Tax Return Preparer Sentenced to Eighteen Months Imprisonment for Filing False Tax Returns
On October 12, 2012, Juan Manuel Mendez, owner of Mendez Multi Services, was sentenced to eighteen months in custody, one year of supervised release, and ordered to pay $367,000 in restitution for filing false federal income tax returns with the IRS.
On June 6, 2012, Mendez, forty-five, pleaded guilty to filing false income tax returns. According to court documents, Mendez filed false federal income tax returns claiming real estate deductions on Schedule A of Form 1040 for at least seventeen individuals. He also filed one false tax return for himself for calendar year 2007 and failed to file two other tax returns for himself for calendar years 2006 and 2008.
According to the plea agreement, Mendez agreed to a civil injunction, barring him for life from preparing federal income tax returns or representing before the IRS anyone other than himself and his legal spouse. Mendez agreed that the criminal tax loss relating to false tax returns he prepared is $115,000, and the criminal tax loss relating to unreported income for the years 2006 through 2008 is $252,000. The total amount of restitution owed by Mendez is at least $367,000. He agreed to cooperate with the IRS and make full restitution for the losses he caused. Mendez was ordered to surrender to the Bureau of Prisons on December 10, 2012, at noon.
Man Pleaded Guilty in Ohio Federal Court to Tax and Mortgage Fraud Conspiracies
Steven R. Hinz pleaded guilty October 12, 2012, to tax fraud and mortgage fraud charges in Cleveland federal court, the Justice Department and IRS announced. Hinz's guilty pleas followed recent guilty pleas of three other defendants - Heather L. English, Patricia A. Polk, and William E. Phillips III - who were charged in indictment in December 2011 on a tax conspiracy and various false return charges. The case is assigned to US District Judge Patricia A. Gaughan, who scheduled the sentencing for January 2013.
Hinz pleaded guilty to one count of conspiracy to defraud the United States, one count of making a false 2008 income tax return, fifteen counts of aiding and assisting the preparation of false income tax returns, and one count of conspiracy to commit bank fraud involving a mortgage fraud scheme.
On October 11, 2012, codefendant Polk also pleaded guilty to the tax fraud conspiracy and the bank fraud conspiracy. On October 4, 2012, codefendant English pleaded guilty to tax fraud conspiracy and one count of aiding and assisting the preparation and presentation of Hinz's false 2008 tax return. Also on October 4, 2012, codefendant Phillips pleaded guilty to the tax fraud conspiracy.
Hinz was arrested in Miami, Florida, in January 2012, and Polk was arrested in Sarasota, Florida, in February 2012. Phillips was arrested in Los Angeles in June 2012, after being deported from the Philippines upon request of the US government. Hinz and Polk were also charged with the bank fraud conspiracy in supplemental information that was filed with the district court October 10, 2012.
According to the indictment and documents submitted to the court, Hinz promoted a scheme to defraud the United States by filing false federal income tax returns claiming large tax refunds using the so-called Original Issue Discount (OID) process. The OID process involved the preparation of fictitious IRS Forms 1099-OID, falsely reporting that financial institutions, creditors, and other entities had withheld large amounts of federal income tax on behalf of the defendants and other taxpayers, with respect to fictitious income.
Hinz and English recruited potential clients by promoting the OID scheme to investors and employees of Hinz's real estate business in Youngstown, Ohio. English prepared or directed the preparation of the 1099-OID forms and prepared and electronically filed the tax returns. Based on these fictitious withholdings, at least seventeen false income tax returns for the year 2008 were filed with the IRS, claiming false refunds totaling over $3 million dollars. Under the scheme, taxpayers recruited by Hinz were to pay 20 percent of their refunds to Hinz and English, split equally between the two.
According to the supplemental information and other documents filed with the court, from approximately December 2006 through May 2009, Hinz conducted his real estate business in part through a scheme to defraud two federally insured banks, Wells Fargo Bank and Huntington National Bank, which provided mortgage loans to the investors. The scheme was carried out through the filing of false mechanic's liens for work not actually done and the providing of undisclosed down payment assistance to the investors. The scheme was designed to induce the banks to make mortgage loans based on false representations concerning the true price and value of the properties, the sources of down payments, and the disposition of loan proceeds. According to court documents, Polk began conspiring with Hinz to conduct the scheme beginning approximately April 2008.
Each defendant's sentence will be determined by Judge Gaughan. The maximum potential prison sentences: Eighty-three years for Hinz, thirty-five years for Polk, five years for Phillips, and eight years for English.
Insurance Salesman Gets a Thirty-Seven-Month Prison Sentence for Tax Evasion
William A. Herder of Richland County, Ohio, was sentenced to thirty-seven months in prison for tax crimes, the Justice Department and the IRS announced October 16, 2012. US District Judge Sara Lioi also ordered Herder to pay restitution to the IRS.
On May 21, 2012, an Akron, Ohio, jury convicted Herder on all counts of an indictment that charged Herder with one count of tax evasion, one count of corruptly endeavoring to obstruct the administration of the Internal Revenue laws, and five counts of willful failure to file tax returns.
According to the evidence at trial, Herder sold insurance for Aflac Inc., a nationwide supplemental insurance provider, from an office in Mansfield, Ohio. Despite earning substantial income from insurance sales and receiving warning notices and letters from the IRS about his obligations under the tax laws, Herder failed to file timely and valid tax returns for the years 2000 through 2009. For the year 2000, Herder filed a tax return on which he falsely claimed that he had not earned any income. Subsequently, Herder failed to file any tax returns for the 2001 through 2009 tax years.
