AI
Friday, July 01, 2005 6:18:12 PM
nice going redwards -- get peg in trouble -- and remember, IHub must reveal your name and all info when a court order is presented -- posting that crap violates a law
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Civil and Criminal Penalties - Abusive Tax Schemes
Investors of abusive tax schemes that improperly evade tax are still liable for taxes, interest, and civil penalties. Violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty or criminal prosecution. Civil fraud can include a penalty of up to 75% of the underpayment of tax attributable to fraud, in addition to the taxes owed. Criminal convictions of promoters and investors may result in fines up to $250,000 and up to five years in prison.
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here is a recap of those sad souls convicted in 2004
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FY2004 Archive Examples of Nonfiler Enforcement Investigations
The following examples of fraud investigations are excerpts from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
Michigan Couple Sentenced for Tax Fraud
On September 27, 2004, in Grand Rapids, MI, Andrew Stuart Ouwenga and Karen Ann Ouwenga were sentenced following a May 26, 2004, jury conviction on several tax-related felony offenses. Andrew Ouwenga received 60 months imprisonment and Karen Ouwenga received 51 months imprisonment, which are each followed by two years supervised release. They must also cooperate with the Internal Revenue Service, file back tax returns and make arrangements to pay all taxes due and owing, along with any interest and penalties. They must also pay court cost of $5,016. The Ouwengas were convicted of conspiracy to defraud the United States by impeding and obstructing the lawful functions of the Internal Revenue Service, evading their 1997 federal income tax, and two counts of willfully and unlawfully disobeying a grand jury subpoena. In addition, Andrew Ouwenga was also found guilty on three counts of tax evasion involving his 1998, 1999, and 2000 tax years. The Ouwengas' accountant prepared their 1994 federal income tax return, which claimed more than $75,000 in income, however, the defendants instead filed a frivolous tax return claiming they had no income and requested a tax refund of their 1994 withholdings of more than $10,000. Andrew Ouwenga informed his accountant that he would not file tax returns or pay income taxes because "the Sixteenth Amendment was never ratified." Despite gross deposits of over $6.3 million and gross business receipts of $1.7 million into their bank accounts, the Ouwengas failed to file their tax returns. From 1993 through 1999, the Ouwengas created at least nine sham trusts, which enabled them to conduct their personal and business affairs while evading their income tax obligation.
[lots more follows -- read and weep]
Oklahoman Sentenced to Over Nine Years for Violations of Tax Evasion, Bank Fraud, and Securities Fraud
On September 1, 2004, in Tulsa, Oklahoma Eddy L. Patterson was sentenced to 110 months in federal prison, and ordered to pay a money judgment of $3,476,936 for his conviction of 27 counts involving conspiracy, filing false tax returns, tax evasion, bank fraud, and securities fraud. The criminal conviction of bank fraud and securities fraud are in connection with Patterson’s position as co-founder and chief executive officer (CEO) of National Environmental Service Company (NESCO) of Tulsa, Oklahoma. Patterson’s tax fraud convictions include a variety of criminal acts involving the filing of false statements in income tax returns for the years 1993 and 1995, and failing to file personal federal income tax returns and failing to pay personal federal income tax returns for the years 1996 to 2000. During the course of the conspiracy, Eddy and Judith Patterson sent letters to the IRS renouncing their citizenship of the United States and claiming the IRS did not have jurisdiction over them.
Rainbow City Man Sentenced on Federal Fraud Charges
On August 24, 2004, in Birmingham, AL, Thomas E. Pike was sentenced to 30 months in prison, followed by five years supervised release, and ordered to make restitution to his former employer, Anesthesia Associates in the amount of $1,375,000. Pike was convicted on June 4, 2004 of five counts of tax evasion, one count of executing a scheme to defraud a federally insured bank, and one count of embezzling money from the pension plan of his employer. Pike was sentenced on tax evasion for the calendar years 1997 through 2001. The taxable income total for those four years was approximately $900,000. Pike also conducted a bank fraud scheme by means of false statements and representations in connection with loan applications to Regions Bank. The total amount of loans based upon these false representations was approximately $500,000. Pike also embezzled and converted to his own use money from the pension plan of his employer, Anesthesia Associates.
Law Partners Sentenced for Failure to File Returns
On July 30, 2004, James G. Madden and William E. Sisler both of Freeport, Illinois, were sentenced to 12 months and 3 months respectively for failing to file federal personal income tax returns. Madden and Sisler who were Freeport law partners. Each pleaded guilty in separate cases on May 26, 2004.
In pleading guilty, Madden admitted that he had not filed a federal personal income tax return for 11 years from 1991 through 2001, despite gross income of at least $802,642 for those years. In pleading guilty, Sisler admitted that he had not filed a federal personal income tax return for three years from 1997 through 1999, despite gross income of at least $285,113 for those years. Both Madden and Sisler acknowledged that following each tax year, they would separately file for an automatic extension of time to file their returns but never would actually file those returns or pay the tax due and owing. In addition to the prison time, the court order one year supervised release following release from prison for each, $500 to pay for costs of prosecution for each and a $3,000 fine for Sisler.
Contractor Sentenced in Tax Evasion Case
On July 27, 2004, in San Francisco, CA, Daren M. Lasky was sentenced to two years in prison after pleading guilty to tax evasion on April 6, 2004. Lasky, an independent flooring contractor, admitted he intentionally did not file tax returns reporting the income or pay taxes on the income to the IRS for the tax years 1998 – 2001. Additionally, Lasky admitted to concealing his income from the IRS by arranging for his compensation from the services provided to general contractors to be falsely reported by them to the IRS on Form 1099-Misc paid, not to him, but to non-existent corporations with Employer Identification Numbers which were assigned to others by the IRS. In order to conceal his income and assets from the IRS he used bank accounts opened in other names instead of using his own name or his SSN, so the bank would not report his activities to the IRS. Under the plea agreement Lasky admitted that he had in excess of $480,000 in income and was aware that he had a legal obligation to file tax returns for those years and pay taxes for each of those years.
Accountant Sentenced to 42 Months in Prison
On July 26, 2004, in Detroit, MI, Peter W. Tietenberg was sentenced to 42 months imprisonment, followed by three years supervised release and ordred to pay restitution of over $761,000 to his clients. According to court records, from 1998 through 2001, Tietenberg, an accountant, operated Business Financial Consultants, which provided accounting and tax services. During this time period, Tietenberg's clients would submit information so that employee withholdings, social security, and medicare taxes could be calculated. After determining the amount of taxes due Tietenberg would transmit payroll register forms via facsimile, indicating the clients' taxes due and owing. Tietenberg directed his clients to write checks, payable to Business Financial Consultants, so that he could make payment to the Internal Revenue Service on their behalf. Instead of making the required payments to the IRS, Tietenberg converted the funds to his own use, which totaled over $761,000. From 1998 through 2001, Tietenberg also failed to file his own personal tax returns, which included the failure to report over $390,000 in gross income on his 2000 federal tax return.
151 Month Sentence Received
On July 20, 2004 in Akron, OH, Gary Harris was sentenced to 151 months imprisonment to be followed by 3 years supervised release, and ordered to pay a $95,000 fine. At trial, the evidence proved that Harris and co-defendants, Tamara Schwenker-Harris and Michael Kotula, used a maze of trusts and corporations to try to hide approximately $18 million in income generated by various businesses they controlled, including historic Conneaut Lake Park in Crawford County, Pennsylvania. Between January 1, 1994, and July 8, 2003, they paid little or no taxes on the income earned. Nonetheless, Harris lived lavishly, acquired several homes, a jet way for his ranch in Conneaut, and an antique Mercedes sports car which he claimed was worth $250,000.
