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Examples of Abusive Tax Schemes - Fiscal Year 2014

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

Colorado Man Sentenced for Tax Evasion and Other Federal Charges
On March 6, 2014, in Denver, Colo., Michael Destry Williams, of Pueblo, Colo., was sentenced to 71 months in prison, five years of supervised release and ordered to pay $60,597 in restitution to the IRS. Williams was convicted by a jury on Nov. 5, 2013 for tax evasion, currency structuring, bank fraud and interfering with the IRS’s administration of the Internal Revenue laws. According to court documents and evidence presented at trial, Williams was self-employed as a general contractor focusing primarily on residential construction projects, including roofing, remodeling and the repair and restoration of residential structures sustaining fire and water related damage. He was also self-employed as a real estate investor involved in the purchase, renovation and resale of residential properties. Williams operated under the name of Greenview Construction, Inc., a Colorado corporation. From April 2005 and continuing through January 2008, Williams willfully attempted to evade a substantial amount of income tax and self-employment tax for calendar years 2005, 2006 and 2007. To conceal his income, Williams established and used trusts as part of his tax evasion scheme and structured over $90,000 in deposited funds from July 2008 through September 2008. In November 2009, Williams attempted to defraud a Colorado financial institution by depositing worthless fabricated United States Treasury checks for his own benefit. There were two false treasury checks totaling $55,000 payable to Greenview Construction. From October 2008 through December 2010, Williams mailed numerous frivolous correspondences to the Secretary of the Treasury, as well as various IRS offices, in an attempt to obstruct and impede the administration of the internal revenue laws.  

California Man Sentenced for Failure to Report Foreign Bank Account
On Feb. 26, 2014, in San Jose, Calif., Christopher B. Berg of Portola Valley, Calif., was sentenced to 12 months and one day in prison and three years of supervised release.  Prior to sentencing, Berg paid more than $250,000 in restitution to the IRS, as well as a penalty of $287,896 for failure to properly report his foreign account. Berg pleaded guilty to willfully failing to file the required report of foreign bank account for an account he controlled in 2005 at UBS in Switzerland.  According to court documents, in 2000, Berg set up a bank account at UBS in Switzerland to shelter a portion of his consulting income from taxation. Beginning in 2001 and continuing through 2005, Berg used wire transfers to deposit $642,070 in earned income into UBS accounts. Berg used money in these Swiss UBS accounts to purchase a vehicle, to obtain cash while in Europe and to pay the balance on a Eurocard he used while traveling in Europe. Berg did not disclose the existence of his accounts at UBS to his certified public accountant, and also failed to disclose the income earned by these accounts or the consulting income deposited to the accounts.

New Mexico Man Sentenced on Tax Charges
On Feb. 7, 2014, in Albuquerque, N.M., Bill Melot, a farmer from Hobbs, N.M., was sentenced to 168 months in prison, three years of supervised release and ordered to pay $18,469,998 in restitution to the IRS and $226,526 to the United States Department of Agriculture (USDA). Melot was previously convicted of tax evasion, failure to file tax returns, making false statements to the USDA and impeding the IRS.  According to court documents and evidence presented at trial and at sentencing, Melot has not filed a personal income tax return since 1986, and owes the IRS more than $25 million in federal taxes and more than $7 million in taxes to the state of Texas. In addition, Melot has improperly collected more than $225,000 in federal farm subsidies from the USDA by furnishing false information to the agency.  Specifically, Melot provided the USDA with a false Social Security number (SSN) and a fictitious employer identification number (EIN) to collect federal farm aid. Melot took numerous steps to conceal his ownership of 250 acres in Lea County, N.M., including notarizing forged deeds and titling the property in the name of nominees. Additionally, Melot used false SSNs and fictitious EINs to hide his assets from the IRS. He also maintained a bank account with a Swiss financial institution which he set up in Nassau, Bahamas, in 1992, and failed to report the account to the United States Treasury Department as required by law.

St. Thomas Man Sentenced for Tax Fraud Conspiracy
On Feb. 2, 2014 in St. Thomas, U.S. Virgin Islands, David Haddow was sentenced to 36 months in prison, three years of supervised release and ordered to pay $821,094 in restitution to the Virgin Islands Bureau of Internal Revenue and restitution of $1,104,741 to the IRS. Haddow was sentenced for conspiracy to defraud the United States in the collection of taxes and conspiracy to evade and defeat tax due and owing the Virgin Islands. According to the evidence presented at court, Haddow and co-conspirator, Hansel Bailey, incorporated a business in St. Thomas called Compass Diversified in 2004. In 2005, that company was granted Economic Development Commission tax benefits. Bailey and another co-conspirator marketed a tax-savings scheme that would allow clients of Compass Diversified to claim bogus business deductions on their income tax returns by making payments to Compass, allegedly for management or consulting services. According to the evidence, in the first step, Compass clients made payments to Compass or wired money directly into Compass’ bank account. In step two, Haddow, at the direction of Bailey, transferred by check a substantial portion of that money into the personal bank account of a Compass employee, a native of the Virgin Islands whom Bailey and Haddow convinced to open a personal bank account for the sole purpose of sending tax-free gifts back to Compass clients. Finally, a substantial portion of the original payment was returned by check or wire transfer back to the Compass clients. Compass Diversified never offered consulting or management services to any of their clients even though the clients were encouraged to claim deductions on their tax returns. Bailey was sentenced on Jan. 9, 2014, to 60 months in prison and ordered to pay the same amounts in restitution to the IRS and the Virgin Islands Bureau of Internal Revenue. A third co-conspirator, Dwight Padilla, was sentenced to 15 months in prison, three years of supervised release, and ordered to pay $1,296,941 in restitution to the IRS.

