Examples of Abusive Tax Schemes - Fiscal Year 2011
The following examples of abusive tax schemes are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
Doctor Sentenced to Prison for Tax Evasion
On September 29, 2011, in Pittsburgh, Pa., Dr. David P. Alan was sentenced to 21 months in prison, three years of supervised release, and ordered to pay a $40,000 fine for his conviction of tax evasion. According to information presented to the court, Alan engaged in a scheme to inflate cost of goods sold deductions for his limited liability corporation for tax year 2004 using an offshore shell corporation and bank account to reduce the income from his business reportable on his individual tax returns. Alan employed the same scheme in tax years 2001-2003, filing false individual joint tax returns for tax years 2001 and 2002.
Former North Carolina Business Owners Sentenced for Tax Fraud
On September 1, 2011, in Charlotte, N.C., Duane Hamelink and his wife, Eileen Hamelink, formerly of Mooresville, N.C., were sentenced to 27 months and 21 months in prison respectively, to be followed by three years of supervised release for each. In addition, the Hamelinks were ordered to pay $1,086,815 in restitution to the Internal Revenue Service (IRS). According to court documents and statements made during court proceedings, from about 1992 to about 2005, Duane and Eileen Hamelink owned and operated a trim carpentry business. The Hamelinks failed to file income tax returns despite earning substantial income and they took numerous steps to conceal their income and assets from the IRS. For example, the Hamelinks obtained several sham trusts and related nominee bank accounts to conceal their ownership of their trim carpentry business. In addition, the Hamelinks used a sham trust to obtain a foreign bank account in Cyprus and transferred approximately $285,327 of income into the account over a three year time period. The Hamelinks also concealed approximately $654,344 derived from the sale of their home using a series of false liens, bogus trusts, and a foreign bank account. Chris Hughes, of Charlotte, N.C., was also sentenced today to six months in prison and six months of home confinement for obstructing and impeding the IRS criminal investigation of Duane and Eileen Hamelink. According to court records, in 2005, Hughes engaged in a real estate transaction with the Hamelinks and directed the proceeds of the transaction, approximately $655,100, to an offshore bank account at First Curacao International Bank. Hughes provided false statements to IRS special agents conducting a criminal investigation of Duane and Eileen Hamlink’s tax evasion scheme concerning facts related to the real estate transaction.
Los Angeles Lawyer Sentenced for Tax Evasion and Passport Fraud in Connection with Quellos Tax Shelter Scheme
On June 10, 2011, in Seattle, Wash., Matthew G. Krane, of Los Angeles, California, was sentenced to 32 months in prison and two years of supervised release for tax evasion and false statement in a passport application. Krane has also agreed to forfeit approximately $23.1 million to the U.S. Treasury and return approximately $17.9 million in illegal fees to his former client, Haim Saban. In June 2009, Krane was indicted along with the former Chief Executive Officer of Quellos Group L.L.C., Jeffrey I. Greenstein, and an attorney and principal of the investment firm, Charles H. Wilk, in connection with a fraudulent tax shelter scheme. Krane pleaded guilty in December 2009 and agreed to cooperate with the government in its prosecution of Greenstein and Wilk. Subsequently, in January 2011, Wilk and Greenstein pleaded guilty, paid $7 million in penalties to the IRS, and were each sentenced to 50 months in prison. According to court documents, Greenstein and Wilk agreed to secretly split Quellos’ fees with Krane in exchange for Krane’s assistance in enrolling a wealthy client in the tax shelter scheme. The client, Haim Saban, had more than $1 billion in capital gains in 2001, and Greenstein and Wilk promised Krane a cut of the fees if Saban purchased the tax shelter scheme. Saban was never informed of the fee arrangement, or illegal nature of the scheme. Between March 2001 and October 2001, the men drafted false fee agreements that made it appear that Saban was paying $46 million to Quellos to participate in the tax shelter strategy. In fact, nearly $36 million of that fee was actually diverted by Wilk and Greenstein to an offshore account controlled by Krane. Krane failed to pay taxes on the income. In addition, when Krane learned of the criminal investigation of Quellos in February 2008, he applied for a passport in a false name, using a false social security number and California drivers’ license number.
