within the United States in an effort to assist wealthy Americans conceal their ownership in assets held offshore and therefore evade the payment of taxes on the income generated on the money hidden offshore.  In order to assist wealthy Americans who concealed assets at UBS, Birkenfeld admitted that he and others advised U.S. clients to place cash and valuables in Swiss safety deposit boxes; purchase jewels, artwork and luxury items using the funds in their Swiss bank account while overseas; misrepresent the receipt of funds from the Swiss bank account in the United States as loans from the Swiss bank; destroy all off-shore banking records existing in the United States; utilize Swiss bank credit cards that they claimed could not be discovered by United States authorities; and file false U.S. individual income tax returns that omitted income earned by their clients and fraudulently misrepresented that their clients did not have an interest in and signature authority over accounts held offshore.

Minneapolis Man Sentenced on Tax Charges

On August 18, 2009, in St. Paul, Minn., Douglas Earl Leiter, of Minneapolis, was sentenced to 121 months in prison and three years of supervised release. Leiter was convicted on December 9, 2008, by a trial jury on charges of conspiracy to defraud the Internal Revenue Service (IRS), aiding and assisting in the preparation of false tax returns and filing a false tax return.  According to the Indictment and evidence introduced at trial, from June 2001 through October 2004, Leiter and his co-defendants conspired to defraud the U.S. by impeding and obstructing the lawful functions of the Internal Revenue Service (IRS), impairied the collection of income taxes and aided and assisted in the preparation of false tax returns. The conspiracy involved two false return schemes and a third scheme to defraud the U.S. through false non-profit organizations. In the false return schemes, the defendants prepared tax returns for themselves and others in which, despite earning income, the defendants and their clients attempted to pay no taxes and, instead, claimed fraudulent refunds by declaring all or nearly all of their earnings as tax deductible. Some of their returns were accompanied by declarations in which the defendants and others stated their wages were not taxable income. As part of the scheme to defraud the government through the use of false non-profits, the defendants structured their own businesses and the businesses of their clients as limited liability corporations, purportedly owned by non-profit organizations. The corporations then distributed their profits among bank accounts held by those organizations, which did not file tax returns or pay taxes. In reality, however, the bank accounts were controlled by the defendants or the defendants’ clients, and those clients then used that untaxed money to pay for personal expenses. The defendants charged their clients fees to participate in the various schemes. The defendants also charged and, in a few cases received, a percentage of any refund their clients obtained.

Aegis Defendant Sentenced for Assisting in Preparation of Abusive Trust Arrangements

On July 15, 2009, in Chicago, Ill., David E. Parker was sentenced to 21 months in prison, to be followed by two years of supervised release, and ordered to pay a $100 assessment.  Parker was one of six individuals indicted in April 2004 for his participation in a conspiracy to market and sell sham domestic and foreign trusts through The Aegis Company.  The indictment states the defendants assisted some 650 wealthy taxpayer clients throughout the United States to hide hundreds of millions of dollars in income, resulting in a tax loss to the United States of at least $68 million. Under the Aegis system, a taxpayer would appear to transfer income and assets to a series of trusts designed to look like independent entities.  However, the taxpayer maintained complete control of the trusts and all the taxpayer's income, assets, and/or business.  Parker pleaded guilty in January 2008 to one count of conspiracy to defraud the United States.

Husband and Wife Sentenced on Tax Evasion Charges; Used Sham Trusts to Conceal Income

On July 10, 2009, in Buffalo, N.Y., Richard Drachenberg was sentenced to 40 months in prison to be followed by three years of supervised release.  Patricia O'Connor was sentenced to 18 months in prison to be followed by three years of supervised release.  In addition, both defendants were ordered to pay $216,929 in restitution.  Drachenberg and O'Connor, husband and wife, were convicted by a trial jury in February 2009 on charges of conspiracy to defraud the United States and tax evasion. According to evidence presented at trial, from 1996 to 2007, the defendants earned approximately $714,000 in income. During this time, they used various sham trusts to conceal this income from the Internal Revenue Service. Specifically, Drachenberg and O'Connor requested to be paid as independent contractors, directed all payment for their services be made to the sham trusts, and did not file any income tax returns. In total, for the years 1996 to 2007, the defendants have a tax deficiency of approximately $217,000.

New Jersey Computer Consultant Sentenced for Using Sham Trusts to Evade Taxes

On June 2, 2009, in Newark, New Jersey, James Najarian, a computer consultant, was sentenced to 12 months in prison, to be followed by three years of supervised release, and ordered to pay a $3,000 fine. On February 17, 2009, Najarian, pleaded guilty to count three counts of tax evasion. According to court documents, Najarian was employed as a computer consultant by SER Associates, LLC, a limited liability company registered in the State of Nevada, which Najarian owned. Through SER Associates, Najarian performed computer consulting services for LNS Systems, Inc., a company controlled by his sister.  LNS Systems made payment via check to SER Associates for consulting services performed by Najarian.  In an effort to conceal his personal income and evade the assessment and payment of tax, Najarian established and controlled two trusts, Hokee Consulting and YAR Group, as the sole partners of SER Associates, which functioned as mere shell entities to conceal Najarian’s receipt of income by SER Associates.  Najarian filed U.S. Partnership Tax Returns, Forms 1065, on behalf of SER Associates for tax years 2002 through 2005, in which he reported the income and expenses he had earned as a computer consultant, but attributed that income not to himself personally, but to the sham trusts.  Najarian failed to file personal income tax returns for himself during the years 2002 through 2005, even though he had received income of over $473,000 for consulting services performed through SER Associates during that time period, which resulted in over $112,000 in federal taxes due and owing.