Harris has been in federal custody since his arrest in July 2003. He was convicted of tax evasion for tax years 1987, 1989, and 1990. In addition, between 1998 and 2002, when Harris was in federal prison after convictions for racketeering and income tax evasion, Kotula and Schwentker-Harris kept Harris' businesses running and continued to operate this illegal conspiracy.
Certified Public Accountant (CPA) Sentenced on Tax Charges
On July 14, 2004, in Columbia, SC, Henry F. Specht was sentenced to three months in prison for failing to file his corporate and personal income tax returns for 1997, 1998 and 1999. Specht is a CPA licensed in the state of South Carolina. He is the sole owner and operator of the CPA firm, H.F. Specht and Associates, PA in Myrtle Beach, SC. During the investigation, Specht made false statements to the IRS and then provided copies of purportedly filed returns to the agent in charge of the investigation. The investigation concluded that Specht's tax due and owing for the 1997, 1998 and 1999 years were over $35,000.
After being released from prison, Specht will serve 1 year of supervised release with home confinement and electronic monitoring for the first six months.
Businessman Sentenced to Over 8 Years for Obstructing the IRS
On July 1, 2004, in Springfield, MO, Roy Eugene Waters was sentenced to eight years and one month in federal prison without parole. The court also ordered Waters to pay a $15,000 fine and to cooperate with the IRS in the payment of all tax liabilities owed. Waters was convicted of obstructing the Internal Revenue Service in the collection of federal taxes owed to the government and for structuring currency transactions. Beginning in 1995, Waters, who did business as Ava Greenhouses, conducted significant greenhouse business with cash and cashier's checks. Waters was found guilty of using threats of force to obstruct the administration of the internal revenue laws of the United States, including the determination, assessment and collection of Waters' federal income tax liabilities for 1991, 1992 and 1993. Waters threatened to defend his property with guns against seizure by the IRS and threatened to commit suicide. In an effort to intimidate and interfere with the IRS collection process, Waters also filed a series of frivolous lawsuits against the IRS. He placed notices in local newspapers threatening to sue anyone who bid on property seized by the IRS, claiming that intruders may be prosecuted, or the sale was unlawful. Waters was also found guilty of eight separate counts of structuring currency transactions at several local financial institutions for the purpose of evading the federal reporting requirement.
Ohio Couple Sentenced for Conspiracy to Commit Tax Fraud
On June 29, 2004, Phillip and Joanne Caldwell of Lebanon, Ohio, were sentenced to 24 months and 12 months, respectively, for their conspiracy to defraud the United States for the purposes of committing tax fraud from the years 1999 to 2003. The Caldwells conspired with each other and co-defendant John Huber, of Dayton, Ohio, to defraud the United States for the purposes of impeding and impairing the IRS by, among other things, concealing Joanne Caldwell's income through the use of nominee companies, trusts and trustees. In addition, the Caldwells failed to file individual income tax returns reporting the income they earned during the years 1993 through 2001; prepared and submitted W-4 forms to their employer during the years 1995 and 1996 falsely claiming exempt status without a legal or factual basis; used cash extensively in an effort to conceal their income from the IRS from 1993 to 2001; joined The Freedom Connection in 1993, a well-known tax protest organization operating out of the Southern District of Ohio, and operated by Thomas Jeff Frisby who they knew was later convicted of tax crimes in Cincinnati; closed all their interest bearing personal bank accounts, and attempted to revoke their social security numbers with the Social Security Administration, and their taxpayer status with the IRS.
In addition to prison time, both Phillip and Joanne Caldwell received three years probation and were ordered to pay restitution; Phillip $105,469 and Joanne $100,926.
Former Franklin Businessman Sentenced for Tax Offenses
On June 14, 2004, in Boston, MA, Michael Schlevenick was sentenced to 15 months in prison to be followed by 2 years of supervised release. Schlevenick pleaded guilty on March 10, 2004 to a fourteen-count Indictment charging him with failure to account for, and pay, withholding taxes, and failure to file individual returns. Schlevenick, a former Franklin business owner failed to account for and pay over to the Internal Revenue Service more than $175,000 in federal income, social security and Medicare taxes that he withheld from the paychecks of his employees during the years 1997 to 1999. He was also sentenced for having failed to file individual income tax returns despite earning more than $500,000 in gross income over the same time period.
Promoter of Sham Trusts Pleads Guilty to Tax Fraud Charges in Arizona
On June 7, 2004, in Phoenix, AZ, Mark D. Poseley pleaded guilty to conspiracy to defraud the Internal Revenue Service for his role in marketing bogus trusts through an organization known as Innovative Financial Consultants (IFC). Poseley also pleaded guilty to willfully failing to file his 2000 income tax return, despite having earned substantial income from his work with IFC. Poseley admitted he worked as an IFC salesman and sold both onshore and offshore trust packages. He admitted that he falsely represented to taxpayers that they could lawfully avoid paying income taxes by placing their income and assets into trusts, despite remaining as the trusts’ “managing directors.” Poseley admitted he ignored written publications from the IRS and other sources which directly contradicted the false claims he made.
Business Owner Sentenced for Tax Evasion
On May 7, 2004, in Wilmington, DE, Donald L. Donovan was sentenced to 36 months in prison, followed by three years supervised release and ordered to pay a fine of $7,500, the cost of prosecution, and all taxes, interest, and penalties to the IRS. Donovan was convicted in January 2004 of four counts of attempted tax evasion and four counts of willful failure to file an income tax return for the calendar years 1996 through 1999. In addition to failing to file tax returns for 1996 through 1999, Donovan took steps to conceal his income from the IRS, including using a personal bank account that listed a fictitious social security number, opening a bank account and post office box under a fictitious name, and providing a customer with a false social security number for use on a Form 1099. In convicting Donavan, the jury rejected his defense that the federal income tax laws do not apply to him.
Abusive Trust Promoter Sentenced for Tax Evasion Scheme
On May 7, 2004, in Tampa, FL, William Tiner was sentenced to five years in prison, to be followed by three years supervised release. Tiner was also ordered to pay restitution to the Internal Revenue Service of $928,864 and imposed a fine of $25,000. Tiner was convicted of four counts of income tax evasion and three counts of filing false corporate income tax returns. Tiner purchased the AEGIS trust system promoted out of Chicago, IL. He then used a series of domestic and foreign companies to divert and conceal corporate profits in order to evade the payment of taxes on those profits. As a result of these actions, Tiner failed to report in excess of $2.5 million in income between 1996 and 1999 and thus evaded the payment of over $900,000 in income taxes.
Businessman Sentenced to Seven Years in Prison
On April 30, 2004, in Dallas, TX, Richard M. Simkanin, former owner of Arrow Custom Plastics, was sentenced to seven years in prison and ordered to pay over $300,000 in restitution. Simkanin was convicted on January 29, 2004, on 29 counts of various tax violations. According to evidence presented in court, Simkanin refused to withhold taxes from his employees’ paychecks despite warnings from Simkanin’s bookkeeper and two members of an accounting firm who told Simkanin it was illegal to refuse to collect employment taxes. By not withholding taxes during the period 2000 through 2002, Simkanin was able to retain over $175,000 in taxes lawfully due to the IRS. Testimony at trial indicated Simkanin also filed a $235,000 false claim for a refund in taxes already collected for 1997 through 1999.