Two Men Sentenced for Investment Fraud
On June 9, 2011, in Minneapolis, Minn., Mark S. Sutton, of Minnetonka, was sentenced to 42 months in prison on one count of conspiracy to commit mail and wire fraud, one count of conspiracy to commit money laundering, and one count of conspiracy to defraud the U.S. On November 17, 2009, Sutton was indicted along with Joseph L. Finney, of Colorado Springs, Colorado. Finney, who pleaded guilty on September 24, 2010, to one count of conspiracy to commit mail and wire fraud and one count of conspiracy to commit money laundering, was sentenced to 64 months in prison. Court documents indicate that from approximately 2000 to 2005, Sutton, Finney, and others sold shares in an investment called Envestclub, which they marketed as providing returns far greater than run-of-the-mill investments. The defendants failed to inform potential investors of important information, including that they took some investor funds as sales “commissions” and that Finney was convicted of fraud in federal court in 2003. In the present case, Sutton also was convicted of conspiring with a Plymouth, Minnesota, man to evade payment of that man’s federal income taxes for 1991 and 1992. Trial evidence proved that Sutton helped create a trust into which property was placed for the purpose of evading taxes. Moreover, he referred his co-conspirator to individuals who specialized in tax avoidance schemes.
New Jersey UBS Client Sentenced for Failing to Report More Than $1 Million in Swiss Bank Account
On May 24, 2011, in Newark, N.J., Harry Abrahamsen, of Oradell, New Jersey, was sentenced to three years probation, including 12 months of home confinement with electronic monitoring, after admitting he failed to file a Report of Foreign Bank and Financial Accounts (FBAR), concealing more than $1 million in Swiss bank accounts. Abrahamsen was also ordered to pay back taxes, interest and penalties totaling more than $600,000 and as a condition of his guilty plea, agreed to pay an FBAR penalty in excess of $300,000. At his plea hearing, Abrahamsen admitted that he failed to file an FBAR for calendar year 2005 in addition to failing to report his account at UBS AG in Switzerland on his individual income tax return for that year, and failed to report a second account opened in the name of Lucille Abrahamsen Jackson, his daughter. The UBS accounts, originally opened in 1992, were transferred into the name of Primrose Properties S.A., a nominee Panamanian corporation, in 2000. Abrahamsen established Primrose in early 2000 in order to hide these accounts from the Internal Revenue Service (IRS). Abrahamsen also admitted that he funded the UBS accounts with approximately $1.3 million in false and inflated expenses paid by his pre-press printing business, SJT Imaging Inc., to a Swiss company. The inflated expenses were then deducted on SJT Imaging Inc.’s corporate tax returns, which allowed Abrahamsen to under report personal income for the years 1999 through 2003. Jackson pleaded guilty on November 18, 2010, to an Information charging her with willfully subscribing to a false tax return and was sentenced on May 23, 2011, to a year of probation.
Owner of Tradex Sentenced for Concealing Income in Foreign Shell Companies and Overseas Bank Accounts
On May 4, 2011, in Los Angeles, Calif., Arthur Allen Ferdig, owner of Tradex, a foreign exchange investment company, was sentenced to 18 months in prison and three years of supervised release. Ferdig pleaded guilty on September 28, 2010, to tax evasion for the 2002 tax year. In addition, Ferdig agreed to pay taxes owed for 2002, inclusive of the civil fraud penalty and statutory interest. According to the plea agreement, during 2002 and 2003, Ferdig, a U.S. citizen, lived in Jamaica and the Bahamas where he owned and controlled Tradex, a purported foreign exchange investment company based in the Caribbean island of Dominica. To conceal and disguise his income from Tradex, Ferdig admitted that he knowingly and intentionally failed to file a U.S. tax return for 2002, directing his income from Tradex to be wired into offshore bank accounts that were held in the names of various shell companies under his control, including Industrial Metals and Mining, a mining venture in Nevada. According to court documents, Ferdig admitted that he failed to report as income approximately $529,000, resulting in tax due of approximately $148,000 to the Internal Revenue Service.
Michigan Chiropractor Sent to Prison for Tax Evasion
On Tuesday, May 3, 2011, in Grand Rapids, Mich., Kerry Thomas Kilpatrick was sentenced to 24 months in prison and two years of supervised release for tax evasion. Kilpatrick was also ordered to cooperate with the IRS and pay restitution of $85,014 for taxes owed in 2002. In his plea agreement, Kilpatrick admitted that he evaded paying taxes for income he earned as the self-employed owner of the Kilpatrick Chiropractic Life Center in Grand Rapids for the 2002 tax year. He also acknowledged that he did not pay federal income taxes on income earned from 1999-2007. According to court records, during 1999 through 2007, Kilpatrick paid himself through direct payments from his business credit union account without including any withholdings for state or federal payroll taxes. Kilpatrick also used the business credit union account to directly pay his home mortgage, along with other personal expenditures. During 2001 through 2002, Kilpatrick formed numerous holding companies, corporations, and enterprises that lacked any economic substance and were located in Nevada, Oregon, and the Republic of Panama. He used the entities to evade his income taxes, pay local property taxes on his real estate, and to hold the title on his 1999 Ford Expedition, $63,000 Tiffin Motor Home, and other property.