Ohio and Michigan Tax Defiers Sentenced to Prison for Tax Offenses

On May 29, 2009, in Toledo, Ohio, Winfield Thomas, a resident of Carey, Ohio, and Jeanne Herrington, a resident of Parma, Mich., were sentenced to 30 months and 96 months in prison, respectively.  In addition to jail time, both Thomas and Herrington were sentenced to three years of supervised release.  In November 2008, a jury convicted Thomas and Herrington of conspiracy to impede the Internal Revenue Service (IRS). Herrington was also convicted of corruptly interfering with the administration of the internal revenue laws. Also sentenced was Chad Rickle, who pleaded guilty to conspiring with Thomas and Herrington.  Rickle received a sentence of four months in prison, four months of home confinement, and three years of supervised release.  According to the evidence presented at trial, Thomas and Herrington promoted and sold bogus financial instruments which they fraudulently stated could be used to pay tax liabilities of their clients. These fictitious financial instruments, referred to as ‘Bills of Exchange’ and ‘drafts,’ were purported to be worth thousands of dollars. The total amount of fictitious financial instruments related to the scheme was in excess of $28 million.  Trial evidence indicated that Thomas began marketing and selling abusive trusts as estate planning vehicles. He instructed trust participants to file false income tax returns that were prepared by co-defendant Chad Rickle which unlawfully assigned personal property and income to the trusts and then illegally deducted personal expenses as fiduciary and other fees. After the IRS sent the trust participants tax deficiency notices, Thomas instructed participants to ignore IRS correspondence, resulting in IRS tax assessments and the initiation of collection activities. Thomas and trust participants also sent false and threatening documents to the IRS in response to its collection efforts. Following the assessments made against their clients, Herrington and Thomas promoted the preparation and submission of fictitious financial instruments to the IRS as purported payment of outstanding tax liabilities. Herrington instructed the trust participants to open and then quickly close checking accounts and to use the account and routing numbers for those closed accounts on the bogus ‘drafts.’ Additionally, Herrington submitted false Forms 1099 to the IRS in October 2006, shortly after she was first indicted for tax crimes, in an effort to obstruct the prosecution. These Forms 1099 falsely reported that various individuals associated with the prosecution, including a Tax Division attorney and an Assistant U.S. Attorney in Toledo, Ohio, had received substantial amounts of income from Herrington.

Los Angeles Area Man Sentenced To Five Years in Prison for Tax Evasion

 On May 28, 2009, in Los Angeles, Calif., Giancarlo Pertile, the former owner of Art Marble Design Inc., in Moorpark, Calif., was sentenced to 60 months in federal prison and ordered to pay a $75,000 fine.  Pertile was convicted by a jury in January 2009 of five counts of tax evasion for the years 1998 through 2002. According to evidence presented at trial and at the sentencing hearing, Pertile did not report the profits from the operation of his business, Art Marble Design, on his personal income tax returns. As a result of his concealment of business receipts from his bookkeeper and his accountant, Pertile caused false and fraudulent corporate income tax returns to be filed with the Internal Revenue Service (IRS) which falsely understated his business income.  Additionally, Pertile filed individual income tax returns for the years 1998 through 2002 that falsely understated his taxable income. According to evidence presented at trial, Pertile paid only $1,200 in federal income tax from 1998 to 2002 despite earning over $850,000 from the operation of Art Marble Design during the same time period. Instead of reporting the profits from the business on his tax returns, Pertile deposited a substantial portion of the business income into additional bank accounts that he concealed from his bookkeeper, accountant and the IRS. As a result of Pertile’s conduct, he evaded the payment of approximately $247,000 in federal income tax between 1998 and 2002. At trial, Pertile unsuccessfully argued that his company’s business receipts were not taxable because the company was owned by a “pure trust.” Pertile also placed his home in the name of a ministry to conceal his ownership in the property from the IRS.

Former Aegis Trust Counsel Sentenced

On May 14, 2009, in Chicago, Ill., John Stambulis was sentenced to 24 months in prison to be followed by three years of supervised release, and ordered to pay any outstanding taxes due.  According to court documents, Stambulis, a Bridgeview attorney, was the chief trust counsel of Aegis, through which he allegedly assisted in the promotion, sale, establishment, and defense of Aegis trust systems.  In June 2004, a superseding indictment charged Stambulis, along with several other defendants, for participating in a nearly decade-long scheme to market and sell sham domestic and foreign trusts through, now defunct, The Aegis Company. In February 2008, Stambulis pleaded guilty to conspiracy to defraud the U.S. by impeding the Internal Revenue Service. 