Tax Cheaters Headed to Prison
On April 1, 2004, Helen M. Smith and her brother, Leroy Sbrusch, were sentenced to serve two years in federal prison for tax evasion, failure to file returns, and conspiracy to defraud the IRS. On March 24, 2004, codefendant Ken Smith was sentenced to serve 15 months for his role in the conspiracy. All three defendants were convicted of conspiracy to defraud the IRS. Helen Smith and Leroy Sbrusch were also each convicted of failure to file 1996, 1997, and 1998 income tax returns, and also of evading Helen Smith’s 1998 income taxes. Sbrusch was also convicted of one count of structuring financial transactions to avoid currency transaction reporting requirements in 1998. Helen Smith and Leroy Sbrusch were ordered to pay over $485,000 in restitution to the United States for back taxes, each fined $25,000, and were ordered to pay over $35,000 in costs of prosecution. After serving their prison terms, each defendant will be on supervised release for three years, and will be required to file tax returns and cooperate with IRS examinations of their tax liability.
The evidence at trial showed that Helen Smith owned two laundromats. Her gross income was over $440,000 for 1996, over $540,000 for 1997, and over $700,000 for 1998. Despite this income, she failed to file a tax return for any of these years, or any year since. Neither Helen Smith nor Leroy Sbrusch had in fact filed a return since 1990. After the sale of Wasilla Wash Day for $700,000 in April 1998, the evidence showed that the defendants engaged in a complicated scheme to launder the profits to evade collection by the IRS. The three defendants used various means to conceal the proceeds, including the purchase of $45,000 in gold and silver under a third-party name, the purchase of land in Texas under false names, and simply having large-denomination cashier’s checks issued to nonexistent entities and keeping them in their office for six months to a year. Sbrusch’s structuring conviction arose from his withdrawal of $8,000 cash on April 15, 1998, followed by withdrawals of $8,500 on April 17 and $7,300 on April 18. Sbrusch testified that he and Helen Smith attended seminars and purchased books offered by Southern California tax activist Lynne Meredith and her organization, “We the People.” Sbrusch admitted purchasing “trusts” from Meredith that were used to hold assets purchased with the proceeds of the Wasilla Wash Day sale.
Readyville Man Failed to Pay Taxes
On March 12, 2004, in Nashville, TN, Rickey Paul Brunet was sentenced to serve 27 months in prison, followed by three years of supervised release, after a jury convicted him on four counts of income tax evasion. Brunet was also ordered to pay all back taxes owed for 1995 through 1998 in the amount of $98,608.86 to IRS and to file tax returns for years 1999 through 2002 as a special condition of his supervised release.
Testimony during the trial established that Brunet, a computer aided design draftsman, failed to file income tax returns with the IRS for calendar years 1996, 1997 and 1998. Additionally, Brunet attempted to cause his social number to be concealed from the IRS and filed a Form W-4 with a company, claiming he was exempt from federal withholding. Brunet was also convicted of income tax evasion for tax year 1995 for attempting to evade or defeat the payment of a large part of the income tax due to the United States. Evidence presented during the trial showed that shortly after receiving a tax assessment notification from the IRS, Brunet caused the title to his personal residence to be transferred to “The Home Trust” in an attempt to prevent IRS from levying or seizing the home to satisfy his tax debt.
Brunet also transferred the title of two vehicles to “The Partnership Trust” to also evade IRS collection efforts. Brunet testified during the trial that in mid-1995 he joined a group named Save-A-Patriot Fellowship, an organization that questions the legal interpretation of the tax code, and began researching the tax law. He told the jurors that he could not find any information that would lead him to conclude that the Internal Revenue Code made him liable to file income tax returns or pay taxes. The courts have repeatedly rejected these arguments as frivolous. Other individuals from this Save-A-Patriot Fellowship Organization have been convicted of federal tax crimes and have served prison sentences. Brunet is to report to prison on April 12, 2004.
San Diego Man Sentenced for Tax Evasion
On March 3, 2004, in San Diego, CA, Francis Manfred was sentenced to 21 months in prison for tax evasion. Manfred previously pleaded guilty to one count of income tax evasion in connection with his role in the San Diego operation of TLC Investment and Trade Company. Manfred was a salesman for TLC which raised funds from individuals by representing that TLC would use the funds to invest in tax lien certificates resulting in a 12-19% annual return. In actuality, TLC used investor funds to make payments to pay undisclosed commissions, pay returns to other investors, and pay TLC's overhead. As a result of these misrepresentations, TLC raised over $8 million from investors. Over a three-year period, Manfred failed to report commission income he received from TLC in excess of over $1 million. This resulted in a tax loss to the government of $476,364 which Manfred was ordered by the court to pay to the Internal Revenue Service.
Provo Man Sentenced for Tax Evasion and Mail Fraud
On February 26, 2004, in Salt Lake City, UT, Albert Earl Carter was sentenced to 51 months in prison, followed by three years supervised release and ordered to pay $1,962,371 in restitution. Carter was also ordered to file his 1996 and 1997 tax returns and establish a payment schedule for those liabilities within 30 days. Carter pleaded guilty to tax evasion and mail fraud for his role in a scheme he devised to defraud investors of their money through an investment program often referred to as a “doubling program” and his efforts to evade paying income tax for the 1996 tax year. Carter not only failed to file his tax return, but also committed acts of evasion, including the use of a VISA card account from an offshore bank to pay personal expenses, by the transfer of money to the VISA card account, and by the transfer of records reflecting income and expenses offshore. Between 1995 and 2000, Carter was “managing director” of Allied International Resources, (AIR) and represented that the company had offices in Utah and Antigua. During this time, Carter and his associates solicited approximately $3,000,000 from investors for the “doubling program.” Carter represented that the investment was for a 12-month term, was protected by a guarantee against loss for 108 percent of the investment, and the guarantee was backed by a trust fund of over five times the amount AIR was obligated to pay out. The letter represented, that an investor could expect 200 percent of the investment at the annual anniversary date. Carter admitted he did not inform investors that investor funds brought in through the investor program would be used to pay off other investors –- essentially a Ponzi scheme -– and also used to pay the personal expenses of Carter and operating expenses of AIR.
Massachusetts Investment Adviser Sentenced
On February 24, 2004, Robert C. Sears of Northampton, Massachusetts was sentenced to 3 years and 1 month in prison to be followed by 3 years of supervised release. Sears was also ordered to pay $267,471 in restitution for defrauding clients of over $1.2 million. Sears pleaded guilty to wire fraud on September 10, 2003 and pleaded guilty to willful failure to file tax returns in a separate hearing on December 17, 2003. Beginning in February 2000, Sears, an unregistered investment adviser, misappropriated funds from several clients' brokerage accounts by forging client signatures on Letters of Authorization directing Charles Schwab Co. to transfer client funds to his own corporation and forging client signatures on margin agreements to obtain unauthorized margin loans.
Sears transferred his clients' money to Last Minute Concessions Inc., a Massachusetts corporation of which he was president and co-owner. Last Minute used the fraudulently obtained money to buy a controlling interest in a company developing a golf course near Belchertown, Massachusetts. Last Minute also used money from Sears' clients to buy an interest in a development company which was building a condominium project associated with the golf course.
Sears received substantial income from investments and self-employment during the tax years 1998 and 1999 but never filed income tax returns for those years. Sears failed to file an income tax return for the 2000 tax year as well.
Business Owner Sentenced for Filing False Return
On February 20, 2004, in Kansas City, MO, Johnny D. Walker was sentenced to one year and one day in prison without parole after pleading guilty to filing a false income tax return for the 2001 calendar year. Walker admitted the he reported gross receipts of $298,634 for the tax year ending December 31, 2001, when his true gross receipts were approximately $359,669. Walker’s actions resulted in an unreported income tax of $23,261 and unreported self-employment tax of $14,719.