International Businessman Sentenced for Filing False Tax Returns and Failing to File FBARs
On March 29, 2011, in South Bend, Ind., James A. Simon was sentenced to 72 months in prison, followed by three years of supervised release and ordered to pay $886,901 in restitution to the Internal Revenue Service (IRS). Simon was convicted at trial of filing false federal income tax returns, failure to file reports of foreign bank and financial accounts, mail fraud involving private financial aid, and fraud involving federal financial aid. According to court documents, from 2003 to 2006, Simon received money from five business entities with which he was affiliated. He did not report the funds received from these entities on his federal tax returns and failed to report a total of over $3.1 million to the IRS. Simon also did not disclose that he had an interest in foreign bank accounts and did not file required Report of Foreign Bank and Financial Accounts (FBARs) with the Treasury Department regarding the foreign accounts. Further, Simon provided false information regarding his family’s income and expenses on applications for private financial aid to two different schools and on applications for federal financial aid to one college. He will also pay restitution of $48,070 to the Department of Education, $17,000 to Canterbury School, and $101,600 to Culver Academy.
Operator of Tax Preparation Business Sentenced to 17 ½ Years in Prison in Fraudulent Tax Shelter Conspiracy
On March 17, 2011, in Greenbelt, Md., Irvin Hannis Catlett, Jr., of Crownsville, Maryland, was sentenced to 210 months in prison, followed by three years of supervised release, and was ordered to pay $3,810,244 in restitution for tax offenses in connection with a scheme to prepare individual income tax returns for clients which reported bogus tax losses from a purported car leasing company. According to testimony at the trial, Catlett operated Tax Resolutions, Inc., located in Laurel, Maryland. He falsely held out Motors Holding Company, Inc., Motors Holding Company II through VI, Inc. and Rentown, Inc., (the tax shelter entities) to his clients as operating businesses involved in automobile leasing and sales. Catlett knew, however, that these entities were not engaged in automobile leasing and sales, or in any other legitimate, profit making business. From 1999 to 2009, Catlett worked with others to sell to clients purported “investments” in the tax shelter entities. These investments were payments to Catlett to purchase bogus tax losses purportedly generated by the tax shelter entities’ operations. Catlett, Walter Cullum and James Unterreiner prepared fraudulent tax returns for their clients that included the fictitious business losses, thereby reducing the amount of taxable income and total tax reported by the clients and resulting in the clients falsely claiming refunds from the IRS. Trial testimony further showed that Catlett paid Mark Hunt, an IRS revenue officer, for providing Catlett with IRS taxpayer information on Tax Resolutions’ clients and for allowing Catlett to introduce Hunt to clients and potential clients as Catlett’s connection at the IRS, to assure them their tax returns would not be subject to adverse IRS actions. As a result of the scheme, approximately 275 tax returns were filed with the IRS which reported $22,009,021 in bogus Schedule E losses, which resulted in a tax loss to the United States of $3,810,244. Maryland residents Walter Cullum, Jr., of Columbia; Mark E. Hunt, of Baltimore; and James Unterreiner II, of Bowie, were each sentenced to three years probation. Tressa Nivens, of Frederick, Maryland, also pleaded guilty to her role in the scheme and was sentenced to two years probation.
Texas Man Sentenced for Tax Evasion
On March 9, 2011, in Dallas, Texas, Ed Taylor, Jr. was sentenced to 52 months in prison and three years of supervised release for tax evasion. According to court documents, Taylor, who was employed by Dillon Gage, Inc. earned a salary of about $41,000. From 2005 to 2006, Taylor embezzled nearly $700,000 from his employer by creating false invoices and having the payments made to a friend of his, using his friend’s bank account. Over the course of the scheme, Taylor admitted he created fraudulent invoices that resulted in the issuance of $902,329 in checks or wire transfers to his friend’s account. As a result of his fraudulent scheme, Taylor admitted that he had $695,290 in taxable income for 2006 and that he owed $214,155 in federal income tax.