Former City Corporate Counsel Attorney Sentenced for Marketing Sham Trusts

On May 11, 2009, in Urbana, Ill., John Wolgamot was sentenced to 12 months and 1 day in prison for his role in a tax fraud conspiracy that marketed and sold sham trusts to shelter taxpayers' income from the Internal Revenue Service (IRS).  In May 2007, a third superseding indictment charged Wolgamot, along with Brian Wasson and Joseph Starns, who died that year, with participating in marketing sham trusts that helped conceal taxpayer assets and income from the IRS.   According to the indictment, Wolgamot was a business associate of Wasson and the late Joseph Starns in Midwest Alternative Planning, a business created to promote the Aegis scheme.  The case stems from a broad federal investigation of sham trusts and business packages known as The Aegis Company of Palos Hills, Illinois.  The executive director and founders of the now-defunct Aegis company were convicted of tax fraud conspiracy.  In August 2008, pursuant to a sealed plea agreement, Wolgamot pleaded guilty to one count of aiding in the filing of a false tax return.  Following his sentence, Wolgamot will be on supervised release for 12 months.

Two Sham Trust Marketers and Former Congressional Candidate Sentenced

On April 30, 2009, in Peoria, Ill., three defendants convicted this summer of tax offenses were sentenced to prison terms. Kenton W. Tylman and Debra J. Hills, both of Charleston, Illinois, were convicted in July 2008 for participation in a tax fraud conspiracy that marketed and sold sham trusts and financial packages to shelter taxpayers’ income from the Internal Revenue Service. Tylman was sentenced to five years in federal prison; Hills was ordered to serve three years in prison. A third defendant, Brent A. Winters, of California, who was acquitted of the conspiracy charge but convicted of filing a false tax return, was ordered to serve 12 months in prison. Evidence presented by the government at trial showed that beginning in 1995, Tylman sold “trusts” and related financial arrangements for the Aegis Company in Palos Hills, Illinois. In 1998, Hills joined Tylman in the sale and promotion of the “trusts.” During 1999 and 2000, Tylman and Hills sold “trust” packages using the business names of Worldwide Financial Services and Worldwide Financial and Legal Association. Purchasers of the so-called “trusts” were charged as much as $40,000 for their services. Tylman and Hills received a percentage of the purchase price, as well as commissions and management fees. Winters, acquitted of the conspiracy, was convicted for filing a false U.S. Individual Income Tax Return for the 1998 tax year. The government presented evidence that Winters, an attorney who made an unsuccessful run for Congress in 1998, loaned $36,616.50 to his campaign fund when he was a candidate for the U.S. House of Representatives. Following his unsuccessful campaign, Winters claimed that he sold the uncollectible loan for $2,500 to “American Land and Mines Company,” a trust controlled by Winters and his wife. Winters then reported a capital loss of $34,117 as a deduction on his tax return; however, the law does not allow for deduction of a bad debt created by the sale to a related party. Further, there was no evidence that American Land and Mines Company ever purchased the loan.

Attorney Sentenced to Three Years in Prison, Fined $250,000 for Impeding the IRS

On April 17, 2009, in Salt Lake City, Utah, Thomas Wood, a practicing attorney from Cottonwood Heights, Utah, was sentenced to 36 months in prison and fined $250,000 for corruptly endeavoring to impede the Internal Revenue Service and failing to file federal income tax returns for two years. Wood was also ordered to pay $56,852 in restitution to the United States Treasury. According to the indictment and evidence presented at trial, from 1998 through 2002, Wood helped two individuals, Glenn Ambort and John Benson, hide millions of dollars in income. In those years, Ambort and Benson were awaiting trial in a federal prosecution for conspiracy to commit tax fraud. While assisting in their defense, Wood used several bank accounts that he held in trust to hide millions in income that Ambort and Benson were taking from the MyCor Investment Club.  To facilitate the use of this income without drawing the attention of tax authorities, Wood used non-interest bearing domestic trust accounts to receive and disburse funds, including one in the name of The Family Foundation, an entity he formed to help support the Goodman family, a popular singing group at the time. Wood also opened up and managed the use of offshore debit card accounts in the Bahamas for himself and others. Evidence showed that Wood had not filed a tax return since the 1980s. In the two years for which he was prosecuted, 2000 and 2001, his gross income was more than $180,000 and $56,000, respectively. The income came primarily from investor funds under his control in his nominee trust accounts that he used to pay for personal expenses.

Georgia Woman and Co-Conspirator Sentenced in Tax Conspiracy

On April 15, 2009, in Atlanta, Ga., Jacqueline Ann Demer, of Gainesville, Georgia, was sentenced to 63 months in prison, to be followed by three years of supervised release, and ordered to pay $315,829 in restitution and to pay a $15,000 fine.  Her co-conspirator, Jerry Robert Lahr, of Hurst, Texas, was sentenced to 37 months in prison, to be followed by three years of supervised release, and ordered to pay $1,115,444 in restitution. In addition, Lahr has also filed corrected income tax returns through the current tax year.  In December 2008, Demer was convicted by a trial jury on charges related to a scheme to impede the Internal Revenue Service (IRS) in its collection of income taxes.  Lahr pleaded guilty in December 2008 to conspiracy to impede the IRS. According to information presented in court: Between December 2001 and 2006, Demer performed banking and clerical services for Lahr. Demer, using the alias “Jessica Dalton,” mailed five false and fictitious obligations, captioned “Bond[s] to discharge attachment for debt,” to the IRS in October 2003.  These false bonds were submitted as purported payment of Lahr’s tax liabilities, penalties, and interest for the years 1996 through 2000.  Lahr had gross income totaling approximately $2,600,000 for tax years 1996 through 2003, but didn’t file federal income tax returns or make any payments to the IRS for those tax years. Lahr and Demer conspired to conceal Lahr’s assets, income, and expenditures through the use of bank accounts and shell “trust” entities, all in nominee names. The evidence at trial also established that Demer used at least 30 different business names and post office boxes in seven different locations, some of which were opened with a fraudulent identification card in the name of her alias, Jessica Dalton. Additionally, Demer served as the trustee for various shell entities set up to conceal Lahr’s ownership of assets, such as real property and automobiles. Evidence also showed that Demer had not filed a federal tax return since at least 2002.

