New York City restaurateur sentenced to jail for tax evasion scheme

 

Date: December 1, 2020

Contact: newsroom@ci.irs.gov

A New York City restaurateur was sentenced to prison for a tax evasion scheme.

Adel Kellel, owner of Raffles Bistro, formerly a restaurant located in New York City, was sentenced in Manhattan federal court to two years in prison for perpetrating a tax evasion scheme. Kellel previously pled guilty before U.S. Magistrate Judge Gabriel W. Gorenstein to one count of tax evasion for the calendar years 2011 through 2015. U.S. District Judge Paul G. Gardephe, who accepted Kellel's guilty plea, imposed the sentence.

"The accurate reporting of income is an important responsibility of all business professionals," said IRS-Criminal Investigation Special Agent in Charge Jonathan D. Larsen. "In this case, Adel Kellel attempted to evade his taxes by diverting funds for personal use and failing to report substantial gross receipts. IRS-Criminal Investigation will continue to serve the American taxpayer by investigating individuals who hide their true income from the IRS."

According to the allegations contained in the information to which Kellel pled guilty, documents filed in court, and statements made in court:

In 2011, Kellel was the President and a 45 percent owner of K&H Restaurant, Inc. ("K&H"), which operated Raffles Bistro ("Raffles"), a coffee-shop and full service restaurant then located in a hotel (the "Hotel") in Manhattan. From 2012 through 2015, Kellel was the 100 percent owner of K&H. The gross receipts of K&H consisted primarily of: (a) credit card payments by Raffles' customers; (b) cash payments by Raffles' customers; and (c) check payments by the Hotel for various services that Raffles provided to hotel guests and patrons, including room service, banquets, and catering. From 2011 to 2015, Kellel filed false personal returns and corporate returns for K&H, and evaded his taxes by diverting and failing to report substantial gross receipts to the IRS.

Kellel perpetrated a scheme to evade income taxes by diverting and failing to report to the Internal Revenue Service ("IRS") a substantial portion of K&H's gross receipts for the calendar years 2011 through 2015. As part of his tax evasion scheme, Kellel diverted over 150 Hotel checks, totaling over $2.1 million in gross receipts, which he hid from his accountants and the IRS. Kellel concealed these receipts – representing approximately 43 percent of this particular revenue stream for the restaurant – by depositing them into more than a dozen bank accounts that Kellel did not disclose to his accountants. Kellel also diverted cash income received from Raffles' customers, a portion of which he deposited into personal bank accounts or spent directly on personal expenses, without disclosing it to his accountants or paying taxes on it.

Kellel used the diverted income for various personal expenses, including overseas transfers; condominium fees; rent for a high-end Manhattan apartment; college tuition payments from his children; shopping at luxury retailers, such as Hugo Boss and Saks Fifth Avenue; payments for luxury cars manufactured by Mercedes, Porsche, and Maserati; and payments for domestic and international travel.

By fraudulently concealing from his accountants a substantial portion of K&H's gross receipts, Kellel caused K&H's corporate income tax returns and Kellel's own individual income tax returns for the calendar years 2011 through 2015 to be materially false. As a result of his conduct, Kellel admitted to causing a combined tax loss of at least $771,195 to the IRS and the New York State Department of Taxation and Finance ("NYSDTF").

"All taxpayers have an obligation to honestly report their income and pay their share of taxes," said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department's Tax Division. "For those who attempt to avoid these obligations and cheat the IRS, as this sentence shows, there are serious consequences."

Kellel used the diverted income for personal expenses, including overseas transfers; condominium fees; rent for a high-end Manhattan apartment; college tuition payments for his children; luxury retailers, such as Hugo Boss and Saks Fifth Avenue; Mercedes, Porsche, and Maserati vehicles; and domestic and international travel.

On Jan. 24, 2020, Kellel pled guilty to one count of tax evasion relating to the 2011 to 2015 tax years.

In total, Kellel caused a combined tax loss of at least approximately $771,195 to the IRS and the New York State Department of Taxation and Finance (NYSDTF). In addition to the sentence of imprisonment, the court ordered Kellel to pay restitution of $613,478 to the IRS and $157,717 to NYSDTF. Kellel was also ordered to serve three years of supervised release after completing his jail sentence.

"Adel Kellel cooked his books to conceal income from the IRS and his own accountants," said Acting U.S. Attorney Audrey Strauss for the Southern District of New York. "He spent the ill-gotten gains on personal luxuries like a Mercedes, a Porsche, and a Maserati. Now he will spend two years in federal prison."

This case was investigated by the Internal Revenue Service, Criminal Investigation with significant assistance from the U.S. Department of Justice's Tax Division.

This case is being prosecuted by the Office's Complex Frauds and Cybercrime Unit. Assistant United States Attorney Olga I. Zverovich and Special Assistant U.S. Attorney Jorge Almonte of the Department of Justice's Tax Division are in charge of the prosecution.