Crime Watch: November 18, 2013

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Chicago Lawyer Permanently Barred from Promoting Tax Fraud Schemes and Preparing Related Tax Returns

A federal court has permanently barred Gary J. Stern from promoting tax fraud schemes and from preparing related tax returns, the Justice Department announced November 7. 

The order permanently bars Stern from preparing various types of tax returns for individuals, estates and trusts, partnerships, or corporations (IRS Forms 1040, 1041, 1065, and 1120), among others. The United States alleged that Stern used those returns to facilitate the unlawful schemes identified in the complaint.

According to the complaint, Stern designed at least three tax-fraud schemes that helped hundreds of customers falsely claim over $16 million in improper tax credits and avoid paying income tax on at least $3.4 million. Stern allegedly promoted the schemes to customers, colleagues, and business associates. The complaint alleges that his customers included lawyers, entrepreneurs, and professional football players; some of the latter, including NFL quarterback Kyle Orton, have sued Stern in connection with the tax scheme, alleging fraud, breach of fiduciary duty, and professional malpractice.

Federal law allows an income tax credit with respect to certain sales of fuel from non-conventional sources (FNS), including methane produced from landfills. According to the complaint, beginning in the early 2000s, Stern created a web of partnerships, companies, and other entities to serve as a conduit for sham transactions designed to funnel false FNS credits to his customers. Stern allegedly funneled over $11.4 million of these bogus FNS credits to customers and used a bogus trust arrangement to fraudulently distribute an additional $5.34 million in FNS credits to his customers.

Finally, according to the complaint, Stern promoted an abusive income-shifting technique to help his wealthiest customers illegally avoid taxes. Stern and his business associates allegedly kept most of the money that customers contributed to this scheme. The court has barred Stern from using any entity to assist others in illegally shifting income for the purpose of avoiding tax.

Source: US Department of Justice


Federal Court in Ohio Shuts Down Nation's Fourth-Largest Tax Preparation Firm and Bars CEO from Tax-Preparation Business

A federal court has entered a permanent injunction ordering ITS Financial LLC, the parent company of the Instant Tax Service franchise, to cease operating, the Justice Department announced November 7. The injunction order also bars Fesum Ogbazion, the sole owner and CEO of ITS Financial, from operating or being involved with any business relating to tax-return preparation. The court issued the order following a two-week trial in Cincinnati in June 2013.

Instant Tax Service, which is based in Dayton, Ohio, claimed to be the fourth-largest tax-preparation firm in the nation. According to the court, ITS Financial had about 150 franchisees that filed over 100,000 tax returns each year in 2011 and 2012. Two other entities owned by Ogbazion, Tax Tree LLC and TCA Financial LLC, were also defendants in the case and were also ordered to cease operating.

The court found that Ogbazion and his defendant companies had:

  • Filed tax returns for customers without their permission and encouraged franchisees to do the same;
  • Clandestinely trained and encouraged franchisees to prepare and file tax returns prematurely with paycheck stubs that omitted and understated income and inevitably resulted in the submission of false federal tax returns;
  • Defrauded customers, who were largely low-income, by marketing false and fraudulent loan products to lure them into the tax-preparation offices;
  • Defrauded customers by requiring franchisees to charge phony and exorbitant fees;
  • Forged customers' signatures on loan checks and used those forged checks to operate Ogbazion's businesses;
  • Willfully failed to pay over $1 million of their own employment taxes and lied about assets in connection with the collection of those taxes, while hiding money in a secret bank account and defrauding the United States and third-party creditors;
  • Lied on government forms and encouraged franchisees to do the same;
  • Obstructed government agents and materially assisted franchisees in circumventing IRS law-enforcement efforts involving the suspension of electronic filing identification numbers; and
  • Told franchisees to lie to government agents in connection with IRS compliance visits.

The court credited an IRS study concluding that the tax harm caused by Instant Tax Service franchisees in five cities in a single tax-filing season was between $10 million and $25 million.

The court also concluded that Ogbazion and ITS Financial violated the terms of a preliminary injunction order that the court had entered in October 2012 with their consent. The court found that, despite their agreement to obey various lending and consumer-protection laws during the 2013 tax filing season, they violated several of those laws by discriminating against active-duty military personnel on loan applications and by failing to obtain a state lending license in a timely manner. The court determined that they violated the preliminary injunction by causing their franchisees to provide tens of thousands of customers with Truth-in-Lending Act disclosure forms falsely stating that the loans carried no finance charges and an annual percentage rate (APR) of zero.

Source: US Department of Justice


Alabama Man Sentenced to Federal Prison for Role in Identity Theft and Tax Refund Scheme

Kevin Jackson of Montgomery, Alabama, was sentenced November 14 to serve 102 months in federal prison and three years of supervised release, along with an order to pay $150,840.49 in restitution, for his role in a stolen identity refund fraud scheme, the Justice Department and US Attorney for the Middle District of Alabama announced. Jackson had previously pled guilty to access device fraud and to aggravated identity theft.

According to court documents, Jackson possessed a storage locker in which law enforcement authorities found a computer, three cellular telephones, at least 500 names and Social Security numbers of identity theft victims and at least seventy prepaid debit cards, all tied to a scheme to obtain fraudulent federal tax refunds by causing federal tax returns to be filed in the names of stolen identities.

Source: US Department of Justice


Internet Pharmacy Website Affiliate Pleads Guilty to Filing False Tax Return

Pamela B. Reid pleaded guilty November 12 to one count of filing a false individual income tax return for the 2006 tax year, the Justice Department and IRS announced. Reid was charged in the District of Minnesota by an information filed on September 27, 2013.