Little Rock Attorney Sentenced for Aiding and Abetting Tax Evasion

On April 14, 2009, in Little Rock, Ark., Barry J. Jewell, an attorney, was sentenced to 30 months in prison, to be followed by three years of supervised release, and ordered to pay a $25,000 fine and to pay $4,202 to cover a portion of the cost of prosecution.  Jewell was found guilty by a trial jury on September 19, 2008, of causing his clients to file a tax return with the Internal Revenue Service (IRS) under-reporting their actual income for the year by approximately $1.8 million.  According to court documents, Jewell created a fraudulent business transaction to substantiate the false return, which resulted in a tax loss to the government of over $700,000.  Jewell created a profit sharing trust in which to conceal income from the IRS.

Former Senior Manager at KPMG, Former Partner at KPMG, and Partner in Law Firm Sentenced in Tax Shelter Fraud Case

On April 1, 2009, in Manhattan, N.Y. John Larson, Robert Pfaff, and Raymond J. Ruble, aka R.J. Ruble, were sentenced on charges stemming from a scheme to design, market and implement fraudulent tax shelters that were used to evade more than a billion dollars in taxes due by their tax shelter clients. Larson, a former senior manager at KPMG, was sentenced to 121 months in prison and ordered to pay a $6 million fine; Pfaff, a former partner at KPMG, was sentenced to 97 months in prison and ordered to pay a $3 million fine; and Ruble, a partner at the law firm of Brown & Wood, was sentenced to 78 months in prison. In addition to the prison terms and fines, Larson and Pfaff are to serve three years of supervised release; Ruble is to serve two years of supervised release.  The Judge scheduled a hearing in June 2009 to determine restitution. All three defendants had been found guilty on December 17, 2008, following a ten-week jury trial, of multiple counts of tax fraud.  According to court documents, Larson and Pfaff were the founders and partners in Presidio Advisory Services, which purported to be an "investment advisor" for various tax shelter products.  Trial evidence showed that from at least 1998 through 2000, Larson, Pfaff and Ruble were involved in the design, marketing, and implementation of a tax shelter known as BLIPS. The defendants represented that BLIPS could be used to completely eliminate either the capital gains or ordinary income tax of tax shelter clients who had at least $20 million in income in that year, purporting to eliminate millions of dollars in taxes otherwise due and owing.  The Court found, as relevant to sentencing, that all of the BLIPS tax shelters combined resulted in a tax loss to the U.S. Treasury of almost one billion dollars.

Pennsylvania Father and Sons Sentenced in Tax Fraud Scheme

On March 26, 2009, in Scranton, Pa., Wendall Sollenberger was sentenced to 42 months in prison and ordered to pay $1,274,615 in restitution to the Internal Revenue Service (IRS).  Last week, Avery Sollenberger, Wendall's father, was sentenced to 44 months in prison and Gary Sollenberger, Wendall's brother, was sentenced to 42 months in prison.  In September 2008, a jury found Avery, Wendall, and Gary Sollenberger guilty of conspiracy to defraud the IRS.  According to court documents, the Sollenbergers own and operate a house framing business in Hanover, Pennsylvania. Evidence introduced at trial stated that beginning in 1994, Wendall, Gary and Avery began to employ a deceptive scheme consisting of bogus trusts, a foreign corporation and an off-shore bank account in Cyprus to conceal assets from the IRS. The three men have not paid any income tax on their business earnings since 1994. During the trial, the government also introduced evidence of defendants expenditures including the purchase of a $100,000 race car, a $40,000 custom made motorcycle, a motor boat, gold, silver, rental properties, a second home in Altoona, Pennsylvania, and hunting trips to Idaho.

Sixth Aegis Company Principal Sentenced to 10 Years in Prison for His Part in Firm’s $60 Million Tax Fraud Conspiracy

On March 24, 2009, in Chicago, Ill., Edward B. Bartoli, a Clearwater, Fla., resident and former attorney, was sentenced to 10 years in prison for tax fraud conspiracy, aiding and assisting in the filing of false returns, tax evasion, mail fraud, and wire fraud. Bartoli was a founder of Aegis and its legal director. He and his co-defendants carried out a decade-long scheme to market and sell sham domestic and foreign trusts through the Aegis Company to 650 wealthy taxpayer clients. According to court documents and evidence introduced at trial, the tax fraud scheme used a network of promoters, sub-promoters, managers, attorneys and accountants and resulted in a $60 million dollar tax loss to the United States. Aegis, which is now defunct, was formerly based in Palos Hills, Ill. Bartoli and his five co-defendants were convicted following an 11 week trial.  The defendants were indicted in 2004, following a lengthy undercover investigation by IRS agents, code-named "Operation Trust Me," and the seizure of roughly 1.5 million documents, computer files and related materials. Nationwide, the Chicago-based investigation resulted in convictions of more than 30 defendants and charges against approximately 30 other defendants around the country.

