Expensive and exotic; a piece of the rock; CRAT's all, folks; and other highlights of recent tax cases.
Williamstown, New Jersey: Resident Christian L. Whittaker has pleaded guilty to filing false claims against the Internal Revenue Service.
Whittaker prepared, e-signed and filed false 1040s for 2016 to 2019. He claimed that a business had paid him significant wages and incurred substantial losses; the business was fictitious.
The IRS paid more than $300,000 in refunds to Whittaker. More than $80,000 was paid by the IRS and garnished to pay debts that Whittaker had previously incurred.
He faces up to five years in prison and a fine of $250,000, or twice the gross profits or gross loss, whichever is greater. Sentencing is Sept. 13.
Everson, Washington: Businessman Jay Howard Prather has been sentenced to two years in prison for failing to pay over taxes.
Between 2013 and 2019, he owned and operated Heritage General Building Contractors, had as many as 48 employees over that period and withheld $1,095,388 in Social Security, Medicare, federal income taxes and unemployment taxes from employees' paychecks. He used the money to buy expensive horses and exotic sports cars and to remodel his multimillion-dollar estate.
Several employees confronted Prather about his failure to pay over the withholdings. In 2017, he met with an accountant who told him his tax obligation was significant, yet Prather sought to limit payment to the two former employees who were threatening to sue him if he didn't pay. Prather never paid the taxes owed. Still, he used employees' labor and the money he withheld to build and remodel his area estate.
In 2020 he formed a new custom cabinet company. To date, Prather has not paid the taxes he withheld from the two employees of that company.
He was also ordered to pay $1,095,388 in restitution.
New Haven, Connecticut: Tax preparer Keyante Paul, 34, of Florida, has been sentenced to a year and a day of imprisonment, to be followed by a year of supervised release, for preparing false returns for numerous clients.
Paul, through her business Keys Tax Services, operated as a tax preparer and she traveled to the Norwich, Connecticut, area for part of the year to prepare returns for Connecticut clients. For several years Paul prepared numerous federal returns that included false income "adjustments" that reduced taxpayers' adjusted gross income or false expenses and losses in connection with sole proprietorships that clients did not operate.
Losses totaled more than $550,000 to the U.S. Treasury and the Connecticut Department of Revenue Services. Paul pleaded guilty in February.
New York: Christian Varela, former owner of a construction firm, has been sentenced to two years in prison for failing to pay more than $4.4 million of federal payroll taxes he collected from his employees.
Varela, who pleaded guilty in September, owned and operated Gibraltar Contracting, a firm with more than 55 employees that handled federal and state government construction contracts. In 10 quarters from 2015 through 2018, he failed to pay a total of more than $4.4 million in federal payroll taxes.
Varela, of Staten Island, New York, was also sentenced to three years of supervised release and a year of home confinement and must pay $4,404,564.60 in restitution to the IRS.
Columbia, Missouri: A federal court has permanently barred Rhonda Eickhoff from organizing, promoting, selling or marketing a tax scheme involving the use of charitable remainder annuity trusts. The court has also permanently barred John Eickhoff Jr. and Hoffman Associates LLC from organizing, promoting, selling or marketing a tax scheme involving the use of CRATs.
The court ordered Hoffman Associates LLC, the company allegedly used to promote the scheme, to disgorge $1.1 million and John Eickhoff Jr. to disgorge $400,000. The court previously entered injunctions against John William Gray II and Damon Thomas Eisma stemming from their roles in this scheme; each agreed to the court orders. The case against two additional defendants is pending.
According to the complaint, the defendants falsely claimed that customers following their CRAT scheme could sell property in a way that eliminated federal income tax on the gain generated from the sale. The government alleged each defendant took part in one or more of the following: recruiting clients to contribute property to a CRAT (usually real property that gained value over time); unlawfully inflating (stepping-up) the cost basis in the property on tax documents; selling the property and using the proceeds to purchase an annuity; and falsely reporting clients' annuity payments as tax-free distributions from the CRAT.
The government alleged that the defendants promoted, sold or established at least 70 CRATs, resulting in an estimated $40 million of unreported taxable income.
Philadelphia: Attorney Jonathan Olivetti has been sentenced to 27 months in prison for wire fraud in connection with trying to obtain undeserved pandemic relief money, mail fraud and tax evasion.
Between June 2020 and February 2021, he applied for two Paycheck Protection Program loans and two Economic Injury Disaster Loans on behalf of Olivetti Law LLC. With respect to the PPP loans, Olivetti inflated the payroll of Olivetti Law in the online applications and received $41,600. He also applied for two EIDLs, each seeking some $62,500; those applications contained inflated gross receipts of Olivetti Law and ultimately were not approved by the SBA.
Olivetti also stole some $91,991.28 from an estate that he represented and between November 2015 and July 2020, attempted to evade his taxes by hiding funds and lying to an internal revenue officer.
He was also ordered to pay $21,800 in restitution to the SBA, $20,800 to MBE Capital, $91,991.28 for the mail fraud offense and the loss for the tax evasion offense of $133,269.81.
Shelby, North Carolina: Land appraiser Walter "Terry" Douglas Roberts II has pleaded guilty to conspiring to defraud the U.S. as part of a syndicated conservation easement tax shelter scheme that claimed more than $1.3 billion in fraudulent deductions.
From 2008 to 2019, Roberts conspired to fraudulently inflate the value of the conservation easements upon which the deductions were based.
He became a licensed appraiser in 2007 and began providing appraisals of conservation easements that same year. From 2008 through 2019, Roberts fraudulently inflated the values of at least 18 easements by, among other things, not following normal appraisal methods, making false statements and either personally manipulating or relying on knowingly manipulated data to reach a targeted appraisal value — communicated to him by conspirators — for the desired deduction.
Roberts inflated some of his appraisals at least 70%. The easements that Roberts fraudulently appraised claimed some $466,961,000 in deductions, resulting in a tax loss to the IRS of more than $129 million.
Sentencing is Nov. 14. Roberts faces a maximum of five years in prison, as well as a period of supervised release, restitution and monetary penalties.
Matthews, North Carolina: Tax delinquent Darren Lee Joy has been sentenced to 36 months in prison.
Joy did not file individual income tax returns for most of the past two decades, evading taxes by maintaining on his W-4s and state tax forms that he was exempt from federal and state income tax withholding.
In total, he earned more than $1.8 million in income and owed more than $380,000 in state and federal income taxes.
He was also ordered to serve two years of supervised release and to pay $359,859 in restitution to the U.S. and $23,058 in restitution to the State of California.