Former Tennessee Resident Sentenced for Tax Evasion
On January 14, 2014, in Nashville, Tenn., Jimmie Duane Ross, of Lehi, Utah, and formerly of Sevierville, Tenn., was sentenced to 51 months in prison, three years of supervised release and ordered to pay $532,389 in restitution. On August 7, 2013, Ross was convicted of five counts of tax evasion following a jury trial. According to court documents, Ross won a monetary award of approximately $840,000 in 1999 after arbitration of an employment dispute with a former employer. Ross then filed a false mortgage on his residence, a false lien on his vehicle, dealt extensively in cash, and directed funds to an offshore account in order to avoid paying the full amount he owed in income tax for 1999. In addition, from 2004 through 2007, Ross earned commission income for referring clients to what appeared to be an investment company and evaded his taxes by using nominees and other means.

Californian Sentenced for Tax Fraud Conspiracy
On January 9, 2014 in St. Thomas, U.S. Virgin Islands, Hansel Bailey, of Orange County, Calif., was sentenced to 60 months in prison, three years of supervised release and ordered to pay $821,094 in restitution to the Virgin Islands Bureau of Internal Revenue and $1,104,741 to the IRS.  According to the evidence presented at court, Bailey and co-conspirator, David Haddow, incorporated a business in St. Thomas called Compass Diversified. In 2005, that company was granted Economic Development Commission tax benefits. Bailey and another co-conspirator marketed a tax-savings scheme that would allow clients of Compass Diversified to claim bogus business deductions on their income tax returns by making payments to Compass, allegedly for management or consulting services. Compass clients made payments to Compass or wired money directly into Compass’ bank account. Then, Haddow, at the direction of Bailey, transferred by check a substantial portion of that money into the personal bank account of a Compass employee, a native of the Virgin Islands whom Bailey and Haddow convinced to open a personal bank account for the sole purpose of sending tax-free gifts back to Compass clients. Finally, a substantial portion of the original payment was returned by check or wire transfer back to the Compass clients. Compass Diversified never offered consulting or management services to any of their clients even though the clients were encouraged to claim deductions on their tax returns. The jury also convicted Haddow of conspiracy to defraud the United States in the collection of taxes and conspiracy to evade and defeat tax due and owing the Virgin Islands. Haddow’s sentencing has been continued without a date. A second co-conspirator, Dwight Padilla, was sentenced to 15 months in prison and ordered to pay $1,296,941 in restitution to the IRS.

California Businessman Sentenced for Conspiring to Defraud the IRS
On December 5, 2013, in Los Angeles, Calif., Gary Mach, of Palm Desert, Calif., was sentenced to 16 months in prison, two months of house arrest, 18 months of probation and ordered to pay $270,725 in restitution to the IRS. Mach pleaded guilty on August 18, 2013 to conspiracy to defraud the United States. According to court documents, beginning around January 2002 and continuing through December 2010, Mach failed to report substantial income he earned from CSPS, a pool-servicing business operated throughout Riverside County.  Mach and others established fictitious trusts which they used to receive income and hold assets in an attempt to conceal the assets and income from the IRS. Mach purported to operate a trust called “Quintessential,” and directed that his paychecks be made payable to Quintessential. He also opened a bank account in the name of Quintessential where he deposited CSPS proceeds. Mach did not report to the IRS any of the income he earned from CSPS between 2002 and 2010.  In furtherance of the conspiracy, Mach also attempted to impede an IRS summons issued to a bank for business account records by closing his bank accounts. Mach admitted that his total unreported income for the tax years 2002 through 2010 was $1,410,430.

Real Estate Developer Sentenced for Tax Evasion Scheme
On November 22, 2013, in Seattle, Wash., Winston Bontrager, a real estate developer, and Pauline Anderson were sentenced to prison for tax evasion and false statements related to their scheme to avoid paying taxes on more than $23 million in income. Bontrager was sentenced to 132 months in prison and three years of supervised release. Anderson was sentenced to 39 month in prison. As an Australian citizen, she likely will be deported following her prison term. Bontrager and Anderson were ordered to pay $2,717,510 in restitution. They were convicted following a four-week jury trial in July 2013. Bontrager was convicted of nine tax counts and eight counts of making false statements. Anderson was convicted of eleven tax counts.  According to court documents, from 2004 through 2009, Bontrager and Anderson filed false tax returns failing to report more than $23 million in income and failing to pay more than $2.7 million in taxes. Over $10 million was moved into foreign bank accounts in Anderson’s name, and virtually all of the couples’ assets were put in Anderson’s name in order to hide it from the IRS and those seeking to enforce Bontrager’s restitution obligation and collect delinquent taxes.

 

Fiscal Year 2013 - Abusive Tax Schemes

Fiscal Year 2012 - Abusive Tax Schemes


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Page Last Reviewed or Updated: 21-Mar-2014