Former Morgan Hill Man Sentenced to 27 Months in Prison for Tax Fraud

On March 18, 2009, in San Francisco, Calif., David Marion Simcho was sentenced to 27 months in prison, followed by three years of supervised release and ordered to pay $111,769 in restitution for his role in marketing and promoting a fraudulent trust package to eliminate or reduce tax liability. Simcho pleaded guilty on June 2, 2008 to one count of aiding or assisting in the preparation of a false income tax return and one count of income tax evasion. According to the plea agreement, Simcho admitted that in 1999 he marketed and sold a trust package to a client and represented it as a legitimate means to eliminate or reduce tax liability when he knew otherwise. The trust package transferred the title of the client’s personal assets into the name of the trust. The client then became the “manager” of that trust. The client remained in control over all assets that were in the name of the trust. Simcho then prepared an amended 1999 federal income tax return for the client which contained false items including a false Schedule C claiming $166,249 in personal expenses as deductible business expenses, a false Schedule A which claimed a charitable gift in the amount of $120,000 when there was no such charitable gift, and a false Form 4797, which represented that a $205,120 loss resulted from an exchange of like-kind property when no property had been exchanged. Simcho also admitted that during the 2001 tax year he received taxable income from the sales of trusts and a salary from his employment with Property Protection Services, LLC. He knowingly and willfully omitted this income from his 2001 federal income tax return. The investigation was the result of information provided to IRS–Criminal Investigation (CI) by a certified public accountant who said that Simcho prepared an inaccurate amended tax return for one of his clients. At the same time, an IRS revenue agent was performing an audit on those same clients. The revenue agent confirmed the allegations and referred the case on Simcho to IRS-CI.

Connecticut Man Sentenced to 30 Months in Federal Prison for Tax Evasion

On March 13, 2009, in Hartford, Conn., Stephen S. Markesky, of Essex, Connecticut, was sentenced to 30 months in prison, followed by three years of supervised release and ordered to pay a $25,000 fine. Markesky pleaded guilty on July 11, 2007 to tax evasion charges. According to court documents and statements made in court, Markesky was the majority shareholder of Cetomac Fasteners, Ltd., a Birmingham, England-based seller of nuts and bolts. Markesky willfully filed false U.S. Individual Income Tax Returns jointly with his spouse that understated their taxable income from Cetomac for 1999, 2000, and 2001. In an effort to conceal income, Markesky used nominee companies and conduit companies to receive his income, deposited much of this income at bank accounts he maintained at the National Irish Bank, and concealed the existence of these accounts from the Internal Revenue Service. The total tax loss to the government resulting from Markesky’s illegal conduct is approximately $206,221, and he is required to pay restitution in this amount, plus appropriate penalties and interest.

Dentist Sentenced to Five Years in Federal Prison for Tax Evasion

On March 3, 2009, in Anchorage, Alaska, Glenn E. Lockwood, a resident of Kenai, Alaska, was sentenced to 60 months in prison, to be followed by three years of supervised release for his conviction on four counts of tax evasion. In addition to prison, Lockwood was ordered to pay a $10,000 criminal fine and an additional $42,000 for the costs of prosecution.  According to information presented to the court, Lockwood was a practicing dentist who owned the Kenai Dental Clinic. He attempted to evade over $575,000 in federal income taxes for the years 2000 through 2003. The evidence presented at trial established that Lockwood used nominees, offshore accounts, and a sham trust to disguise his interest in assets. He hid his money offshore, funneling it through Ireland and the Caribbean island of Nevis and the Bahamas. Lockwood created a corporation for his dental practice in 2000. This corporation then "leased" the business to an Ireland company that paid Lockwood a relatively small salary while funneling the dental practice's income into accounts over which the dentist had control. He also hid income through other tax shelters and a "sham" trust. He then claimed large deductions on the smaller income that he did report.