Sellers of Bogus Tax Advice Program Plead Guilty to Tax Charges
On February 12, 2004, in Washington, DC, John J. Rizzo and his wife Carol A. Rizzo, residents of Phoenix, Arizona, pleaded guilty to charges of conspiracy and willfully failing to file their income tax return. Rizzo also pleaded guilty to willfully aiding and assisting in the preparation of a false income tax return and perjury before the grand jury. The defendants admitted, in their plea agreements that from 1999 to 2001, Mr. Rizzo was a prominent vendor with the Institute of Global Prosperity (IGP). At seminars hosted by IGP, Rizzo promoted the Millennium 2000 Reliance Defense Program (M2K) package to thousands of people at offshore seminars and resulted in more than $4 million in sales. The Rizzos also admitted they provided materials and documentation that purported to prove, among other things, that one could lawfully stop filing income tax returns and cease having income taxes withheld from personal wages based upon the long-rejected notion that the Sixteenth Amendment to the Constitution had not been legally ratified. They further admitted they concealed the income earned from the sales of M2K packages during the period 1999 through 2002, by using a variety of dishonest and deceitful means, including the use of offshore bank accounts and third-party merchant accounts to conduct credit card sales.
Former Hotel Developer Sentenced
On February 2, 2004, in Nashville, TN, Charles V. Covington, former owner and president of OCVOC Investment Holdings, Inc., was sentenced to 30 months in prison followed by 3 years of supervised release. Covington was also ordered to pay restitution to Investment Holdings, Inc., in the amount of $600,000 and ordered to pay IRS back taxes in the amount of $140,278 as a condition of his supervised release. Covington pleaded guilty on September 5, 2003, to failing to file a federal income tax return for the year 1997 and to mail fraud. Covington was indicted on July 10, 2002, and charged with committing mail fraud, money laundering and failing to file his 1997 U.S. Individual income tax return while receiving in excess of $366,000 in gross income. Covington, while attempting to develop a downtown hotel in Nashville, Tennessee, used that speculative venture to defraud persons who believed that they were investing their funds in the hotel project. Covington used these funds for his personal living expenses, including but not limited to, a down payment on a luxury residence, expensive furnishings for the residence, private jet service for his family, catered birthday dinners for his wife, expensive jewelry and tuition at a private school for his step-daughter.
Former Police Officer Sentenced on Tax Evasion Charges
On January 29, 2004, in Miami, FL, William Bernard Oertwig, Jr., a former Miami-Dade Police Department Officer, was sentenced to 40 months imprisonment followed by three years of supervised release. Oertwig was convicted of six counts of attempting to evade and defeat tax by failing to claim any taxable income from 1996 through 2001. In addition to jail time, Oertwig was ordered to pay a $50,000 fine. Oertwig owned Intercontinental Electronic Security System, a burglar alarm installation and monitoring company, and filed false Forms W-4 stating he was exempt from any withholdings. Thereafter, he filed frivolous and false tax returns purporting to owe zero income. Additionally, Oertwig placed all of his assets in numerous abusive trusts in an effort to conceal them from the IRS.
Retired Pilot Sentenced to Prison
On January 20, 2004, in Rockford, IL, Ralph Waldo Kough, a retired commercial pilot, was sentenced to 20 months in prison followed by three years supervised release for evading more than $260,000 in federal income taxes. Kough admitted that he did not file tax returns and did not pay any federal income taxes on his pension income for the years 1995 through 2002. In addition, during 1998 Kough received a lump sum distribution from his 401(k) plan of $583,425.76. Kough admitted that he attempted to conceal his 401(k) distribution from the IRS by 1) depositing the $583,425.76 into four separate bank accounts in three separate states; 2) providing those banks with IRS Forms W-8 which falsely stated he was not a United States Citizen; and 3) withdrawing most of the funds from those accounts in cash amounts $9,000 and $9,900 under the currency reporting requirements.
Bogus Sight Drafts Lands 33-Month Term
In St. Paul, MN, on December 16, 2003, Roger Leigh Oehler was sentenced to 33 months in prison after being convicted by a jury in July 2002 on 30 counts of passing fictitious obligations and five counts of submitting false statements to the IRS. From February 1999 to July 2000, Oehler used fraudulent “sight drafts” in an effort to pay debts, obtain money or obtain tax refunds. Oehler wrote nine bogus sight drafts for payment of child support to state agencies and the social services department for his child support obligations. He also wrote fake sight drafts to pay his tax obligations and defraud credit card companies of over $200,000. Oehler was also convicted of filing false 8300 forms with the IRS.
San Diego Return Preparer Sentenced
On December 8, 2003, in San Diego, CA, Roosevelt Kyle was sentenced to 12 months in custody. A jury convicted Kyle of failing to file his personal income tax returns for the years 1995 through 1998. Evidence at trial showed Kyle earned over $300,000 and prepared over 3,000 tax returns, but failed to file his own personal income tax returns. According to evidence presented in court, Kyle promoted tax avoidance seminars, at which he advised clients that they could permanently stop paying income taxes. Kyle also promoted the book titled, "Vultures in Eagles Clothing" which claims the income tax laws are not applicable to U.S. citizens. This book was written by Lynne Meredith, who was convicted in the Central District of California for various tax crimes.
Man Sentenced for Evading Over $235,000 in Taxes
On December 3, 2003, in Kansas City, Missouri, Mark A. Fronce was sentenced to 15 months in prison, ordered to pay a $2,000 fine, and ordered to pay $434,522 in back taxes with interest and penalties. Fronce pleaded guilty on June 26, 2003, to one count of tax evasion. By pleading guilty, Fronce admitted that he had taxable income of approximately $565,806 in 1997 and should have paid $235,486 in taxes. Instead, Fronce did not file a tax return and attempted to conceal his true income by diverting his income to "trust" bank accounts.
Optical Owner Sees Jail Time
On November 6, 2003, in St. Paul, MN, Michael F. Marsh, the former owner of Marsh Optical was sentenced to one year and one day imprisonment. Marsh pleaded guilty to failing to file federal income tax returns for the calendar years 1997 – 2000. Marsh's total income for those years was $401,371, resulting in a tax loss of approximately $141,559.
Three Sacramentans Sentenced to Lengthy Prison Sentences in Tax Fraud, Investment Fraud and Money Laundering Scheme
On November 4, 2003, in Sacramento, CA, Herbert Arthur Bates, Christopher R. Bates and David Larry Smith were sentenced to lengthy prison terms after being convicted of conspiracy to defraud the United States by impairing and impeding the IRS in the assessment and collection of income taxes, conspiracy to engage in mail and wire fraud, and conspiracy to engage in money laundering. Herbert Bates, Christopher Bates, and David Larry Smith were sentenced to 136 months, 63 months and 151 months in prison, respectively. All three were also ordered to pay restitution in the amount of $1,738,520, a criminal forfeiture of $1,000,000, and serve 36 months of supervised release. Evidence presented at trial proved that the defendants sold a form of trust, which they called an Unincorporated Business Organization (UBO), to approximately 249 investors. The defendants charged between $3,000 and $7,500 for the creation of these UBO's. Herbert Bates and Smith advised clients that they could transfer all of their income and assets to the UBO, and after transferring their income and assets, the clients no longer had to file individual income tax returns nor pay federal income taxes.
