Crime Watch: January 16, 2013

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Former CPA Sentenced for Filing False Tax Returns

Macon J. Dew, sixty-four, of Mt. Juliet, Tennessee, was sentenced on January 11 by Chief US District Judge William J. Haynes Jr. to serve twelve months and one day in federal prison and ordered to pay restitution in the amount of $205,535 to the IRS for his role in the preparation of false tax returns, announced Jerry E. Martin, US Attorney for the Middle District of Tennessee. 

Dew was also prohibited from preparing or filing any future tax returns.

Dew pleaded guilty on July 18, 2012, to two counts of aiding and assisting in the preparation of false tax returns. Dew admitted that he was a CPA until 2008, and he had operated a tax return preparation business in Mt. Juliet and Old Hickory. He acknowledged that between 2001 and 2004, he prepared at least thirty-three false income tax returns for others. The false items included fictitious W-2 forms, false Schedule C businesses, and fraudulent education credits. Dew admitted that the tax loss from the filing of these false returns was at least $40,000.

Additionally, Dew admitted that for the 2006 tax year, he prepared returns and relevant schedules for two individuals who formed a corporation known as CP Construction, LLC. The returns falsely reported a loss of $751,300 each. These claimed losses resulted in a tax loss to the government of $165,535.


Business Owner Sentenced to Fifty-One Months and Ordered to Pay Restitution of Nearly $1 Million to Victims

Michael Wayne Davis, II, forty-six, of Raleigh, North Carolina, formerly of Eagle, Idaho, was sentenced to fifty-one months in prison for wire fraud and filing a false tax return, US Attorney Wendy J. Olson and Assistant Attorney General for the Justice Department's Tax Division Kathryn Keneally announced. Chief US District Judge B. Lynn Winmill also ordered Davis to serve three years of supervised release following his prison term and pay $999,930.90 in restitution - $954,640.90 to Xpress Flex victims and $45,290 to the IRS for the tax loss. 

Davis pleaded guilty to the charges on September 10, 2012. According to court documents, in 2009 and 2010, Davis owned and operated Xpress Flex, Inc., a Boise, Idaho, company that administered, on behalf of employer-clients, flexible benefits plans for tax-free, qualified benefits, such as health care and dependent care. Pursuant to those plans, Xpress Flex received monetary contributions from its employer-clients of pre-tax withholdings from their employees' paychecks. These funds were deposited into Xpress Flex bank accounts and set aside to pay the claims of employee-participants when they came due. 

According to court documents, Davis misappropriated $954,640.90 of Xpress Flex client funds and used them to pay personal credit card charges and the business expenses of his other company, Payroll America, Inc. He did so without the knowledge or authorization of the two employer-clients and their employees, and contrary to representations in plan documents and contracts that he would safeguard the deposits and use them only to pay employee claims. 

Court documents also showed that from 1994 through 2009, Davis owned and operated Payroll America in Boise, Idaho. Payroll America provided payroll administration and payroll tax filing services to its employer-clients. Pursuant to contract documents, employer-clients would deposit sufficient funds with Payroll America to meet their payroll and payroll tax obligations, which Payroll America would pay when they came due. According to court documents, in March and April of 2007, Davis misappropriated $2 million of Payroll America employer-client funds, wired them into his E*TRADE brokerage account, and then invested the funds in the stock market. Davis did so without the knowledge or authorization of the employer-clients of Payroll America, contrary to representations in contract documents that he would safeguard the funds and use them only to pay payroll and payroll taxes. 

Davis' E*TRADE investments generated approximately $192,436 in capital gains income. According to court documents, Davis wired this money into his and his wife's personal checking account. The wire transfer was annotated "E-Trade Gains." However, Davis intentionally failed to report capital gains income from E*TRADE investments on his 2007 or 2008 tax returns, causing a tax loss of $45,290. For this conduct, Davis pleaded guilty to one count of filing a false tax return.


Justice Department Seeks to Shut Down Florida Tax Preparer

The Justice Department announced January 11 that it has sued a Kissimmee, Florida, tax return preparer, seeking to bar him permanently from preparing federal tax returns for others. The civil injunction suit, filed in Orlando with the US District Court for the Middle District of Florida, alleges that Carlos A. Cabrera and his business, Cabrera Financial Group, prepare federal income tax returns for customers that claim improper losses for nonexistent businesses and fabricated education credits in order to unlawfully understate customers' tax liabilities.

According to the civil injunction complaint, Cabrera prepared over 17,000 tax returns for 2009 and 2010, with an average tax understatement of $4,222 per return for returns the IRS examined. The government suit alleges that the total losses to the US Treasury from Cabrera's misconduct could be tens of millions of dollars for those two years alone.


Couple Arrested on Tax Evasion and Conspiracy Charges

Husband and wife John and Sandra Cote, both of Brooklyn, Connecticut, were arrested on tax charges, the Justice Department and IRS announced January 11. On December 18, 2012, a federal grand jury in New Haven returned an indictment charging the Cotes with conspiracy to defraud the IRS and four counts of tax evasion. Sandra Cote was arrested and appeared in court on January 9, 2013, in Providence, Rhode Island, John Cote was arrested January 10, 2013, and his initial appearance in court took place in Miami January 11.