Arkansas Man Sentenced to Five Years in Prison on Tax Fraud Charges

On February 12, 2009, in Fayetteville, Ark., Wayne A. Hicks was sentenced to 60 months in prison, to be followed by three years of supervised release, and ordered to pay between $7 million and $20 million dollars in restitution to the Internal Revenue Service (IRS) and to pay a $25,000 fine. Hicks pleaded guilty to conspiracy to defraud the United States on October 7, 2008. During that hearing Hicks admitted that he conspired with others to impede the lawful operation of the IRS from July 19, 2002, through April 30, 2007. Hicks created an organization in 2002 called Americans for Lawful Financial Independence and Information (ALFII) and an alternative banking system for its members known as ICIS or MYICIS. ICIS is an acronym for several names including Integral Currency Interchange System, Interactive Currency Interface System or Internet Check Issuance System. Hicks promoted ALFII and ICIS at seminars sponsored by Pinnacle Quest International (PQI) in Cancun and Xtapa, Mexico, during 2005. According to documents filed in court, ALFIL operated out of an office in Berryville, Arkansas, and maintained several bank accounts under the ICIS name. This banking system provided a means for ALFII members to get out of the traditional banking system, thus concealing their financial transactions from the IRS. From April 2003 through October 2006, Hicks’ ALFII, and/or ICIS members deposited approximately $100 million in the ICIS bank accounts, concealing the true ownership of money from the government. Members deposited money into their ICIS accounts by mailing deposits or by wire transfers. Members accessed their money by logging into their account at a web site and printing a Digital Money Order (DMO). These DMOs could be used just like traditional checks. Through his plea agreement, Hicks admitted that the last tax return he filed with the IRS was for tax year 1992.

Insurance Agent Sentenced in Fraudulent Income Tax Scheme

On February 10, 2009, in Nashville, Tenn., David Michaels was sentenced to 18 months in prison, followed by two years of supervised release and ordered to pay $39,570 in restitution to the Internal Revenue Service (IRS) and to pay a $6,000 fine. Michaels and co-defendant Susan Sperl were convicted by a federal jury in Nashville in November 2008 of conspiracy to defraud the United States and assisting in the preparation of a false tax return. Sperl is scheduled to be sentenced in March 2009. According to the Indictment and the evidence presented at trial, from September 2001 until August 2004, Sperl and Michaels conspired with Bryan Wolfe and Harold Strong to impede the lawful functions of the IRS by agreeing to assist Wolfe and Strong in transferring income of their corporation, InSite Services, Inc. to offshore accounts and disguising the transfer as a legitimate business deduction on Insite’s tax return. Sperl and Michaels provided false invoices billing InSite for non-existent research and development work, in order to disguise the transfer of money as a business expense. Sperl and Michaels also instructed Wolfe to lie to IRS special agents concerning the false business expense. On January 30, 2007, Wolfe and Strong pleaded guilty in federal court in Nashville to conspiring to defraud the United States, relating to the filing of InSite’s false 2001 tax return and their personal false 2001 tax returns.

South Carolina Doctor Sentence for Tax Fraud

On January 7, 2009, in Columbia, S.C., Dr. Erik Dehlinger, an emergency room physician practicing in Florence, was sentenced to 42 months in prison and ordered to pay $363,207 in restitution.  Dehlinger was convicted at trial on three counts of willfully making and subscribing to a false federal income tax return.  According to evidence presented at trial, from 1999 through 2002, Dehlinger enlisted the services of Anderson’s Ark and Associates (AAA), an out-of-state organization promoting tax fraud strategies for its members.  Over the course of his involvement with AAA, Dehlinger claimed over $1 million in false expenses and loan obligations in order to eliminate approximately $360,000 in tax liabilities.

Baby Bliss Owner Goes to Jail for Tax Evasion

On December 15, 2008, in Grand Rapids, Mich., Charles Lee Edkins, the former owner of Baby Bliss, Inc., was sentenced to 48 months in prison, followed by three years of supervised release, and ordered to pay $285,711 in restitution, with $200,000 due immediately. Edkins was also ordered to cooperate with the Internal Revenue Service (IRS) and file back tax returns.  According to court records, between 1995 and 1998, Edkins owned and operated Baby Bliss, Inc., which manufactured young girls’ clothing primarily for Pleasant Company, the marketer and distributor of “American Girl” brand products. During 1995 through 1997, Edkins filed false tax returns with the IRS and, in 1998, failed to file a tax return.  Edkins’ gross income over the four-year period totaled more than $885,000. During the investigation, Edkins refused to provide books and records to the IRS, as required by law. He also directed a business associate to lie to the IRS if questioned about his income. In addition, Edkins disguised personal expenses as business expenses, including referring to a purchased Lincoln Town Car in his records as “five used Singer sewing machines,” purchasing two personal residences utilizing a sham corporation, and withdrawing corporate funds for personal use. After his June 2005 indictment, Edkins fled to the Bahamas and was considered a fugitive until his arrest in Miami, Florida, in February 2008. Prior to being arrested, $66,000 in checks issued to him from a numbered Swiss banking account was seized by authorities. The judge also ordered that Edkins endorse these checks, which were provided to the Court for payment towards his restitution.

Fifth Aegis Company Principal Sentenced in Chicago to 200 Months for His Part in Firm’s $60 Million Tax Fraud Conspiracy

On December 5, 2008, in Chicago, Ill., Robert W. Hopper, of Gadsden, Ala., was sentenced to 200 months in prison and ordered to pay the $240,000 cost of his prosecution for tax fraud conspiracy, 17 counts of aiding and assisting in the filing of false returns, four counts of personal income tax evasion, two counts of mail fraud and one count of wire fraud. Hopper was the fifth of six Aegis Company defendants to be sentenced on various tax crimes. According to court documents, Hopper was an original founder of the Aegis Company and was the managing director. Hopper and his co-defendants were found to have carried out a scheme to market and sell sham domestic and foreign trusts to 650 wealthy taxpayer clients. According to court documents and evidence at trial, the tax fraud scheme used a network of promoters, sub-promoters, managers, attorneys and accountants and resulted in a $60 million tax loss to the United States. As a condition of his three years of supervised release, Hopper was ordered to pay $220,000 for his own unpaid federal taxes, plus penalties and interest owed.

