Stolen ID scams; an embezzler sentenced; and other highlights of recent tax cases.
Floral Park, N.Y.: Preparer David Menzies, 51, has been sentenced to 24 months in prison for filing fraudulent returns.
According to case documents and information, from January 2010 through April 2015 Menzies filed fraudulent returns for hundreds of clients that claimed fake business income and expenses and false dependents to seek undeserved refunds.
Menzies solicited and sometimes purchased personal ID information of children from their parents and claimed them as dependents on other clients’ returns. Menzies charged clients $250 for use of the phony dependents and often used the same children’s information in multiple years.
He recruited people to assist him in filing these fraudulent returns and directed them to escort his clients to check cashers, in order to cash their refund checks and collect the prep fee, including the money for the false dependents.
Menzies also concealed his identity as the preparer of the fraudulent returns by soliciting other people to apply to the IRS for preparer IDs and then filing the returns under those IDs.
Menzies admitted that this scheme caused a tax loss of more than $250,000 and acknowledged that he failed to timely file his 2009 through 2015 personal returns.
He was also ordered to serve a year of supervised release and to pay $280,930 in restitution to the IRS.
DeKalb, Miss.: Preparer Christopher Lashawn Chamberlin, 40, has been sentenced on charges that he conspired to defraud the government by preparing and filing false tax returns using stolen identities provided to him by others.
Chamberlin, who owned and operated C & T Tax Services and who in April pled guilty to conspiracy to defraud the government, received 30 months in federal prison, followed by three years of supervised release. He was also ordered to pay more than $11 million in restitution to the government.
The investigation revealed that Chamberlin knowingly submitted false claims to the IRS by preparing and submitting false 1040s using stolen IDs provided to him by a co-conspirator. The fraudulent returns would have directed the refunds to be deposited into the accounts of other co-conspirators, but IRS investigators stopped the payments with the help of local police.
Chamberlin also admitted to preparing returns for other individuals that included exaggerated losses which resulted in fraudulently increased refunds.
Greensboro, N.C.: Preparer Cheryl Arrington White, 55, has been sentenced to 33 months in prison and three years of supervised release and been ordered to pay $289,172 in restitution to the IRS for tax evasion.
According to court documents, White operated White’s Accounting PA, from her home and earned money for bookkeeping and payroll services to multiple clients, one of which operated a restaurant and hospitality facility in Surry County, North Carolina.
This client received information that White had embezzled from another client, and, based on this information, started reviewing their bank statements and cancelled checks online. The client found that White was also embezzling from their company.
White utilized three separate methods to embezzle. She wrote herself additional payroll checks and paid personal expenses in her name and her spouse’s name using the clients’ business checking account, forging the business owners’ signatures on those checks.
She also paid her children as employees of the client.
White was found to have embezzled from at least two other companies, cashing or depositing those fraudulent checks into her or her children’s personal checking accounts.
She admitted embezzling approximately $1 million from her clients and told investigators that she only calculated her Schedule C income by using figures derived from printing the vendor reports for her accounting business. For calendar 2010 through 2014, White failed to report to the IRS $969,157.91 of income.
Potomac, Md.: Doctor and entrepreneur Sreedhar Potarazu, 51, has been sentenced to 119 months and 29 days in prison for defrauding his former company’s shareholders and for failing to account for and pay employment taxes.
According to case documents, around September 2000 Potarazu, an ophthalmic surgeon, founded VitalSpring Technologies, which provided data analysis and services relating to health-care expenditures. Some five years later, VitalSpring started doing business as Enziime LLC. From its inception, Potarazu was VitalSpring’s CEO and president and served on its board of directors.
From at least 2008, Potarazu provided false and misleading information to VitalSpring’s shareholders to induce more than $49 million in capital investments in the company. In 2014, Potarazu told shareholders that VitalSpring’s 2013 revenues were approximately $12.9 million when in fact the 2013 revenue was less than $1 million.
He also admitted that he concealed from shareholders that VitalSpring failed to account for and pay over more than $7.5 million in employment taxes to the IRS.
From VitalSpring’s inception, but specifically from 2008 until his arrest in October, Potarazu solicited investments through in-person meetings, e-mails, conference calls, webinars and phone calls. From about 2008 through in or about 2016, he raised some $49 million from more than 174 victim investors.
He induced investments from shareholders by making false representations, concealing material facts and telling half-truths about VitalSpring’s financial condition, tax compliance and alleged imminent sale. He also had someone pose as a representative of a prospective buyer on shareholder conference calls.
He also falsely represented that the alleged imminent sale would yield substantial returns to the shareholders and used this to induce additional investments. Potarazu provided false financial records, including fake balance sheets, fabricated bank statements and tax returns and phony Web sites, to several prospective buyers, financial advisors and investment banks.
From 2011 to 2015, in addition to his salary paid by VitalSpring, Potarazu diverted at least $5 million from the victim investors and VitalSpring for his own use.
Potarazu admitted that from 2007 to 2016, VitalSpring accrued employment tax liabilities of more than $7.5 million. Between 2008 and 2015, instead of paying over employment tax, Potarazu caused VitalSpring to make millions of dollars of expenditures, including thousands of dollars in transfers to himself and others, the publication of his book, “Get Off the Dime,” a car service, and travel.
Potarazu was also ordered to serve three years of supervised release, pay $49,511,169 in restitution to the shareholders and $7,691,071 to the IRS, and to forfeit several homes, vehicles and bank accounts.
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