Husband and Wife Sentenced for Selling Abusive Tax Schemes; Couple Failed to File Tax Returns on Over $1 Million in Income
On March 7, 2011, in Portland, Ore., Micaela Renee Dutson, a former attorney, and her husband, Tony Dutson, were each sentenced to 120 months in prison to be followed by five years of supervised release. The Dutsons were convicted following a jury trial of conspiring to defraud the Internal Revenue Service (IRS), obstructing the IRS, causing clients to use bogus financial instruments in an attempt to pay their taxes and commercial obligations, failing to file tax returns, and aiding and advising a client to file a false tax return. According to evidence presented at trial, Micaela Dutson was an Oregon lawyer, and the couple used her law office in Tigard, Oregon to promote and sell abusive trust arrangements to evade taxes for several years before moving to Mesa, Arizona in 2003. The Dutsons continued to sell the trust packages for years, ignoring several warning letters from the IRS. After the IRS began auditing the Dutsons’ clients, and notified them that the trusts they were using to conceal their income from the IRS were shams, the Dutsons began a campaign to obstruct the IRS’s audits and investigation, and to harass and intimidate the individual IRS employees who were auditing or investigating them. They advised their clients to obtain their “sovereignty,” and they created and presented dozens of fictitious financial instruments to the IRS purporting to pay off back taxes for themselves and a number of their clients. Even though they knew the bogus instruments had no financial value and had never been accepted by a creditor, they continued to sell them to their clients with false promises they would pay off their tax liability. The Dutsons had over 100 clients throughout the United States, but most of the clients lived in Oregon, Washington, California, Arizona, Alaska and Hawaii. The couple made over $1 million dollars from the scheme and paid no income tax.
Illinois Man Sentenced for Tax Evasion and Obstruction of Internal Revenue Laws
On March 4, 2011, in Urbana, Ill., Kurt Scheuneman was sentenced to 36 months in prison, three years of supervised release, and ordered to pay more than $84,000 in restitution for tax evasion. According to court documents, Scheuneman was convicted in November 2010 on three counts of tax evasion and one count of obstruction of Internal Revenue laws. In June1999, Scheuneman purchased a trust system through Innovative Financial Consultants (IFC). The trust scheme, known as “The Global Special,” consisted of a limited liability corporation and two trust entities that were purported to be foreign trusts. In January 2004, the Internal Revenue Service informed Scheuneman that he may have been involved with an abusive tax avoidance scheme involving IFC. The letter advised Scheuneman that he should complete an accurate 2003 tax return. Despite the warning from the IRS, Scheuneman failed to file his 2003 form as well as tax returns for years 2004 and 2005. Scheuneman failed to file any personal tax returns for the tax years 2000 through 2005 and failed to report more than $200,000 in personal income.
Owners of Arizona Substance Abuse Treatment Center Sentenced on Tax Charges
On February 17, 2011, in Phoenix, Ariz., William Steiniger, a doctor, was sentenced to 42 months in prison; his wife, Diane Steiniger, was sentenced to 8 months in prison followed by 6 months of home confinement. The Steinigers were convicted at trial in December 2009 of four counts of tax evasion and one count of conspiracy to impede and impair the Internal Revenue Service (IRS). According to court documents, William and Diane Steiniger operated the Desert Canyon Treatment Center, a substance abuse treatment facility in Sedona, from 1998 to December 2008. Evidence presented at trial showed the Steinigers channeled their Desert Canyon incomes into sham entities they created. William Steiniger’s earnings went to a phony trust called National Career & Life Institute. Diane Steiniger’s income was directed to Flair International, Ltd., a company she established in the nation of Belize. Testimony at trial revealed the two defendant’s evaded assessment and payment of more than $390,000 in federal income tax from 2002 to 2005. In addition, neither defendant paid any federal income tax from at least 1997 through 2005.
Father and Son Miami Beach Hotel Developers Sentenced for Tax Fraud
On February 4, 2011, in Miami, Fla., Mauricio Cohen Assor and his son, Leon Cohen-Levy were both sentenced to 120 months in prison after having been convicted of conspiring to defraud the United States and filing false tax returns. Cohen Assor was ordered to pay $9,379,849 in restitution and Cohen-Levy was ordered to pay $7,761,959 in restitution. According to court documents and trial testimony, the father and son concealed more than $150 million in assets, including Miami Beach mansions, yachts, luxury automobiles, and bank accounts containing tens of millions of dollars. The defendants also failed to report more than $49 million in income to the Internal Revenue Service (IRS). The two men and their co-conspirators used nominees and shell companies formed in the Bahamas, the British Virgin Islands, Panama, Liechtenstein and Switzerland, to conceal their assets and income from the IRS. To further conceal their assets and income from the IRS, the defendants also provided false documents to banks, opened bank accounts in the names of nominees, titled their personal residences and luxury vehicles in the name of shell companies, filed false and fraudulent tax returns, failed to file other tax returns, suborned perjury in a civil matter pending before the New York Supreme Court by directing individuals to testify falsely under oath, and induced other individuals to make false statements to federal law enforcement agents. Among the nominees the defendants used were their personal secretary and their limousine driver. Mauricio Cohen Assor and Leon Cohen-Levy were the developers and owners of several residential hotels known by the trade name Flatotel International. Flatotel had locations in France, Spain, Brussels, and New York City. In 2000, the defendants sold their New York hotel and generated proceeds of $33 million. The defendants directed that the sale proceeds be transferred to a bank account at HSBC in Switzerland that was opened in the name of a Panamanian bearer share company. The Cohens and their related entities never reported the income earned from the sale of the hotel on their United States tax returns. Among the assets and income the Cohens concealed from the IRS were a $45 million investment portfolio, a condominium at Trump World Tower in New York City that was worth as much as $10 million, the personal residence of Mauricio Cohen Assor on Fisher Island in Miami Beach worth approximately $20 million, the personal residence of defendant Leon Cohen-Levy in Miami Beach worth approximately $26 million, and additional properties, luxury vehicles, and a $1.2 million helicopter.