FY 2003 Archive Examples of Nonfiler Enforcement Investigations
http://www.irs.gov/compliance/enforcement/article/0,,id=106445,00.html
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Civil and Criminal Penalties - Abusive Tax Schemes
Investors of abusive tax schemes that improperly evade tax are still liable for taxes, interest, and civil penalties. Violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty or criminal prosecution. Civil fraud can include a penalty of up to 75% of the underpayment of tax attributable to fraud, in addition to the taxes owed. Criminal convictions of promoters and investors may result in fines up to $250,000 and up to five years in prison.
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here is a recap of those sad souls convicted in 2004
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FY2004 Archive Examples of Nonfiler Enforcement Investigations
The following examples of fraud investigations are excerpts from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
Michigan Couple Sentenced for Tax Fraud
On September 27, 2004, in Grand Rapids, MI, Andrew Stuart Ouwenga and Karen Ann Ouwenga were sentenced following a May 26, 2004, jury conviction on several tax-related felony offenses. Andrew Ouwenga received 60 months imprisonment and Karen Ouwenga received 51 months imprisonment, which are each followed by two years supervised release. They must also cooperate with the Internal Revenue Service, file back tax returns and make arrangements to pay all taxes due and owing, along with any interest and penalties. They must also pay court cost of $5,016. The Ouwengas were convicted of conspiracy to defraud the United States by impeding and obstructing the lawful functions of the Internal Revenue Service, evading their 1997 federal income tax, and two counts of willfully and unlawfully disobeying a grand jury subpoena. In addition, Andrew Ouwenga was also found guilty on three counts of tax evasion involving his 1998, 1999, and 2000 tax years. The Ouwengas' accountant prepared their 1994 federal income tax return, which claimed more than $75,000 in income, however, the defendants instead filed a frivolous tax return claiming they had no income and requested a tax refund of their 1994 withholdings of more than $10,000. Andrew Ouwenga informed his accountant that he would not file tax returns or pay income taxes because "the Sixteenth Amendment was never ratified." Despite gross deposits of over $6.3 million and gross business receipts of $1.7 million into their bank accounts, the Ouwengas failed to file their tax returns. From 1993 through 1999, the Ouwengas created at least nine sham trusts, which enabled them to conduct their personal and business affairs while evading their income tax obligation.
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Oklahoman Sentenced to Over Nine Years for Violations of Tax Evasion, Bank Fraud, and Securities Fraud
On September 1, 2004, in Tulsa, Oklahoma Eddy L. Patterson was sentenced to 110 months in federal prison, and ordered to pay a money judgment of $3,476,936 for his conviction of 27 counts involving conspiracy, filing false tax returns, tax evasion, bank fraud, and securities fraud. The criminal conviction of bank fraud and securities fraud are in connection with Patterson’s position as co-founder and chief executive officer (CEO) of National Environmental Service Company (NESCO) of Tulsa, Oklahoma. Patterson’s tax fraud convictions include a variety of criminal acts involving the filing of false statements in income tax returns for the years 1993 and 1995, and failing to file personal federal income tax returns and failing to pay personal federal income tax returns for the years 1996 to 2000. During the course of the conspiracy, Eddy and Judith Patterson sent letters to the IRS renouncing their citizenship of the United States and claiming the IRS did not have jurisdiction over them.
Rainbow City Man Sentenced on Federal Fraud Charges
On August 24, 2004, in Birmingham, AL, Thomas E. Pike was sentenced to 30 months in prison, followed by five years supervised release, and ordered to make restitution to his former employer, Anesthesia Associates in the amount of $1,375,000. Pike was convicted on June 4, 2004 of five counts of tax evasion, one count of executing a scheme to defraud a federally insured bank, and one count of embezzling money from the pension plan of his employer. Pike was sentenced on tax evasion for the calendar years 1997 through 2001. The taxable income total for those four years was approximately $900,000. Pike also conducted a bank fraud scheme by means of false statements and representations in connection with loan applications to Regions Bank. The total amount of loans based upon these false representations was approximately $500,000. Pike also embezzled and converted to his own use money from the pension plan of his employer, Anesthesia Associates.
Law Partners Sentenced for Failure to File Returns
On July 30, 2004, James G. Madden and William E. Sisler both of Freeport, Illinois, were sentenced to 12 months and 3 months respectively for failing to file federal personal income tax returns. Madden and Sisler who were Freeport law partners. Each pleaded guilty in separate cases on May 26, 2004.
In pleading guilty, Madden admitted that he had not filed a federal personal income tax return for 11 years from 1991 through 2001, despite gross income of at least $802,642 for those years. In pleading guilty, Sisler admitted that he had not filed a federal personal income tax return for three years from 1997 through 1999, despite gross income of at least $285,113 for those years. Both Madden and Sisler acknowledged that following each tax year, they would separately file for an automatic extension of time to file their returns but never would actually file those returns or pay the tax due and owing. In addition to the prison time, the court order one year supervised release following release from prison for each, $500 to pay for costs of prosecution for each and a $3,000 fine for Sisler.
Contractor Sentenced in Tax Evasion Case
On July 27, 2004, in San Francisco, CA, Daren M. Lasky was sentenced to two years in prison after pleading guilty to tax evasion on April 6, 2004. Lasky, an independent flooring contractor, admitted he intentionally did not file tax returns reporting the income or pay taxes on the income to the IRS for the tax years 1998 – 2001. Additionally, Lasky admitted to concealing his income from the IRS by arranging for his compensation from the services provided to general contractors to be falsely reported by them to the IRS on Form 1099-Misc paid, not to him, but to non-existent corporations with Employer Identification Numbers which were assigned to others by the IRS. In order to conceal his income and assets from the IRS he used bank accounts opened in other names instead of using his own name or his SSN, so the bank would not report his activities to the IRS. Under the plea agreement Lasky admitted that he had in excess of $480,000 in income and was aware that he had a legal obligation to file tax returns for those years and pay taxes for each of those years.
Accountant Sentenced to 42 Months in Prison
On July 26, 2004, in Detroit, MI, Peter W. Tietenberg was sentenced to 42 months imprisonment, followed by three years supervised release and ordred to pay restitution of over $761,000 to his clients. According to court records, from 1998 through 2001, Tietenberg, an accountant, operated Business Financial Consultants, which provided accounting and tax services. During this time period, Tietenberg's clients would submit information so that employee withholdings, social security, and medicare taxes could be calculated. After determining the amount of taxes due Tietenberg would transmit payroll register forms via facsimile, indicating the clients' taxes due and owing. Tietenberg directed his clients to write checks, payable to Business Financial Consultants, so that he could make payment to the Internal Revenue Service on their behalf. Instead of making the required payments to the IRS, Tietenberg converted the funds to his own use, which totaled over $761,000. From 1998 through 2001, Tietenberg also failed to file his own personal tax returns, which included the failure to report over $390,000 in gross income on his 2000 federal tax return.
151 Month Sentence Received
On July 20, 2004 in Akron, OH, Gary Harris was sentenced to 151 months imprisonment to be followed by 3 years supervised release, and ordered to pay a $95,000 fine. At trial, the evidence proved that Harris and co-defendants, Tamara Schwenker-Harris and Michael Kotula, used a maze of trusts and corporations to try to hide approximately $18 million in income generated by various businesses they controlled, including historic Conneaut Lake Park in Crawford County, Pennsylvania. Between January 1, 1994, and July 8, 2003, they paid little or no taxes on the income earned. Nonetheless, Harris lived lavishly, acquired several homes, a jet way for his ranch in Conneaut, and an antique Mercedes sports car which he claimed was worth $250,000.