Indiana Man Sentenced to 210 Months for His Part in Aegis Company $60 Million Tax Fraud Conspiracy

On December 3, 2008, in Chicago, Ill., Timothy Shawn Dunn, a Chesterton, Ind., resident was sentenced to 210 months in prison for his role in marketing and selling fraudulent domestic foreign trusts for The Aegis Company. Dunn remains liable for approximately $315,000 for his own unpaid taxes, plus penalties and interest owed.  He was found guilty of tax fraud conspiracy, 11 counts of aiding and assisting in the filing of false returns, one count of personal income tax evasion and two counts of filing false personal income tax returns. According to court documents, Dunn owned Moneyfacts, a financial advisory business in Highland, Ind. Three of Dunn's co-defendants were sentenced earlier. Michael A. Vallone was sentenced to 18½ years in prison in October 2008. Vallone was one of the founders and the executive director of Aegis. Also in October 2008, William S. Cover, a promoter and manager of Aegis trusts and the president of Sigma Resource Management Inc., which provided management services to purchasers of Aegis trusts, was sentenced to 13 years in prison and ordered to forfeit his home and $4.125 million. On November 19, 2008, Michael T. Dowd, a promoter and manager of Aegis trusts who provided management services to purchasers of Aegis trusts through Aegis and Sigma Resource Management Inc., was sentenced to 10 years in prison. All of the defendants were convicted following an 11 week trial. They were indicted in 2004 following a lengthy undercover investigation by IRS agents, code-named “Operation Trust Me,” involving the seizure of 1.5 million documents, computer files and related materials.  Dunn and his co-defendants carried out a nearly decade-long scheme to market and sell sham domestic and foreign trusts through the Aegis Company, now defunct and formerly based in Palos Hills, Ill., to 650 wealthy taxpayer clients. According to court documents and evidence at trial, the defendants diverted income from businesses into sham trusts for clients and hid hundreds of millions of dollars in income for those clients. Their fees ranged from $10,000 to $75,000. The fraudulent trusts attempted to hide the purchasers' assets and income in order to illegally reduce or eliminate their income tax liability. Trial evidence also showed that the scheme diverted profits from businesses to a sham trust and transferred funds either to a bogus charitable trust or to bank accounts in tax haven countries, such as Belize and Antigua. Nationwide, the Chicago based investigation resulted in convictions of more than 30 defendants and charges against approximately 30 other defendants around the country, including in Florida, Illinois, New York, Ohio and West Virginia.

Michigan Artist Goes to Prison for Tax Evasion

On December 1, 2008, in Grand Rapids, Mich., June Marie Young, was sentenced to 30 months in prison and was ordered to perform 300 hours of community service, cooperate with the Internal Revenue Service (IRS), and pay $164,550 in restitution to the IRS. Young was convicted by a jury in July 2008 on four counts of willful tax evasion. According to court records, Young was a self-employed commercial artist who created mass-produced paintings that were sold through a contract distributor. As her business grew, Young established a sham trust known as the Black Gold Foundation. From 2000 to 2003, Young arranged for her commercial art earnings to be deposited into this trust to avoid the appearance of having income in her own name. But, she controlled the trust, and more importantly the trust’s checkbook. Although Young filed personal income tax returns for 2000 through 2003, her returns did not report any of the funds paid on her behalf to the Black Gold Foundation. Instead, she filed income tax returns on behalf of the Foundation listing exorbitant business expense deductions that exceeded trust income. She claimed that no tax was due and owing from the foundation, despite knowing that a substantial portion of the deductions she claimed on its behalf were illegitimate. As a result of her actions, Young paid only $28,000 in taxes on business receipts exceeding $1.2 million. Among the items paid for with foundation checks signed by Young – and deducted as business expenses – were house payments on two homes in Michigan, the down payment for a $406,000 luxury home in Florida, lease payments on a $49,000 Jaguar sedan, and gifts to family members disguised as payments for “services rendered.” In addition, she transferred over $100,000 to herself from the trust each year, disguised as payment for “consulting” and “loans” that were never repaid. Young used this money for luxury purchases, including a home theater system and indoor spa.

California Chiropractor Sentenced for Income Tax Evasion

On November 17, 2008, San Diego, Calif., Chiropractor Kathryn Hanes was sentenced to 18 months in prison and ordered to pay $80,000 in restitution. Her partner, Madonna Hanes, was sentenced to five months in prison. In March 2008, a jury in federal court convicted the defendants on charges of conspiracy to defraud the United States and income tax evasion. According to the indictment Kathryn Hanes and Madonna Hanes failed to file tax returns, mailed frivolous letters to the IRS claiming that (a) they were not U.S. citizens, (b) the IRS had no authority or jurisdiction to collect income tax from them, and (c) they earned no income and owed no income taxes. Trial evidence showed that the Hanes earned hundreds of thousands of dollars from Kathryn Hanes’ chiropractic business called “Biophysics Chiropractic.” In letters sent to the IRS, defendant Kathryn Hanes claimed that the IRS lacked authority to collect income taxes from her because she placed her income in a “pure trust” that did not have income tax reporting requirements. She also claimed that she was not a U.S. citizen and that she did not engage in business in the United States. Madonna Hanes sent similar correspondence to the IRS and spent the proceeds of the conspiracy on multiple trips to Hawaii, expensive automobiles, and other goods and services.