Florida Man Sentenced to 10 Years in Tax Fraud Scheme
On January 28, 2011, in Fort Lauderdale, Fla., Michael D. Beiter, Jr., of Broward County, Florida, was sentenced to 120 months in prison and five years of supervised release. On November 12, 2010, a jury found Beiter guilty of corruptly impeding the Internal Revenue Service (IRS), sending fictitious financial instruments to creditors, and helping one of his clients evade federal income tax. According to court documents and testimony during the trial, Beiter marketed a debt elimination and abusive tax scheme. The scheme was premised on the idea that individuals are sovereigns who can declare their independence from ordinary obligations, such as paying creditors and federal income taxes. Beiter promoted the sale of abusive tax packages involving purportedly non-taxable pure trusts. Beiter sold at least 100 of these packages. According to evidence presented at trial, the defendant filed tax returns with the IRS for tax years 2004, 2005, and 2006 reporting zero income and taxes, despite the fact that he had net taxable income in excess of $1,800,000. Beiter also opened a number of bank and stock trading accounts with bogus taxpayer identification numbers. The evidence at trial also established that Beiter attempted to intimidate IRS employees by contacting them at their homes.
Former Quellos Executives Sentenced in Offshore Tax Shelter Scam Involving More Than $9.6 Billion in Phony Stock Sales
On January 28, 2011, in Seattle, Wash., Jeffrey I. Greenstein, former Chief Executive Officer of Quellos Group LLC, and Charles H. Wilk, former head of Quellos' private clients group, were each sentenced to 50 months in prison and two years of supervised release for conspiracy to defraud the United States and aiding and assisting with the filing of a false tax return. In addition, both men paid $7 million in penalties to the Internal Revenue Service (IRS) related to their personal gain realized from the design, promotion and implementation of the fraudulent tax shelter, which they called POINT. The estimated tax loss from the scheme was $240 million, although the losses have since been repaid by the taxpayers. According to court documents, beginning in 1999 and continuing through August 2006, Greenstein and Wilk designed, implemented and defended before the IRS a fraudulent tax avoidance scheme known as POINT (Portfolio Optimized INvestment Transaction). POINT purportedly permitted wealthy taxpayers who anticipated large capital gains to offset those gains by mixing those gains with losses derived from the sale of depreciated stock. POINT clients were told that a certain offshore investment fund owned billions of dollars worth of stock in well-known, publicly traded U.S. technology companies that had depreciated in value. The offshore investment fund purportedly formed various offshore and onshore partnership entities and contributed portions of its portfolio of stock into these entities. Because of certain provisions in the tax code, the POINT clients were advised that if they purchased one of these partnerships from the offshore fund, they could inherit the unrealized losses in the stocks and use them to shelter the gains from sales of other assets, and greatly reduce the clients’ tax liability. Greenstein and Wilk did not tell clients, or the attorneys who evaluated the proposals, that the POINT transaction was predicated on a sham. They knew but did not disclose that there was no offshore investment fund, and that no shares of stock were actually purchased and possessed by any offshore investment fund. They knew that the purported offshore investment fund was merely a shell entity with nominee administrators and no assets or employees.
Last of Defendant Sentenced In Tax Conspiracy Case
On January 18, 2011, in Little Rock, Ark., Randall Jarvis, of Salt Lake City, Utah, was sentenced to 24 months in prison and three years supervised release for his role in a tax conspiracy. This sentencing was the culmination of a case that was originally indicted in 2006 and involved five defendants. The other defendants have previously been sentenced. Julia Freeman, aka Judy Ford, formerly of Little Rock, was sentenced in April 2010, to 33 months in prison and order to pay $1,100,492 in restitution Lydia Prisock, formerly of Little Rock, was sentenced to time served and ordered to pay $82,519 in restitution. Carol Spackman Reese, of Scottsdale, Ariz., was sentenced in May 2010, to three years probation. Robert Colee, of Grant’s Pass, Ore., was sentenced in August 2010, to 15 months in prison and ordered to pay $604,208 in restitution. The five were charged with conspiring to defraud the Internal Revenue Service for tax years 1997 through 2004. Freeman, Colee, and Prisock controlled a distributorship for Nikken, a multi-level marketing company that sold alternative health care products, which generated commissions in excess of $5,000,000 during the years 1997 through 2004. Spackman Reese was a tax preparer for the three, and Jarvis assisted in setting up fraudulent ministerial entities through which the Nikken commissions were funneled. This was done to disguise the income received and to evade payment of personal income taxes of over $1 million.
