Tax Fraud Blotter: Debt and taxes
Giving back; fast time; yellow buses and luxury cars; and other highlights of recent tax cases.
Orlando, Fla.: A federal court has ordered that preparers Patrick Clarke and Ruby Rodriguez disgorge $500,000 and $100,000, respectively, of the proceeds they received for the preparation of returns.
Last November, the court permanently barred Clarke, Rodriguez, Tax MD Inc., and V.I.P Tax Services Inc. from preparing federal returns for others. According to the complaint, Clarke owned Tax MD Inc. and through it owned and operated prep franchises in Orlando, Tampa, West Palm Beach and Hallandale, Fla. Also according to the complaint, Rodriguez managed one of Clarke’s stores in Orlando and owned V.I.P Tax Services Inc.
As alleged, Clarke’s preparers, including Rodriguez, fabricated business income and expenses to make fraudulent claims for the Earned Income Tax Credit and fabricated itemized deductions to inflate refunds.
Buffalo, N.Y.: Businessman Dorian Wills, 52, has pleaded guilty to tax evasion.
According to documents and information provided to the court, between April 2010 and October 2013 Wills operated a debt-collection business under various names, including Heritage Capital Services, Performance Payment Processing, Performance Payment Service, Pinnacle Payment Service and Velocity Payment Solutions. Wills lived in western New York but spent significant time in Cleveland and Atlanta, where the debt-collection companies were located. From approximately November 2010 through approximately October 2013, Wills also operated Freestar World, through which he did work for the debt-collection companies.
The companies engaged in illegal debt-collection practices, such as making threatening and harassing phone calls and collecting on debt that didn’t exist or debt to which the companies did not have title. To avoid detection by state and federal law enforcement, Wills solicited two individuals to assist him. He had these individuals incorporate several debt-collection companies in Georgia and Ohio, open dozens of bank accounts in the names of the companies and submit applications for merchant accounts in the names of the companies.
Between 2010 and 2013, none of the companies filed a tax return. Wills also failed to file his 2011 and 2013 personal income tax returns despite some of the debt collection companies earning approximately $4 million in gross receipts. For tax year 2012, he filed a personal income tax return but the return didn’t include income information from any businesses, some of which earned nearly $5 million in gross receipts that year.
Wills owes $1,209,537.88 in federal income taxes for tax years 2011 through 2013.
Previously, Wills and the debt-collection companies were the subject of a civil investigation by the Federal Trade Commission, with the defendant and the FTC stipulating to a final order for permanent injunction in August 2014.
Sentencing is Aug. 23, when Wills faces a maximum of five years in prison as well as a period of supervised release, restitution and monetary penalties.
Mooresboro, N.C.: Bookkeeper Kelly Sue Reynolds, 52, has been sentenced to 24 months in prison, three years of supervised release and $556,760.03 in restitution for tax evasion.
Reynolds was the bookkeeper for a firm in Cherokee County, S.C., and as part of her duties she paid bills for the firm, including the payment of federal taxes. In 2014, the IRS audited the firm that Reynolds worked for due to certain taxes going unpaid.
During the course of the audit Reynolds admitted that over a five-year period she had embezzled $439,459.97 from her employer. She also stated that she had covered up the embezzlement by falsifying the books, showing that she had paid bills which she had in fact not paid. Included in the unpaid bills were the missing taxes.
It was further determined that Reynolds had not filed personal returns during those years that she was embezzling funds and that, based on her salary and the money she stole, she owed the IRS $117,300.06 in personal income taxes.
Winston-Salem, N.C.: Two preparers have pleaded guilty to aiding in the preparation of a false return for an IRS undercover agent.
According to documents and information provided to the court, Kristyn Dion Daney and Rakeem Lenell Scales worked at the prep business Fast Tax of Winston-Salem Inc. Fast Tax was owned by Shannon DeWayne Patterson, who last November pleaded guilty to aiding in the preparation of a false return, and two other individuals.
Scales and Daney admitted that in March 2015 they assisted in preparing a false return for an IRS undercover agent and that at the beginning of the 2014 season they were instructed at training sessions held by one of the Fast Tax co-owners to manipulate the information on clients’ returns to maximize refunds.
Daney admitted to aiding in the preparation of some 193 false returns that claimed approximately $495,984.04 in fraudulent refunds; Scales admitted to aiding in the preparation of some 29 false returns claiming some $74,535.20 in fake refunds.
Sentencing is Sept. 11. Each faces a maximum of three years in prison, as well as a period of supervised release, restitution and monetary penalties.
Lexington, Mo.: Business owner Randy K. Small, 51, has been sentenced to three years in prison without parole and ordered to pay $1,694,725 in restitution for failing to pay over nearly $1.7 million in federal payroll taxes.
Small, who pleaded guilty in June, owns RSB Leasing, a transportation business that has provided school bus service to multiple school districts in Missouri. He operated the business under three different names and failed to fully pay employment taxes for each of the three businesses. At the time of his guilty plea, Small admitted that his conduct caused a tax loss of at least $1,457,483.
According to court documents, however, Small has continued to violate tax laws since his change-of-plea hearing. IRS investigators uncovered $237,242 in additional tax harm for federal employment taxes that were not paid over for employees of RSB Leasing, resulting in a total tax liability amount of $1,694,725.
Small operated the business under the name Hill Transportation from 2005 through February 2010. After accruing more than $300,000 in employment tax liability, he ceased operations under Hill Transportation and began operating under the name SPYKE LLC. After accruing more than $1 million in employment tax liability, Small discontinued operations under SPYKE in 2012.
Finally, Small operated under the name RSB Leasing, which has continued to accrue tax liability.
He also admitted that he did not deposit the FICA or the income taxes that he withheld from his employees’ wages, nor did he pay the employer portion of FICA. Instead he withdrew significant amounts of cash, purchased new buses and maintained a personal collection of cars. From 2009 through 2011, Small withdrew $286,052 from the business bank account in the form of cash and cashier’s checks payable to himself. He spent an additional $147,000 to purchase new buses for the business.
During the time period when Small was not paying his taxes, he purchased and maintained a 1998 Lamborghini Diablo SV. On April 13, 2017, about two months prior to his guilty plea, Small sold the Lamborghini for approximately $115,000 and had the proceeds from the sale wired to the business bank account of RSB Leasing. Small failed to disclose the transaction to the government and he has not used any of the proceeds to pay the taxes he owes. Instead, according to documents provided by the IRS, Small engaged in a series of banking transactions to further conceal the proceeds and evade payment to the IRS.
According to court documents, Small filed for bankruptcy with the intent to hinder the collection efforts of the IRS and obstruct the IRS’s ability to collect payment from the foreclosure sale of a parcel of land. The bankruptcy petition was dismissed last October.
St. Louis: Preparer Omar Jaber, 31, has pleaded guilty to two counts of theft of government funds.
Jaber admitted to stealing nearly $200,000 in refunds by using the name and other ID information of 42 different individuals without their knowledge or consent. He filed false returns in the victims’ names for the 2014 and the 2015 tax years after obtaining their information from another prep service.
Jaber faces up to 20 years in prison and a fine of up to $250,000 per count. Sentencing is Aug. 10.