Harris has been in federal custody since his arrest in July 2003. He was convicted of tax evasion for tax years 1987, 1989, and 1990. In addition, between 1998 and 2002, when Harris was in federal prison after convictions for racketeering and income tax evasion, Kotula and Schwentker-Harris kept Harris' businesses running and continued to operate this illegal conspiracy.
Certified Public Accountant (CPA) Sentenced on Tax Charges
On July 14, 2004, in Columbia, SC, Henry F. Specht was sentenced to three months in prison for failing to file his corporate and personal income tax returns for 1997, 1998 and 1999. Specht is a CPA licensed in the state of South Carolina. He is the sole owner and operator of the CPA firm, H.F. Specht and Associates, PA in Myrtle Beach, SC. During the investigation, Specht made false statements to the IRS and then provided copies of purportedly filed returns to the agent in charge of the investigation. The investigation concluded that Specht's tax due and owing for the 1997, 1998 and 1999 years were over $35,000.
After being released from prison, Specht will serve 1 year of supervised release with home confinement and electronic monitoring for the first six months.
Businessman Sentenced to Over 8 Years for Obstructing the IRS
On July 1, 2004, in Springfield, MO, Roy Eugene Waters was sentenced to eight years and one month in federal prison without parole. The court also ordered Waters to pay a $15,000 fine and to cooperate with the IRS in the payment of all tax liabilities owed. Waters was convicted of obstructing the Internal Revenue Service in the collection of federal taxes owed to the government and for structuring currency transactions. Beginning in 1995, Waters, who did business as Ava Greenhouses, conducted significant greenhouse business with cash and cashier's checks. Waters was found guilty of using threats of force to obstruct the administration of the internal revenue laws of the United States, including the determination, assessment and collection of Waters' federal income tax liabilities for 1991, 1992 and 1993. Waters threatened to defend his property with guns against seizure by the IRS and threatened to commit suicide. In an effort to intimidate and interfere with the IRS collection process, Waters also filed a series of frivolous lawsuits against the IRS. He placed notices in local newspapers threatening to sue anyone who bid on property seized by the IRS, claiming that intruders may be prosecuted, or the sale was unlawful. Waters was also found guilty of eight separate counts of structuring currency transactions at several local financial institutions for the purpose of evading the federal reporting requirement.
Ohio Couple Sentenced for Conspiracy to Commit Tax Fraud
On June 29, 2004, Phillip and Joanne Caldwell of Lebanon, Ohio, were sentenced to 24 months and 12 months, respectively, for their conspiracy to defraud the United States for the purposes of committing tax fraud from the years 1999 to 2003. The Caldwells conspired with each other and co-defendant John Huber, of Dayton, Ohio, to defraud the United States for the purposes of impeding and impairing the IRS by, among other things, concealing Joanne Caldwell's income through the use of nominee companies, trusts and trustees. In addition, the Caldwells failed to file individual income tax returns reporting the income they earned during the years 1993 through 2001; prepared and submitted W-4 forms to their employer during the years 1995 and 1996 falsely claiming exempt status without a legal or factual basis; used cash extensively in an effort to conceal their income from the IRS from 1993 to 2001; joined The Freedom Connection in 1993, a well-known tax protest organization operating out of the Southern District of Ohio, and operated by Thomas Jeff Frisby who they knew was later convicted of tax crimes in Cincinnati; closed all their interest bearing personal bank accounts, and attempted to revoke their social security numbers with the Social Security Administration, and their taxpayer status with the IRS.
In addition to prison time, both Phillip and Joanne Caldwell received three years probation and were ordered to pay restitution; Phillip $105,469 and Joanne $100,926.
Former Franklin Businessman Sentenced for Tax Offenses
On June 14, 2004, in Boston, MA, Michael Schlevenick was sentenced to 15 months in prison to be followed by 2 years of supervised release. Schlevenick pleaded guilty on March 10, 2004 to a fourteen-count Indictment charging him with failure to account for, and pay, withholding taxes, and failure to file individual returns. Schlevenick, a former Franklin business owner failed to account for and pay over to the Internal Revenue Service more than $175,000 in federal income, social security and Medicare taxes that he withheld from the paychecks of his employees during the years 1997 to 1999. He was also sentenced for having failed to file individual income tax returns despite earning more than $500,000 in gross income over the same time period.
Promoter of Sham Trusts Pleads Guilty to Tax Fraud Charges in Arizona
On June 7, 2004, in Phoenix, AZ, Mark D. Poseley pleaded guilty to conspiracy to defraud the Internal Revenue Service for his role in marketing bogus trusts through an organization known as Innovative Financial Consultants (IFC). Poseley also pleaded guilty to willfully failing to file his 2000 income tax return, despite having earned substantial income from his work with IFC. Poseley admitted he worked as an IFC salesman and sold both onshore and offshore trust packages. He admitted that he falsely represented to taxpayers that they could lawfully avoid paying income taxes by placing their income and assets into trusts, despite remaining as the trusts’ “managing directors.” Poseley admitted he ignored written publications from the IRS and other sources which directly contradicted the false claims he made.
Business Owner Sentenced for Tax Evasion
On May 7, 2004, in Wilmington, DE, Donald L. Donovan was sentenced to 36 months in prison, followed by three years supervised release and ordered to pay a fine of $7,500, the cost of prosecution, and all taxes, interest, and penalties to the IRS. Donovan was convicted in January 2004 of four counts of attempted tax evasion and four counts of willful failure to file an income tax return for the calendar years 1996 through 1999. In addition to failing to file tax returns for 1996 through 1999, Donovan took steps to conceal his income from the IRS, including using a personal bank account that listed a fictitious social security number, opening a bank account and post office box under a fictitious name, and providing a customer with a false social security number for use on a Form 1099. In convicting Donavan, the jury rejected his defense that the federal income tax laws do not apply to him.
Abusive Trust Promoter Sentenced for Tax Evasion Scheme
On May 7, 2004, in Tampa, FL, William Tiner was sentenced to five years in prison, to be followed by three years supervised release. Tiner was also ordered to pay restitution to the Internal Revenue Service of $928,864 and imposed a fine of $25,000. Tiner was convicted of four counts of income tax evasion and three counts of filing false corporate income tax returns. Tiner purchased the AEGIS trust system promoted out of Chicago, IL. He then used a series of domestic and foreign companies to divert and conceal corporate profits in order to evade the payment of taxes on those profits. As a result of these actions, Tiner failed to report in excess of $2.5 million in income between 1996 and 1999 and thus evaded the payment of over $900,000 in income taxes.
Businessman Sentenced to Seven Years in Prison
On April 30, 2004, in Dallas, TX, Richard M. Simkanin, former owner of Arrow Custom Plastics, was sentenced to seven years in prison and ordered to pay over $300,000 in restitution. Simkanin was convicted on January 29, 2004, on 29 counts of various tax violations. According to evidence presented in court, Simkanin refused to withhold taxes from his employees’ paychecks despite warnings from Simkanin’s bookkeeper and two members of an accounting firm who told Simkanin it was illegal to refuse to collect employment taxes. By not withholding taxes during the period 2000 through 2002, Simkanin was able to retain over $175,000 in taxes lawfully due to the IRS. Testimony at trial indicated Simkanin also filed a $235,000 false claim for a refund in taxes already collected for 1997 through 1999.