Chicago and Louisiana Attorneys Sentenced for Fraud Schemes Related to Tax Shelter Transactions and Referral Fee Kickbacks
On January 14, 2011, in Manhattan, N.Y., Chicago attorney and certified public accountant John B. Ohle III and Louisiana attorney William Bradley were sentenced in connection with a scheme to fraudulently obtain referral fees relating to a tax shelter transaction and then failing to accurately report those fees to the Internal Revenue Service (IRS) and pay taxes. Ohle and Bradley were convicted in June 2010 of conspiracy to commit wire and tax fraud. Ohle was sentenced to 60 months in prison and ordered to forfeit $1,256,000, as well as hundreds of thousands of dollars of sports memorabilia purchased with monies additionally derived from the fraud scheme. Bradley was sentenced to 12 months in prison and ordered to forfeit $255,000 of proceeds obtained through his attorney escrow account. According to the evidence presented in court, between 1999 and 2002, Ohle was a supervisor in a Chicago Bank. His office provided tax shelter strategies for high net worth clients, including a tax shelter called "Hedge Option Monetization of Economic Remainder," or HOMER, which Ohle designed, marketed, and implemented together with others. Ohle and Bradley conspired with others to create false and fraudulent invoices to obtain secret referral fees for certain HOMER tax shelter transactions. He fraudulently obtained over $4 million from a client for whom he acted as trustee. Ohle also secretly obtained $500,000 in profits from the HOMER tax shelter transactions which he failed to report as income on his tax returns. In addition to the conspiracy count, Ohle was found guilty of tax evasion for the 2001 and 2002 tax years. For 2001, Ohle fraudulently omitted from his tax return approximately $2.9 million in income, which was comprised of unreported HOMER referral fees and funds stolen from his trust client. For 2002, Ohle fraudulently omitted from his tax return over $3.1 million in income, which was comprised of over $500,000 in HOMER tax shelter profits and over $2.5 million he embezzled from his trust client. In addition to failing to report income for 2002, Ohle also claimed over $4 million of false tax losses stemming from a fraudulent tax shelter transaction that he employed on his own tax return.
Cincinnati-area Man Sentenced for Tax Crimes
On January 11, 2011, in Cincinnati, Ohio, Homer Lee Richardson was sentenced to 30 months in prison and one year of supervised release. Richardson was also ordered to pay a $60,000 fine and $61,212 in restitution for corruptly endeavoring to obstruct and impede the due administration of the Internal Revenue Code, aiding and assisting in the preparation of a false income tax return on the behalf of another individual, and filing his own false individual income tax returns for the years 1998, 1999 and 2000. According to the indictment, Richardson marketed and promoted sham trusts for an organization known as Aegis. The trusts had no economic substance or business purpose and falsely gave the appearance that Aegis members relinquished control over their assets. Taxpayers who used these trusts filed false federal individual income tax returns understating their income. In addition, Richardson attempted to obstruct Internal Revenue Service (IRS) audits of his own and at least one other individual’s income taxes. Finally, Richardson filed his own false tax returns which falsely understated his income.
Defendant in $20 Million Illegal Stock for Compensation Fraud Scheme Sentenced
On January 10, 2011, Los Angeles, Calif., Stephen Floyd Owens, formerly of Lafayette, Louisiana, was sentenced to 36 months in prison and three years of supervised release after pleading guilty to subscribing to a false federal individual income tax return for 2005, conspiracy, and securities charges. He was also ordered to truthfully and timely file and pay all federal income tax returns for the years of the investigation. According to his plea agreement in the tax case, filed in April 2010, Owens admitted that he failed to report income of $1,600,000 that he had received from the sale of stock in numerous publicly traded companies. Owens admitted that he deliberately understated his income on his 2005 tax return, resulting in a tax loss of approximately $448,000. In June 2009, Owens pleaded guilty to conspiracy and securities charges related to the fraudulent issuance of American Fire Retardant Corporation stock as compensation to William Manfei Woo, of Rosemead, California, and to Tarun Mendiratta, of Weston, Connecticut. According to court records, as a part of the scheme, Woo received American Fire stock from Owens, the company’s president and chief operating officer. The stock issued to Woo was issued as free-trading, unrestricted stock of the type issued to employees, consultants, and advisors who provide bona fide services to the company. Mendiratta received approximately 1.18 billion shares of American Fire from Owens, stock that was publicly traded on the Over-The-Counter Bulletin Board. As a part of the scheme, Mendiratta requested that Owens fraudulently issue American Fire stock to two of his aunts in an effort to conceal his ownership of the stock from federal authorities. When he was issued the stock, Woo and Owens both knew that neither Woo nor either of his nominees performed bona fide services that justified the amount of stock issued to them. Similarly, Mendiratta and Owens knew that neither Mendiratta nor his aunts performed any bona fide services for American Fire that were worth the amount of stock issued to them. Mendiratta was previously sentenced to one year and one day in federal prison followed by six months at a community corrections center and six months of home detention. Mendiratta was also ordered to pay a fine of $150,000 and spend three years on supervised release. Woo was sentenced to six months in prison, followed by one year of supervised release, which included six months in a halfway house and six months of home detention. Woo was also ordered to pay $725,956 in restitution to IRS.