According to the plea agreement, Reid worked as a website affiliate for an Internet pharmacy organization from 2006 through 2012. As a website affiliate, Reid maintained websites based on templates provided from the Internet pharmacy organization. These websites allowed US customers to purchase prescription drugs from their personal computer. Reid was paid a percentage of the profit on each prescription sold through one of her websites and received her compensation by international wire from non-US bank accounts under the control of the Internet pharmacy organization.

Reid pleaded guilty to filing a false individual income tax return that failed to report any business income for the year 2006. According to the plea agreement, Reid admitted that in 2006 she had unreported gross receipts of at least $306,081.88 and additional federal income tax due and owing of at least $100,908. As part of her guilty plea, Reid also admitted that she failed to report business income from her Internet pharmacy organization affiliated websites on her individual income tax returns from 2007 through 2010. The total federal income tax Reid did not report or pay for 2006 through 2010 was $270,397.

Reid faces a potential maximum penalty of three years in prison and a potential maximum fine of $250,000 or twice the gross gain of the offense. Reid has also agreed to pay restitution to the IRS in the amount of $376,438.87. Sentencing will be scheduled at a later date.

Source: US Department of Justice


Justice Department Sues to Stop Louisiana Tax Return Preparer

The United States has asked a federal court in New Orleans to permanently bar Shawanda Nevers (aka Shawanda Bryant, aka Shawanda Hawkins, aka Shawanda Johnson) of La Place, Louisiana, from preparing federal income tax returns for others, the Justice Department announced November 12.

According to the complaint, Nevers has prepared federal income tax returns in Louisiana through a business named 3LJ's Industrial Service Solutions LLC. The complaint alleges that she has prepared returns that unlawfully understate income tax liabilities and overstate refunds through a variety of schemes.

According to the complaint, Nevers prepared returns that claimed losses by fabricating expenses for fictitious businesses or overstating expenses incurred by legitimate enterprises. The deductions for these fictitious or overstated expenses were claimed on a Form Schedule C, Profit or Loss from Business, which Nevers often included in her clients' returns without their knowledge.

The returns Nevers prepared directed the IRS to deposit the resulting refunds into her account, from which she deducted a fee before remitting the balance to her clients. The complaint states that the IRS has examined a sample of tax returns that Nevers prepared for her clients for the tax years 2009 through 2011, and almost all of the returns examined had Schedule C losses that audits proved were either overstated or falsified. Altogether, the complaint alleges that Nevers' activities may have resulted in as much as $6 million of loss to the United States.

Source: US Department of Justice


North Carolina Paving Contractor Pleads Guilty to Tax and Bank Fraud

Tommy Edward Clack pleaded guilty in federal court in Greensboro, North Carolina, to one count of willfully filing a false federal income tax return and one count of knowingly making a false statement to a federally insured bank in order to obtain a mortgage loan, the Justice Department and the IRS announced November 7.

According to filings with the court, for approximately the last ten years, Clack has been an itinerant, self-employed paving contractor doing business in North Carolina, South Carolina, Maryland, and Florida. Clack operated under several different business names, and he changed the names of his paving business frequently in order to avoid scrutiny by state and federal law enforcement agencies.

As a result of his business practices, over the years, Clack was charged with multiple state criminal violations in Maryland, North Carolina, South Carolina, and Florida. Since June 2010, Clack has been under an injunction banning him from operating as a driveway paving contractor in North Carolina. He is also subject to a cease-and-desist order in Maryland banning him from various fraudulent practices.

According to court documents, Clack significantly underreported the income from his paving business on his tax returns. From 2004 to 2007, Clack earned gross income of over $5.7 million, but reported only a fraction of it to the IRS. Clack underreported his income by approximately $294,829 in 2004, $1,178,822 in 2005, $1,868,556 in 2006, and $2,428,710 in 2007. Clack's returns were prepared by an accountant, but Clack knowingly provided her with false information upon which to base Clack's returns, and signed his returns knowing that they significantly understated his income. Altogether, as a result of these false returns Clack underpaid his taxes during this period by approximately $1,350,597.

To conceal his tax fraud, Clack employed a number of strategies: he did not maintain books and records, dealt extensively in cash, paid his employees in cash, and structured currency transactions with his bank in amounts designed to evade the bank's requirement to file Currency Transaction Reports with the IRS.

Court documents state that in 2003, Clack submitted a mortgage loan application in the name of his then-wife to a bank in Greensboro. The application sought a $640,000 loan to finance the purchase of a $1.2 million home. As part of the loan application, Clack provided the bank with a 2002 tax return in his wife's name, which reported adjusted gross income of $372,748 and claimed total tax liability of $127,745. Clack represented that this tax return had been filed with the IRS, when in fact it had not been. In fact, Clack and his then-wife had filed a 2002 joint federal income tax return which claimed that the couple had adjusted gross income of $17,656 and total tax liability of $2,685. Had the bank known of the discrepancy, they would not have issued the loan. Clack ultimately defaulted on the loan, and the bank suffered a loss after foreclosing the collateral.

For the false tax return charge, Clack faces a maximum of three years in prison, one year of supervised release, and a maximum fine of $250,000. Clack faces a maximum of thirty years in prison, five years of supervised release, and a maximum fine of $1,000,000 for the bank fraud count. Sentencing is scheduled for March 7, 2014.

Source: US Department of Justice



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