Defendant Who Marketed Abusive Trust Arrangements Sentenced to 24 Months in Prison

On November 4, 2008, in New Bern, N.C., Laszlo Horvath was sentenced to 24 months in prison and ordered to pay a $5,000 fine. Horvath pleaded guilty on August 4, 2008, to one count of filing a false claim, specifically, a Form 1041 U.S. Income Tax Return for Estates and Trusts for the 2002 tax year, claiming a refund of $111,920. According to evidence presented during various hearings in this case, Horvath and Robert Pelletier marketed illegal tax sheltering packages designed to allow their clients to conceal income and assets from the Internal Revenue Service (IRS) and other creditors. Horvath and Pelletier, who operated out of Cary, North Carolina, under the names American Legal Research Institute and American Debt Eliminator, held multi-day seminars aimed at selling clients fictitious trust entities for use in hiding assets and income from the IRS and other creditors. In addition to the initial fee charged to clients for the purchase of the trust, they also provided clients, for an additional fee, with access to post office boxes maintained under fictitious names. Finally, if a client did not want to transfer their assets to a fictitious trust entity, Horvath and Pelletier provided clients with guidance on how to encumber their assets with fictitious liens. By making a client’s assets appear to be fully encumbered with debt, they were able to deter creditors from seeking to collect unpaid debts through the foreclosure on such assets. Pelletier was sentenced in May 2006 to 18 months in prison.

Insurance and Marketing Executives Sentenced for Offshore Tax Evasion Scheme

On November 10, 2008, in Richmond, Va., Mark E. Albert and Thomas W. Albert were each sentenced to 33 months in prison on the charge of a conspiracy to commit tax fraud. Mark Albert was ordered to pay $348,186 in restitution and Thomas Albert was ordered to pay $226,463 in restitution. According to court documents, Mark Albert was the president of Commonwealth Dealers Life Insurance Company (CDLIC), the Richmond-based company whose income was diverted. Thomas Albert was the owner of Next Millennium Marketing, LLC, a Texas corporation through which the diverted income was sent offshore. CDLIC, which is owned by numerous automobile dealerships in Virginia, was a stock life insurance company whose primary business was the direct writing of credit life, credit accident, and health insurance. CDLIC had a secondary business as a sales agent for third-party warranty and guaranteed auto protection products. It was fees and commissions from this secondary business that the defendants diverted. The defendants pleaded guilty to secretly diverting a total of $2.1 million of CDLIC’s corporate income to themselves and to evading approximately $575,000 of their personal income taxes over a seven-year period. In order to move the CDLIC money to themselves without the detection of the IRS, the defendants formed “entities” in the Islands of St. Kitts and Nevis, and opened credit cards from Swiss Bank, Ltd. in the Islands of Antigua and Barbuda. The conspiracy was discovered by the IRS through an information gathering project called the Offshore Credit Card Project, which used John Doe summonses served on domestic credit card processors to obtain U.S. computer records of electronic funds transactions using credit cards issued by offshore banks.

Aegis Company Promoter and Manager Sentenced to 160 Months in Prison

On October 17, 2008, in Chicago, Ill., William S. Cover a promoter and manager of the Aegis Company trust tax scheme was sentenced to 160 months in prison for his part in a $60 million tax fraud conspiracy. He was also ordered to forfeit his home, $4.1 million and an additional forfeiture of $4 million. Cover and five co-defendants were convicted in May of participating in the Aegis abusive trust scheme that diverted income from businesses into sham trusts, thereby concealing hundreds of millions of dollars in income for clients. Cover was convicted of one count of tax conspiracy against the United States, seven counts of mail fraud, two counts of wire fraud, thirteen counts of aiding and assisting the preparation of false tax documents and two counts of filing false personal tax returns.

Lead Defendant in Aegis Company $60 Million Tax Fraud Conspiracy Sentenced to 223 Months in Prison

On October 2, 2008, in Chicago, Ill., Michael A. Vallone, a founder and executive director of The Aegis Company, was sentenced to 223 months in prison for his part in a $60 million tax fraud conspiracy. Vallone and five co-defendants were convicted in May 2008 of participating in a scheme to market and sell sham domestic and foreign trusts through a network of promoters, sub-promoters, managers, attorneys and accountants. They diverted income from businesses into sham trusts for clients, hiding hundreds of millions of dollars in income for those clients. The judge will rule later on the government’s request for forfeiture of more than $4 million, Vallone’s home and off-shore bank accounts, as well as the costs of prosecution. Vallone also remains liable for any taxes, penalties and interest owed. Vallone was convicted following an 11 week trial and was sentenced on 24 counts of aiding and assisting the filing of false tax returns, three counts of personal income tax evasion, seven counts of mail fraud and two counts of wire fraud. Nationwide, the Chicago-based investigation has resulted in convictions of more than 30 defendants and charges against approximately 30 other defendants around the country.

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