Utah Man Sentenced on Tax Evasion Charges
On December 14, 2010, in Salt Lake City, Utah, John Gauruder, of Tremonton, was sentenced to 42 months in prison, followed by three years of supervised release as a result of his conviction for tax evasion. Evidence presented at trial showed the tax loss in Gauruder’s case exceeded $1.2 million. Gauruder was indicted in September 2008 along with Rulon DeYoung and Jana Gauruder. According to court documents, Gauruder instructed his wife, Jana Gauruder, to transfer his family home to The Order of Tranquility, purportedly a religious organization operated by Rulon DeYoung. Gauruder also opened a bank account in the name of The Order of Tranquility to pay household expenses after the home was transferred. The government argued that Gauruder's transfer of the property and use of the bank account was intended to conceal and protect his assets from the Internal Revenue Service (IRS). The evidence presented to the jury demonstrated that John Gauruder owed approximately $212,000 in taxes for the years 1995 through 2001, not including penalties and interest. Jana Gauruder pleaded guilty to a one count Information charging her with aiding and abetting willful failure to pay tax for 2002. She was sentenced to 36 months of probation. DeYoung was previously sentenced to 36 months in prison for four counts of tax evasion and one count of corrupt interference with the due administration of the internal revenue laws.
Delaware Massage Center Operator Sentenced for Tax Fraud
On December 6, 2010, in Wilmington, Del., Anne Marie Connor, of Bethany Beach, was sentenced to 27 months in prison and ordered to pay $117,446 in restitution to the United States. According to court documents and evidence stated at trial, Connor was the owner and operator of Bethany Massage and Healing Arts Center, located in Bethany Beach, from the 1990s through 2009. Between 1993 and 2003, she was the co-owner and operator of Wholesome Habits Health Food Store. Over a 6-year period beginning in 1998, Connor used sham “trusts” to hide income from the IRS. Under the scheme, Connor installed the “trusts” as the named members of the limited liability companies through which she operated her businesses. Connor directed all income from the business into the “trust” bank accounts. She also placed the deed to her Bethany residence into one of the “trusts.” Connor retained complete control over and used the income from her businesses and her residence throughout the five-year period charged in the indictment. Between 2000 and 2004, Connor earned over $527,000 in income on which she evaded over $117,000 in federal income taxes.
Former Oregon Area Residents Sentenced on Tax Evasion Charges
On November 4, 2010, in Eugene, Ore., three former Bend area residents were sentenced to prison for conspiracy, tax evasion, and structuring. Jerry Miller, of Redmond, was sentenced to 33 months in prison, three years of supervised release, and was ordered to pay over $200,000 in restitution to the Internal Revenue Service (IRS). Miller was previously found guilty of five counts of income tax evasion and one count of conspiracy. William Cardwell, of Carlton, was sentenced to 12 months and a day of in prison, three years of supervised release, and was ordered to pay $197,594 in restitution to the IRS. His wife, Jennifer Cardwell, was sentenced to 5 months in prison, to be followed by five months of home detention, and was ordered to pay $114,379 in restitution to the IRS. William Cardwell pleaded guilty to one count of tax evasion and to one count of structuring currency transactions to avoid reporting requirements. Jennifer Cardwell pleaded guilty to one count of tax evasion. According to evidence presented at Miller's trial, between 1995 and 2005, Miller and the Cardwells worked at Business Administrative Services (BAS), a company owned and operated by the Cardwells in Bend, Oregon. BAS was, in part, a payroll tax company. In 1995 and 1996, Miller and the Cardwells began using abusive trusts to evade the assessment and collection of their federal income taxes. They further attempted to thwart the IRS’s efforts to assess and collect federal income taxes by entering into a “Professional Services Agreement” with BAS, whereby Miller and William Cardwell agreed to donate their time to BAS, and in return, BAS agreed to pay their personal expenses. Miller and the Cardwells used BAS’s corporate bank account to pay many of their personal expenses. Additionally, Miller and the Cardwells used BAS to obtain preloaded ATM cards that were also used to pay personal expenses. In October 2005, Miller and the Cardwells also filed false federal income tax returns for 1998-2004.
