Tax Fraud Blotter: 1, 2, 3 and 30 months
Sunset for a tax scheme; $4,000 in phony refunds per return; aging badly; and other highlights of recent tax cases.
Lafayette, N.J.: Preparer Thomas Kurczewski, 71, has pleaded guilty to information charging him with one count of failing to pay payroll taxes and one count of failing to make personal income tax returns, resulting in a total loss of $338,204.
According to case documents and statements in court, Kurczewski was the sole owner and manager of a prep business that used the names “Tom K – The Tax Consultant” and “Tom K and Associates – The Tax Consultants.” From 2011 through 2014, the business employed two individuals but Kurczewski failed to pay payroll taxes for them. He also failed to file an individual tax return and pay federal income taxes for calendar years 2011 through 2015.
The failure to pay payroll taxes count carries a maximum of five years in prison and a $250,000 fine. The failure to file personal income tax returns count carries a maximum of up to one year in prison and a $100,000 fine. Sentencing is Feb. 20.
New London, Conn.: Preparer Yves Aubourg, 49, has pleaded guilty to a federal tax offense.
According to court documents and statements in court, Aubourg prepared more than 2,000 federal returns for the 2011 through 2015 tax years through a prep practice he operated in New London. He falsified information on numerous returns that he prepared for clients by fabricating the existence of education expenses, fabricating deductions for business expenses and charitable contributions and by claiming exemptions for fictitious dependents.
Through Aubourg’s preparation of false returns, including his own, the government lost $264,870.
He pleaded guilty to one count of aiding and assisting the filing of a false return, which carries a maximum of three years. Sentencing is Jan. 15. Aubourg is required to make full restitution to the government; the IRS is also taking action to recover unpaid taxes from Aubourg’s clients, and his restitution figure will be reduced as money is recovered from his clients.
Salt Lake City: A federal court has ordered R. Gregory Shepard and Neldon Johnson, and Utah companies RaPower-3 and International Automated Systems, to disgorge more than $50 million in gross receipts from facilitating and promoting an abusive tax scheme involving false deductions and solar energy credits.
The court also barred defendants from promoting and marketing the scheme and ordered them to take steps to ensure that the public is not further harmed by their actions.
Based on evidence, the court found that the defendants engaged in a “massive fraud” and that “each knew, or had reason to know, that their statements about the tax benefits purportedly related to buying solar lenses were false or fraudulent.” The court stated that, “Because of the manner in which defendants promoted the scheme, the court concludes that $50,025,480 in gross receipts from the solar energy scheme came from money that rightfully belonged to the U.S. Treasury.” The court found that the defendants “obstructed discovery about their gross receipts and other topics involving their finances.”
According to the opinion, Johnson claimed to have invented purported solar energy technology involving solar thermal lenses placed in arrays on towers. The court found that to “make money from this purported solar energy technology, Johnson decided to sell a component of the purported technology: the solar lenses.” The court concluded that the defendants “knew, or had reason to know, that their customers were not in a trade or business of leasing out solar lenses and, therefore, that their customers were not allowed the depreciation deduction or solar energy tax credit.”
The opinion also concluded that the defendants made “gross valuation overstatements” when they sold lenses to customers. The court found that the defendants sold each lens for a total purported price of $3,500. The court stated that the evidence showed that the raw cost of each supposed “lens” was very low and found that, “Defendants’ technology does not work, and is not likely to work to produce commercially viable electricity or solar process heat. Therefore, each ‘lens’ is just one component of an inoperable system. It is not a piece of sophisticated technology such that premium pricing is appropriate for it.”
The court also barred defendants from promoting and marketing the scheme. The court stated that the defendants sold lenses using a multi-level marketing approach, and encouraged distributors to “bring still more people in to the multi-level marketing system and build an extensive ‘downline.’ ” The court concluded that, in this case, “The toxic combination of multi-level marketing and misleading information creates an urgent need [for] an injunction.”
The injunction requires, among other things, that the defendants stop making statements that a person who buys a lens is in a trade or business with respect to that lens; may lawfully claim a depreciation deduction or any other business expense deduction related to a solar lens; and may lawfully claim a solar energy credit related to a lens.
Teaneck, N.J.: Preparer Sixto Rodriguez of Kissimmee, Fla., has been sentenced to 30 months in prison for tax fraud.
According to case documents and statements in court, from 2004 through 2012 Rodriguez operated the prep business 1-2-3 Taxes. Rodriguez met with clients, prepared their individual income tax returns and filed the returns with the IRS.
He inflated education credits, charitable donations, unreimbursed business expenses and rental losses that he knew his clients had not incurred. On average, for the clients charged in the indictment, this resulted in his clients receiving more than $4,000 in undeserved refunds per return.
Rodriguez, who was found guilty earlier this year, also failed to report more than $230,000 in net profits he made from his business from 2007 through 2009 and personally avoided paying more than $89,000.
He was also sentenced to a year of supervised release.
Dayton, Ohio: James Wright, 63, who controlled the operation of an anti-aging skincare business, has been sentenced to 33 months in prison following his convictionon seven counts of filing false corporate, individual and private foundation returns.
According to court documents and evidence, Wright ran B&P Co., which manufactured and sold an array of skincare products, including Frownies, a wrinkle reduction product endorsed by celebrities. Wright’s great-grandmother invented Frownies in 1889 and the product has been sold by his family ever since.
Beginning in the late 1990s, Wright formed a series of entities that he used to divert money from B&P to himself and members of his family. Instead of receiving a salary from B&P, Wright incorporated a company called The Remnant Inc., to which B&P paid “management fees.”
Wright also caused the preparation of false corporate returns for The Remnant on which he fraudulently deducted personal expenses, including rent, utilities, and pool and lawn care for his residence. Wright also used funds from The Remnant’s bank accounts to pay rent for one of his daughters in New York and California and paid personal expenses directly out of B&P’s accounts. He directed employees of B&P to use corporate funds to pay for the rent and utilities at an apartment rented by his mother, as well as rent for his daughter in New York.
In 2004, Wright applied to the IRS for nonprofit status for a private foundation called Fore Fathers Foundation. Wright caused B&P to make donations to the foundation and then used more than $170,000 of the foundation’s funds over seven years to pay for high school and college tuition for all five of his children.
According to the testimony, these payments constituted acts of self-dealing that Wright was required to disclose on the foundation’s returns and pay excise taxes on. When Wright filed the foundation’s 2003 through 2009 returns, he falsely reported that he had not engaged in acts of self-dealing and failed to pay the excise taxes due on the distributions.
Evidence established that Wright had a long history of interactions with the IRS. In 1998, he pleaded guilty to tax evasion for using trusts to conceal income from the IRS.
Wright was also ordered to serve a year of supervised release and to pay $146,404 in restitution to the IRS.