The trial evidence also established that in addition to failing to file tax returns and pay taxes, Herder attempted to conceal his assets from the IRS. In 2003, Herder transferred title to his house to a bogus foundation he established in Utah called "The Mentor Foundation." Herder also cashed out an Individual Retirement Account and a life insurance policy, converted large amounts of cash to silver coins, and paid personal and business expenses with cash and money orders, all in an effort to prevent the IRS from collecting his unpaid taxes.
According to trial evidence, Herder submitted numerous obstructive letters and documents to the IRS in an effort to prevent the IRS from assessing and collecting his taxes. In these letters, Herder falsely claimed, among other things, that the tax laws were not applicable to him. Herder sent similar letters to the companies for whom he sold insurance and to his credit union, all designed to prevent these companies from complying with IRS levies. Herder obtained these obstructive materials from several sources, including Joseph Flickinger, who was previously convicted and sentenced for a tax fraud conspiracy and later enjoined from preparing tax returns for others. Herder has remained in custody since the trial.
Businessman Sentenced to Prison for Tax Evasion and Conspiracy to Obstruct and Impede the IRS
A federal judge in Boston sentenced Gary Alcock on October 17, 2012, to fourteen months in prison for tax evasion, for conspiring to defraud the United States, and for willfully failing to file tax returns, the Justice Department and IRS announced. US District Judge F. Dennis Saylor also ordered Alcock to pay restitution in the amount of $515,518. Alcock pleaded guilty to the charges on December 9, 2011, and provided substantial assistance to the government in prosecuting the case against the remaining defendants, which Judge Saylor cited, among other factors, as a basis for a reduced sentence.
Alcock, a resident of Westborough, Massachusetts, testified at a trial of three defendants, which resulted in guilty verdicts rendered by a federal jury on April 2, 2012. The jury convicted Charles Adams of Norwood, Massachusetts, as well as Catherine Floyd and William Scott Dion, both of Sanbornville, New Hampshire, for conspiracies to defraud the United States through the promotion and use of multiple tax fraud schemes. The jury convicted all three of conspiracy to defraud the IRS by promoting an "under the table" payroll scheme doing business as Contract America. Dion and Floyd were also convicted for conspiracy to defraud the IRS through the use of an "underground warehouse banking" scheme designed to conceal subscriber income and assets from the IRS.
Alcock was a subscriber to the services of Dion, Floyd, and Adams. According to the information presented in court, Alcock owned and operated a trash hauling business called G&K Trucking as well as a landscaping business called Bark, Mulch and Loam in Shrewsbury, Massachusetts. Between 2001 and 2004, Alcock employed the banking and nominee services of Dion and Floyd to set up a nominee company called Alex Management to divert and hide business receipts, to help his businesses fraudulently "disappear" on paper, and, thus, to evade IRS assessments and IRS collection activity. Alcock further used the services of Contract America, run by Adams, Dion, and Floyd, in order to pay his employees "under the table" without withholding and paying over Social Security, Medicare, and income taxes.
Judge Saylor previously sentenced Dion to seven years in prison, Floyd to five years in prison, and Adams to four years in prison for promoting these schemes.
In August 2009, Alcock, along with Dion, Floyd, Adams, and three other individuals, were indicted for the promotion and use of these schemes. On December 9, 2011, prior to trial, Gail and Myron Thorick of West Warwick, Rhode Island, pleaded guilty to conspiring to defraud the United States by helping operate the "warehouse banking" scheme, and for filing false tax returns. On January 24, 2012, Kenneth Scott Alcock, Gary Alcock's brother, pleaded guilty to conspiracy relating to the payroll scheme and to one count of tax evasion. The Thoricks and Kenneth Scott Alcock await sentencing in November.
Gas Station Owner and His Bookkeeper Sentenced to Prison for Tax Fraud
On October 17, 2012, US District Judge Patrick J. Duggan sentenced Elsayed Kazem "Tom" Safiedine to twenty-one months in prison and Mary Fawaz to twelve months and one day in prison for tax fraud, the Justice Department and the IRS announced. Safiedine and Fawaz were convicted by a Detroit, Michigan, jury of conspiring to defraud the United States by impeding and impairing the lawful functions of the IRS.
According to evidence at trial, Safiedine was an officer and member of multiple business entities that operated and leased gasoline stations in the Detroit area. Fawaz was an officer of JSC Corporation, a business operated by Safiendine, and also served as a bookkeeper and office manager for several of Safiedine's businesses.
The evidence established that from 1998 through 2001, Safiedine and Fawaz arranged for third parties to negotiate checks from Sunoco Incorporated made payable to JSC Corporation. The checks from Sunoco, which totaled $845,000, were not properly reported to the accountant for JSC Corporation and as a result, were not included as income on JSC's corporate tax returns filed with the IRS.
Further evidence presented revealed that Safiedine and Fawaz participated in the sale of a gasoline station owned by one of Safiedine's businesses, MTK & KLC Partnership, during which Safiedine and Fawaz advised the accountant for MTK & KLC that the gas station sold for $175,000 less than its actual sale price, thus resulting in an understatement of income on the MTK & KLC partnership income tax return.
Source: US Department of Justice
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