Wayland, Iowa Man Sentenced to 30 Months Imprisonment for Tax Evasion
On October 29, 2010, in Des Moines, Iowa, Donald Miller was sentenced to 30 months in prison for tax evasion. According to court documents, Miller pled guilty to committing tax evasion in 2003 and 2004, but his misdeeds were much more extensive, and date back to the 1990s. Miller engaged in numerous acts of tax evasion. First, he placed his bank account and assets, including his home, commercial rental property, and farm land, in names other than his own, such as “white oaks trust,” “emerald trust,” “golden rod trust,” and “covenant management services trust,” to make it appear as if he had no income-generating assets, or taxable assets. Second, he directed his employer and others who owned him taxable income to make checks payable to him in names other than his own, so it would seem as if he had no taxable income. Third, he failed to file any federal income tax returns in his own name, or in the name of the fraudulent trusts, since 1992. Fourth, he similarly failed to file state income tax returns and pay state income taxes for several years. Additionally, in 2008, Miller sent the IRS four fraudulent $10 million “bonds,” which he essentially requested be offset against any tax liability he owed. In the same set of documents, Miller, who was born in Seward County, Nebraska and has lived in Wayland since 1967, denied being a citizen of the United States.
Promoters of Sham Tax Elimination Scheme Sentenced to 20 and 15 Years in Prison; Sold Schemes through Pinnacle Quest International (PQI)
On October 27, 2010, in Pensacola, Fla., the last two promoters of a fraudulent tax- and debt-elimination scheme were sentenced for tax fraud, wire fraud and money laundering charges. Claudia Hirmer was sentenced to 240 months in prison; Mark Hirmer was sentenced to 180 months in prison. On March 31, 2010, a federal jury convicted the Hirmers and six other individuals who promoted fraudulent schemes through Pinnacle Quest International, also known as PQI and Quest International. According to court documents, PQI was an umbrella organization for numerous vendors of tax and credit card debt elimination scams. Some of the PQI vendors sold bogus theories and strategies for tax evasion, assisted customers in the creation of sham business entities in the United States and Panama, and provided customers with a "reliance defense." The “reliance defense” consisted of a paper trail of frivolous correspondence which could allegedly be used as evidence of good faith if the client were prosecuted. Evidence presented at trial established that Claudia Hirmer was a member of the executive council of PQI which selected vendors, guided the day-to-day operations of the company, and planned offshore conferences. Mark Hirmer managed PQI’s finances on a day-to-day basis. Claudia and Mark Hirmer were convicted for evading the payment of over $2 million in income taxes, penalties, and interest for years 1996 through 2001. The Hirmers sought to evade their tax liability in numerous ways, including extensive use of cashier’s checks and cash and extensive use of nominee companies and offshore accounts.
Florida Man Sentenced to Ten Years for Promoting Tax Fraud Scheme
On October 15, 2010, in Tampa, Fla. Joseph Nelson Sweet, of Bradenton, was sentenced to 120 months in prison for conspiring to impair and impede the Internal Revenue Service (IRS) by promoting an unlawful tax avoidance scheme. Sweet was found guilty by a jury on March 10, 2010 of four charges related to the tax scheme, including two counts of contempt. According to court documents and testimony at trial, Sweet began marketing and selling tax-defier materials in the mid-1990's. He and co-conspirator Jack Lee Malone joined forces in 1999 to sell and promote a scheme by which they claimed that purchasers could legally avoid the payment of federal income taxes by, among other things, placing income and assets in 'sham' trusts called Unincorporated Business Trust Organizations (UBTOs). They sold these trusts and other materials through two of their own UBTOs, "The JoY Foundation" and "EDM Enterprises." Further, Sweet and Malone instructed their clients that income generally is not taxable and that filing a federal income tax return is a strictly voluntary act. The evidence also established that Sweet and Malone instructed clients to submit obstructive paperwork or otherwise deceive the IRS and to illegally conceal their income and assets. At trial, records of The JoY Foundation showed that Sweet and Malone had recruited more than 1,300 members across the nation. At the sentencing hearing, Sweet was found responsible for a tax loss to the United States of more than $3.8 million. Malone was sentenced on June 15, 2010, to 60 months in prison.