Tax Cheaters Headed to Prison
On April 1, 2004, Helen M. Smith and her brother, Leroy Sbrusch, were sentenced to serve two years in federal prison for tax evasion, failure to file returns, and conspiracy to defraud the IRS. On March 24, 2004, codefendant Ken Smith was sentenced to serve 15 months for his role in the conspiracy. All three defendants were convicted of conspiracy to defraud the IRS. Helen Smith and Leroy Sbrusch were also each convicted of failure to file 1996, 1997, and 1998 income tax returns, and also of evading Helen Smith’s 1998 income taxes. Sbrusch was also convicted of one count of structuring financial transactions to avoid currency transaction reporting requirements in 1998. Helen Smith and Leroy Sbrusch were ordered to pay over $485,000 in restitution to the United States for back taxes, each fined $25,000, and were ordered to pay over $35,000 in costs of prosecution. After serving their prison terms, each defendant will be on supervised release for three years, and will be required to file tax returns and cooperate with IRS examinations of their tax liability.
The evidence at trial showed that Helen Smith owned two laundromats. Her gross income was over $440,000 for 1996, over $540,000 for 1997, and over $700,000 for 1998. Despite this income, she failed to file a tax return for any of these years, or any year since. Neither Helen Smith nor Leroy Sbrusch had in fact filed a return since 1990. After the sale of Wasilla Wash Day for $700,000 in April 1998, the evidence showed that the defendants engaged in a complicated scheme to launder the profits to evade collection by the IRS. The three defendants used various means to conceal the proceeds, including the purchase of $45,000 in gold and silver under a third-party name, the purchase of land in Texas under false names, and simply having large-denomination cashier’s checks issued to nonexistent entities and keeping them in their office for six months to a year. Sbrusch’s structuring conviction arose from his withdrawal of $8,000 cash on April 15, 1998, followed by withdrawals of $8,500 on April 17 and $7,300 on April 18. Sbrusch testified that he and Helen Smith attended seminars and purchased books offered by Southern California tax activist Lynne Meredith and her organization, “We the People.” Sbrusch admitted purchasing “trusts” from Meredith that were used to hold assets purchased with the proceeds of the Wasilla Wash Day sale.
Readyville Man Failed to Pay Taxes
On March 12, 2004, in Nashville, TN, Rickey Paul Brunet was sentenced to serve 27 months in prison, followed by three years of supervised release, after a jury convicted him on four counts of income tax evasion. Brunet was also ordered to pay all back taxes owed for 1995 through 1998 in the amount of $98,608.86 to IRS and to file tax returns for years 1999 through 2002 as a special condition of his supervised release.
Testimony during the trial established that Brunet, a computer aided design draftsman, failed to file income tax returns with the IRS for calendar years 1996, 1997 and 1998. Additionally, Brunet attempted to cause his social number to be concealed from the IRS and filed a Form W-4 with a company, claiming he was exempt from federal withholding. Brunet was also convicted of income tax evasion for tax year 1995 for attempting to evade or defeat the payment of a large part of the income tax due to the United States. Evidence presented during the trial showed that shortly after receiving a tax assessment notification from the IRS, Brunet caused the title to his personal residence to be transferred to “The Home Trust” in an attempt to prevent IRS from levying or seizing the home to satisfy his tax debt.
Brunet also transferred the title of two vehicles to “The Partnership Trust” to also evade IRS collection efforts. Brunet testified during the trial that in mid-1995 he joined a group named Save-A-Patriot Fellowship, an organization that questions the legal interpretation of the tax code, and began researching the tax law. He told the jurors that he could not find any information that would lead him to conclude that the Internal Revenue Code made him liable to file income tax returns or pay taxes. The courts have repeatedly rejected these arguments as frivolous. Other individuals from this Save-A-Patriot Fellowship Organization have been convicted of federal tax crimes and have served prison sentences. Brunet is to report to prison on April 12, 2004.
San Diego Man Sentenced for Tax Evasion
On March 3, 2004, in San Diego, CA, Francis Manfred was sentenced to 21 months in prison for tax evasion. Manfred previously pleaded guilty to one count of income tax evasion in connection with his role in the San Diego operation of TLC Investment and Trade Company. Manfred was a salesman for TLC which raised funds from individuals by representing that TLC would use the funds to invest in tax lien certificates resulting in a 12-19% annual return. In actuality, TLC used investor funds to make payments to pay undisclosed commissions, pay returns to other investors, and pay TLC's overhead. As a result of these misrepresentations, TLC raised over $8 million from investors. Over a three-year period, Manfred failed to report commission income he received from TLC in excess of over $1 million. This resulted in a tax loss to the government of $476,364 which Manfred was ordered by the court to pay to the Internal Revenue Service.
Provo Man Sentenced for Tax Evasion and Mail Fraud
On February 26, 2004, in Salt Lake City, UT, Albert Earl Carter was sentenced to 51 months in prison, followed by three years supervised release and ordered to pay $1,962,371 in restitution. Carter was also ordered to file his 1996 and 1997 tax returns and establish a payment schedule for those liabilities within 30 days. Carter pleaded guilty to tax evasion and mail fraud for his role in a scheme he devised to defraud investors of their money through an investment program often referred to as a “doubling program” and his efforts to evade paying income tax for the 1996 tax year. Carter not only failed to file his tax return, but also committed acts of evasion, including the use of a VISA card account from an offshore bank to pay personal expenses, by the transfer of money to the VISA card account, and by the transfer of records reflecting income and expenses offshore. Between 1995 and 2000, Carter was “managing director” of Allied International Resources, (AIR) and represented that the company had offices in Utah and Antigua. During this time, Carter and his associates solicited approximately $3,000,000 from investors for the “doubling program.” Carter represented that the investment was for a 12-month term, was protected by a guarantee against loss for 108 percent of the investment, and the guarantee was backed by a trust fund of over five times the amount AIR was obligated to pay out. The letter represented, that an investor could expect 200 percent of the investment at the annual anniversary date. Carter admitted he did not inform investors that investor funds brought in through the investor program would be used to pay off other investors –- essentially a Ponzi scheme -– and also used to pay the personal expenses of Carter and operating expenses of AIR.
Massachusetts Investment Adviser Sentenced
On February 24, 2004, Robert C. Sears of Northampton, Massachusetts was sentenced to 3 years and 1 month in prison to be followed by 3 years of supervised release. Sears was also ordered to pay $267,471 in restitution for defrauding clients of over $1.2 million. Sears pleaded guilty to wire fraud on September 10, 2003 and pleaded guilty to willful failure to file tax returns in a separate hearing on December 17, 2003. Beginning in February 2000, Sears, an unregistered investment adviser, misappropriated funds from several clients' brokerage accounts by forging client signatures on Letters of Authorization directing Charles Schwab Co. to transfer client funds to his own corporation and forging client signatures on margin agreements to obtain unauthorized margin loans.
Sears transferred his clients' money to Last Minute Concessions Inc., a Massachusetts corporation of which he was president and co-owner. Last Minute used the fraudulently obtained money to buy a controlling interest in a company developing a golf course near Belchertown, Massachusetts. Last Minute also used money from Sears' clients to buy an interest in a development company which was building a condominium project associated with the golf course.
Sears received substantial income from investments and self-employment during the tax years 1998 and 1999 but never filed income tax returns for those years. Sears failed to file an income tax return for the 2000 tax year as well.
Business Owner Sentenced for Filing False Return
On February 20, 2004, in Kansas City, MO, Johnny D. Walker was sentenced to one year and one day in prison without parole after pleading guilty to filing a false income tax return for the 2001 calendar year. Walker admitted the he reported gross receipts of $298,634 for the tax year ending December 31, 2001, when his true gross receipts were approximately $359,669. Walker’s actions resulted in an unreported income tax of $23,261 and unreported self-employment tax of $14,719.
