Tax Fraud Blotter: Fabricated numbers
Some advantage; Justice done; everyone needs a hobby; and other highlights of recent tax cases.
Santa Ana, California: Preparer Karla Montano, a.k.a. Karla Cervantes Montano and Karla Esmeralda Montano, 31, has admitted that she submitted fraudulent income tax returns to the IRS, claiming fraudulently inflated tax refunds.
Montano has agreed to plead guilty to five counts of aiding and assisting in the preparation of a false income tax return.
Montano is the owner and operator of the prep service Trebols Income Tax. From 2014 to 2016, taxpayers visited Montano to have their income tax returns prepared. After these visits, Montano would prepare two different sets of returns, one to be filed with the IRS and a different copy for her clients to review.
On the IRS copy, Montano fraudulently claimed such deductions as unreimbursed employee business expenses and charitable contributions, education and Child Tax Credits and exemptions that Montano knew her clients never approved or qualified for. Montano then filed these fraudulently prepared returns with the IRS and afterwards provided different, non-filed copies of the returns to her clients.
Once Montano’s clients’ inflated refunds were available, she used a payment management service for preparers, Refund Advantage, to deduct and take certain amounts from those refunds without her clients’ knowledge. Montano directed the IRS to e-deposit the refunds into Refund Advantage bank accounts, and Montano directed the transfer of payments from those accounts into her own personal bank accounts.
The IRS tax loss exceeded $700,000. The five counts to which Montano agreed to plead guilty allege fraudulent unreimbursed business expense deductions ranging from $38,260 to $47,769.
Once Montano pleads guilty, she faces a maximum of 15 years in prison for the five tax fraud charges. She could also be ordered to pay $438,296 in restitution.
Franklin, Massachusetts: Robert A. Saltzberg, 69, of Hull, Massachusetts, was sentenced to two years in prison and three years of supervised release and was ordered to pay $1.36 million in restitution to the victim and $342,000 to the IRS in connection with a scheme to defraud his company.
From 1998 through 2014 Saltzberg was the CFO of a precision metal-fabrication company of which he was a 50 percent co-owner. As CFO, he was responsible for day-to-day accounting and finance operations and maintained control over the company’s financial activities.
From 2005 to 2015, Saltzberg embezzled more than $1 million by writing company checks to himself and to creditors to pay personal expenses and then fraudulently recording the expenditures as business expenses. In addition, the company’s tax preparer unknowingly relied upon the false bookkeeping information from Saltzberg to prepare the corporate tax returns.
From 2005 through 2014, he reported false expenses on the corporate returns. Because the company is an S corporation, and its net income passes through to shareholders, the net income understated Saltzberg’s personal income in those years.
Saltzberg evaded more than $300,000 in federal taxes.
Clinton, Maryland: Auto parts and scrap metal dealers Robert Mason Underwood Sr., 72, and his wife Deborah Jean Underwood, 63, have been convicted of one count of conspiracy to defraud the IRS and four counts of filing false income tax returns.
The Underwoods operated the used automobile parts and scrap metal business B Underwood’s Used Auto Parts. The business purchased used and salvage cars, stripped the cars for parts to resell and sold the remaining scrap metal to a Baltimore-based scrap yard. The Underwoods asked to be paid in cash for their scrap-metal sales and conspired to conceal from the IRS their subsequent receipt of substantial amounts of cash.
The couple filed a false amended federal individual income tax return for 2010 and false individual income tax returns for 2011 and 2012. The false returns did not include the full gross receipts from the sales. The Underwoods also filed a 2012 partnership return for their business that did not report all gross receipts.
The Underwoods each face a maximum of five years in prison for the conspiracy count and three years in prison for each of four counts of filing a false tax return. Sentencing is Sept. 30.
Muskego, Wisconsin: Steven M. Rader, 37, was sentenced to five months in prison for stealing more than $89,000 from the federal government via a tax evasion scheme that began in 2012.
Rader’s scheme related to an entertainment business he owned and operated starting in 2012. Despite the business generating significant income, Rader failed to report any of that income on his federal returns for 2012 to 2014. He understated his income by more than $500,000 and underpaid his taxes by more than $89,000. Rader also made efforts to conceal his evasion by filing false amended returns and lying to federal investigators about his sources of income.
He was also ordered to pay more than $195,000 in restitution.
Glasgow, Montana: Former Fort Peck Tribes law enforcement officer Willard Wilson White III, 43, has pleaded guilty to wire fraud and income tax evasion in connection with defrauding the tribes of $40,000.
In 2015, White approached the tribe with a proposal to create a facility and programs to help youth who were separated from families through incarceration. White said he needed $40,000 to establish the proposed Family Justice Center. Prosecutors said White spent the money in less than 30 days and provided no services to the tribes.
Bank records indicated that White had $32.39 in his bank account before depositing the tribe’s money. The day of the deposit, White went to Williston, North Dakota, and withdrew $305 from Whisper’s, a local strip club. White continued spending money at retail stores and also bought a Jeep. In addition, White withdrew more than $11,000 in cash, all in less than three weeks.
Various tribal members saw White posting on Facebook and spending the money and instructed White to return the leftover money. White never did, and he did not provide any services to the tribe.
The investigation also showed that White omitted on a 2015 tax return the $40,000 of income from the tribes. He also claimed dependents he was not entitled to claim. White filed six returns, which were rejected because the claimed dependents already were claimed by someone else. On a seventh attempt, White used an unclaimed child and Social Security number. White used children to obtain a $5,860 refund while paying nothing in federal tax. White’s tax evasion efforts resulted in him owing $10,184 to the IRS.
White faces a maximum of 20 years in prison, a $250,000 fine and three years of supervised release when sentenced on Sept. 25.
Belle Chasse, Louisiana: A U.S. district court has entered a permanent injunction barring Jessica Barthelemy St. Ann and JJSM Inc. from preparing federal returns.
The complaint alleged that St. Ann knowingly took unreasonable positions on returns she prepared that resulted in understatements of the tax her clients owe or overstatements of the refunds to which they are entitled. For example, the complaint alleged that St. Ann prepared returns that claimed erroneous car and truck expenses for some clients. According to the complaint, St. Ann also repeatedly claimed business losses from activities that her customers engaged in purely as hobbies.
Grand Island, New York: Restaurant owner Patrick Wirth, 28, has pleaded guilty to a felony count of criminal tax fraud for failing to pay sales tax collected from customers.
Between August 2015 and August 2017, Wirth collected $56,976 in sales tax from the customers of his banquet facility and failed to pay to New York State.
Wirth has paid restitution of $15,000, leaving a balance of about $42,000. He faces up to seven years in prison when sentenced on Sept. 3.