According to the indictment, the Cotes had not filed a timely or valid tax return since 1994, despite earning income from John Cote's work as a consultant in the high-technology welding industry. The IRS assessed John Cote's unpaid 1995-1996 taxes based on Forms 1099-MISC. Per the indictment, the Cotes responded to IRS efforts to assess and collect taxes for these years by concealing income and assets from the government and by submitting obstructive letters and other documents, including fake financial instruments and false criminal complaints against IRS employees. For the years 1998-2009, the Cotes allegedly prevented the companies for which John Cote consulted from filing Forms 1099 bearing his Social Security number with the IRS and caused these companies to pay his compensation to nominee bank accounts, including accounts in Costa Rica, Antigua, and Sweden. The Cotes also used a nominee entity called "Sandra Cote, Overseer of God's Battery Ministry, and Her Successors, a Corporation Sole (an unincorporated Altruistic Spiritual Order)" to conceal income and assets from the IRS. In 2003, Sandra Cote conveyed their personal residence to this entity.

If convicted on all counts, the Cotes face a maximum potential sentence of twenty-five years in prison and fines of up to $1,250,000.


Idaho Businessman Convicted of Tax Evasion

Assistant Attorney General for the Tax Division Kathryn Keneally, US Attorney for the District of Idaho Wendy J. Olson, and the IRS announced January 11 that a Coeur d'Alene, Idaho, jury convicted Michael George Fitzpatrick, fifty-one, of Hope, Idaho, of two counts of income tax evasion after a four-day trial before US District Judge Larry A. Burns.

In September 2012, Fitzpatrick was tried on four tax fraud counts. That jury rendered guilty verdicts on two counts of failure to file 2004 corporate income tax returns but was unable to reach verdicts on the tax evasion counts. The verdict on January 11 was the result of a second trial on those two charges. Fitzpatrick was remanded into custody immediately.

According to the indictment and evidence introduced at both trials, Fitzpatrick operated a business selling products which purported to help individuals eliminate credit card debt. During 2003 and 2004, the business's gross sales exceeded $9 million, operating under the names Dynamic Solutions Inc. (DSI) and NAES. The evidence proved Fitzpatrick last filed an individual income tax return in 1996. At trial, the government proved the corporations failed to report $3.7 million, and Fitzpatrick himself failed to report over $500,000 in income, resulting in a total tax loss of almost $1.4 million.

The evidence at trial established that Fitzpatrick sent over $5 million offshore to WWIN, a "warehouse" bank located in the Dominican Republic. Fitzpatrick accessed this money through the use of a debit card and through wire transfers. During a two-year period, Fitzpatrick used his offshore funds to purchase his personal residence and two, four-unit apartment buildings in northern Idaho, with a combined cost of over $700,000. Fitzpatrick also wired $114,980 from his offshore bank accounts to the Bellagio Casino during nine trips to Las Vegas.

Sentencing is scheduled for May 13, 2013. The maximum penalty Fitzpatrick faces on each count of tax evasion is five years in prison and a $250,000 fine. The two convictions for failure to file corporate income tax returns each carry a maximum penalty of one year in prison and a $100,000 fine.


Tax Return Preparer Pleads Guilty to Tax Refund Conspiracy Scheme Using Social Security Numbers of Deceased Persons and Stolen Employer Identification Information 

Masood Chotani, a CPA and tax return preparer of Northridge, California, pleaded guilty to charges that he conspired to defraud the United States before Judge S. James Otero on January 15. 

On June 23, 2010, Masood Chotani was indicted by a federal grand jury in Riverside on charges of engaging in a scheme to file false tax returns with the IRS using the names and Social Security numbers of deceased individuals. 

According to the court documents, in 2002 and 2003 Chotani, misappropriated employer identification information from his client files and provided the information to his coconspirator, Haroon Amin, of Upland. Amin and another coconspirator, Ather Ali, of Diamond Bar, used the stolen employer data as well as deceased people' s Social Security numbers and other identification information obtained from the Internet, to prepare and file fraudulent returns. These returns had fictitious Form W-2 wage and tax statements as attachments, falsely stating that the deceased people earned wages from those employers from which income tax had been withheld. Chotani admitted that he was a knowing participant in this scheme. Chotani also admitted filing similar false returns himself, in his parents' names, also using employer identification information misappropriated from his files. 

According to court documents filed in two related cases, the scheme resulted in the filing of at least 250 false income tax returns with the IRS, claiming an aggregate of more than $2,000,000 in tax refunds. Although the IRS rejected the bulk of these refund claims, a number of refund checks were issued and delivered to addresses controlled by Amin, Ali, and their coconspirators. According to court documents, most offenses occurred in San Bernardino, Los Angeles, Orange, Riverside, and Ventura counties. Most of these refund checks were delivered overseas to be deposited in bank accounts in Armenia and Pakistan. 

Haroon Amin pleaded guilty to conspiracy to defraud the United States on January 25, 2010, and is currently serving a thirty-month prison term. Ather Ali pleaded guilty to conspiracy to defraud the United States on February 12, 2010, and is serving a thirty-seven-month prison term. 

At sentencing, scheduled for April 23, 2013, Chotani faces a statutory maximum sentence of five years in prison and a maximum fine of $250,000. In addition, as part of his plea agreement, Chotani has agreed to pay restitution to the IRS for the losses arising from the tax fraud scheme.

Source: US Department of Justice



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