Sellers of Bogus Tax Advice Program Plead Guilty to Tax Charges
On February 12, 2004, in Washington, DC, John J. Rizzo and his wife Carol A. Rizzo, residents of Phoenix, Arizona, pleaded guilty to charges of conspiracy and willfully failing to file their income tax return. Rizzo also pleaded guilty to willfully aiding and assisting in the preparation of a false income tax return and perjury before the grand jury. The defendants admitted, in their plea agreements that from 1999 to 2001, Mr. Rizzo was a prominent vendor with the Institute of Global Prosperity (IGP). At seminars hosted by IGP, Rizzo promoted the Millennium 2000 Reliance Defense Program (M2K) package to thousands of people at offshore seminars and resulted in more than $4 million in sales. The Rizzos also admitted they provided materials and documentation that purported to prove, among other things, that one could lawfully stop filing income tax returns and cease having income taxes withheld from personal wages based upon the long-rejected notion that the Sixteenth Amendment to the Constitution had not been legally ratified. They further admitted they concealed the income earned from the sales of M2K packages during the period 1999 through 2002, by using a variety of dishonest and deceitful means, including the use of offshore bank accounts and third-party merchant accounts to conduct credit card sales.
Former Hotel Developer Sentenced
On February 2, 2004, in Nashville, TN, Charles V. Covington, former owner and president of OCVOC Investment Holdings, Inc., was sentenced to 30 months in prison followed by 3 years of supervised release. Covington was also ordered to pay restitution to Investment Holdings, Inc., in the amount of $600,000 and ordered to pay IRS back taxes in the amount of $140,278 as a condition of his supervised release. Covington pleaded guilty on September 5, 2003, to failing to file a federal income tax return for the year 1997 and to mail fraud. Covington was indicted on July 10, 2002, and charged with committing mail fraud, money laundering and failing to file his 1997 U.S. Individual income tax return while receiving in excess of $366,000 in gross income. Covington, while attempting to develop a downtown hotel in Nashville, Tennessee, used that speculative venture to defraud persons who believed that they were investing their funds in the hotel project. Covington used these funds for his personal living expenses, including but not limited to, a down payment on a luxury residence, expensive furnishings for the residence, private jet service for his family, catered birthday dinners for his wife, expensive jewelry and tuition at a private school for his step-daughter.
Former Police Officer Sentenced on Tax Evasion Charges
On January 29, 2004, in Miami, FL, William Bernard Oertwig, Jr., a former Miami-Dade Police Department Officer, was sentenced to 40 months imprisonment followed by three years of supervised release. Oertwig was convicted of six counts of attempting to evade and defeat tax by failing to claim any taxable income from 1996 through 2001. In addition to jail time, Oertwig was ordered to pay a $50,000 fine. Oertwig owned Intercontinental Electronic Security System, a burglar alarm installation and monitoring company, and filed false Forms W-4 stating he was exempt from any withholdings. Thereafter, he filed frivolous and false tax returns purporting to owe zero income. Additionally, Oertwig placed all of his assets in numerous abusive trusts in an effort to conceal them from the IRS.
Retired Pilot Sentenced to Prison
On January 20, 2004, in Rockford, IL, Ralph Waldo Kough, a retired commercial pilot, was sentenced to 20 months in prison followed by three years supervised release for evading more than $260,000 in federal income taxes. Kough admitted that he did not file tax returns and did not pay any federal income taxes on his pension income for the years 1995 through 2002. In addition, during 1998 Kough received a lump sum distribution from his 401(k) plan of $583,425.76. Kough admitted that he attempted to conceal his 401(k) distribution from the IRS by 1) depositing the $583,425.76 into four separate bank accounts in three separate states; 2) providing those banks with IRS Forms W-8 which falsely stated he was not a United States Citizen; and 3) withdrawing most of the funds from those accounts in cash amounts $9,000 and $9,900 under the currency reporting requirements.
Bogus Sight Drafts Lands 33-Month Term
In St. Paul, MN, on December 16, 2003, Roger Leigh Oehler was sentenced to 33 months in prison after being convicted by a jury in July 2002 on 30 counts of passing fictitious obligations and five counts of submitting false statements to the IRS. From February 1999 to July 2000, Oehler used fraudulent “sight drafts” in an effort to pay debts, obtain money or obtain tax refunds. Oehler wrote nine bogus sight drafts for payment of child support to state agencies and the social services department for his child support obligations. He also wrote fake sight drafts to pay his tax obligations and defraud credit card companies of over $200,000. Oehler was also convicted of filing false 8300 forms with the IRS.
San Diego Return Preparer Sentenced
On December 8, 2003, in San Diego, CA, Roosevelt Kyle was sentenced to 12 months in custody. A jury convicted Kyle of failing to file his personal income tax returns for the years 1995 through 1998. Evidence at trial showed Kyle earned over $300,000 and prepared over 3,000 tax returns, but failed to file his own personal income tax returns. According to evidence presented in court, Kyle promoted tax avoidance seminars, at which he advised clients that they could permanently stop paying income taxes. Kyle also promoted the book titled, "Vultures in Eagles Clothing" which claims the income tax laws are not applicable to U.S. citizens. This book was written by Lynne Meredith, who was convicted in the Central District of California for various tax crimes.
Man Sentenced for Evading Over $235,000 in Taxes
On December 3, 2003, in Kansas City, Missouri, Mark A. Fronce was sentenced to 15 months in prison, ordered to pay a $2,000 fine, and ordered to pay $434,522 in back taxes with interest and penalties. Fronce pleaded guilty on June 26, 2003, to one count of tax evasion. By pleading guilty, Fronce admitted that he had taxable income of approximately $565,806 in 1997 and should have paid $235,486 in taxes. Instead, Fronce did not file a tax return and attempted to conceal his true income by diverting his income to "trust" bank accounts.
Optical Owner Sees Jail Time
On November 6, 2003, in St. Paul, MN, Michael F. Marsh, the former owner of Marsh Optical was sentenced to one year and one day imprisonment. Marsh pleaded guilty to failing to file federal income tax returns for the calendar years 1997 – 2000. Marsh's total income for those years was $401,371, resulting in a tax loss of approximately $141,559.
Three Sacramentans Sentenced to Lengthy Prison Sentences in Tax Fraud, Investment Fraud and Money Laundering Scheme
On November 4, 2003, in Sacramento, CA, Herbert Arthur Bates, Christopher R. Bates and David Larry Smith were sentenced to lengthy prison terms after being convicted of conspiracy to defraud the United States by impairing and impeding the IRS in the assessment and collection of income taxes, conspiracy to engage in mail and wire fraud, and conspiracy to engage in money laundering. Herbert Bates, Christopher Bates, and David Larry Smith were sentenced to 136 months, 63 months and 151 months in prison, respectively. All three were also ordered to pay restitution in the amount of $1,738,520, a criminal forfeiture of $1,000,000, and serve 36 months of supervised release. Evidence presented at trial proved that the defendants sold a form of trust, which they called an Unincorporated Business Organization (UBO), to approximately 249 investors. The defendants charged between $3,000 and $7,500 for the creation of these UBO's. Herbert Bates and Smith advised clients that they could transfer all of their income and assets to the UBO, and after transferring their income and assets, the clients no longer had to file individual income tax returns nor pay federal income taxes.
FY 2003 Archive Examples of Nonfiler Enforcement Investigations
http://www.irs.gov/compliance/enforcement/article/0,,id=106445,00.html
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