Tax Fraud Blotter: Fit for a king

Loot for a state campaign; “hijacked” returns; bogus liens; and other highlights of recent tax cases.

Tacoma, Wash: Former state auditor Troy Kelley has received a year in prison for possession of stolen property, making false declarations in a court proceeding and tax fraud.

According to evidence, between 2003 and 2008 Kelley operated a business that monitored real estate filings on county websites, agreeing with escrow companies that his business would charge a flat fee of $15 or $20 for each real estate transaction it monitored for the escrow companies’ customers. In addition to the fee, the escrow companies also gave Kelley $100 to $150 of customer money for each transaction, which Kelley agreed to use to pay expenses if necessary or to refund the homeowners if there were no expenses.

Beginning in 2005, in virtually every case he handled, Kelley kept the entire amount withheld on each transaction, thereby stealing nearly $3 million. In 2008, class-action lawsuits were filed against escrow companies, claiming that homeowners had been charged excessive fees in real estate transactions. After the lawsuits were filed, Kelley falsified a letter to the plaintiff in one lawsuit to make it appear that Kelley had refunded the plaintiff’s money when he had not.

Kelley transferred millions in stolen money through a series of bank accounts, ultimately placing the funds in an investment account for a company controlled by a Central American trust that was in turn controlled by Kelley. One of the escrow companies sued to retrieve the stolen money; Kelley testified falsely under oath that he had only kept money he had earned for services provided.

Beginning in 2011, Kelley spent the stolen money on personal expenses and his campaign for state auditor. He claimed on his returns that he was continuing to perform real estate services and to earn income through his business when in fact he had not operated the business for years. In the same returns Kelley claimed tens of thousands of dollars of business deductions for personal items such as spa treatments, a family trip, and household purchases such as sheets and toys.

In December Kelley was convicted of possession of stolen property, two counts of making false declarations under oath and six counts of tax fraud. Following the trial, an unrelated U.S. Supreme Court ruling resulted in the dismissal of one of the tax fraud counts.

Noblesville, Ind.: Preparer Daniel Bewley, 34, has been sentenced to 33 months in prison followed by three years of supervised release and been ordered to pay $331,493 in restitution to the IRS in connection with a three-year fraud.

As outlined in the indictment, Bewley presented his clients with a paper copy of the federal return he claimed would be e-filed on their behalf. The paper copies provided to clients, however, did not match the returns actually filed with the IRS.

In what has come to be known as a “hijacked return” scheme, Bewley inflated deductions on the returns to create a larger refund. Clients received the refund the paper return indicated they could expect; Bewley pocketed the rest.

St. Louis: Preparer Filmon Tekle, 34, has been sentenced to 21 months in prison for obstructing administration of internal revenue laws.

Tekle pleaded guilty in May to one felony count of conspiracy to defraud the U.S. and four counts of falsifying returns.

According to court documents, between 2013 and 2015 Tekle operated prep stores under several different names. He paid nominees to use their names to obtain EFINs for the operating years of 2014 to 2015. New employees at the prep businesses were trained to report the existence of Schedule C income without the necessary documentation. Tekle instructed the employees how to prepare the returns and how to interact with clients.

Tekle facilitated the filing of numerous false income tax returns between 2013 and 2015. He charged significant fees for the filing of the false returns and had a system for paying the preparers a kickback for the false returns after the refund checks were mailed to the business.

The loss to the IRS totaled at least $167,469.

Hands-in-jail-Blotter
hand in jail

Salem, Mass.: John Kalantzis, 52, of Lynn, owner of King’s Roast Beef, has pleaded guilty to two counts of aiding and assisting in filing a false return and failing to pay some $383,000 in taxes.

During tax years 2011 through 2015, Kalantzis underreported the gross receipts and expenses of King’s to reduce the federal income taxes owed by the restaurant. Kalantzis diverted some of the restaurant’s cash receipts to himself, paying for some restaurant supplies with cash and paying a portion of his employee’s wages in cash. He then failed to report this to his preparer.

During each of the tax years 2011 through 2015, Kalantzis failed to report cash receipts of approximately $275,000 and cash expenses of some $115,000 on King’s returns. He failed to report $855,000 to the IRS during those years, avoiding paying corporate and personal taxes of $383,000.

Aiding and assisting the filing of false returns provides for a sentence of no greater than three years in prison, one year of supervised release and a fine of $250,000. Sentencing is October 2.

Shreveport, La.: Preparer Deborah A. Turner, 47, has been sentenced to three years in prison for filing false returns for herself and her clients.

According to the guilty plea, Turner owned the prep business Tax Express Refund. The IRS revoked her EFIN in 2014 but instead she started using her daughter’s EFIN to continue filing returns. She filed numerous returns for clients for tax years 2011 to 2013 containing false information so they could claim deductions, credits and expenses to increase refunds.

She also filed a false individual tax return for tax year 2013 where she failed to report $336,865 of income she received from her business.

Turner was sentenced on one count of making and subscribing a false return and one count of aiding and assisting in making and subscribing a false return. She was also sentenced to a year of supervised release and ordered to pay $128,828 in restitution.

Kansas City, Mo.: William Mack Gilreath, a.k.a. “Billy,” 38, and his wife, Malaika Samantha Gilreath, 42, have pleaded guilty to failing to pay more than $328,000 in payroll and other taxes for their construction business, M.S. Consulting.

Despite notification by their preparer of their tax responsibilities and nine notices from the IRS, the Gilreaths failed to pay $328,351 in employment and other taxes. Billy Gilreath acknowledged that he was more involved in the day-to-day operations of the business than his wife, but both admitted they each were aware and responsible for collecting, accounting for and paying over trust fund taxes.

The couple admitted that they deducted and collected $209,597 in federal income taxes and FICA from their employees in 2014, 2015 and 2016; during this time, M.S. had 16 to 37 employees. The couple failed to pay over those taxes to the IRS, failed to pay over the employer portion of FICA taxes, which totaled $90,173, and the Missouri Division of Employment Security Outstanding State Unemployment Tax of $28,581.

The Gilreaths are jointly and severally liable to pay $328,351 in restitution to the IRS and the State of Missouri and are each subject to up to five years in prison.

Rogersville, Tenn.: Local resident Brian Leo Snow has pleaded guilty to filing a fraudulent multi-million-dollar lien against a government employee and filing a false claim for a refund.

According to court documents, Snow failed to pay his federal tax liabilities for the years 2000 to 2008 and then became the subject of an IRS collection. After being held in contempt of court for failing to provide documents and records to the IRS, Snow filed false retaliatory liens claiming that various government officials, including an IRS revenue officer, an assistant U.S. attorney and a federal judge for the Eastern District of Tennessee owed him millions of dollars. Each of these government officials were involved in attempts to collect Snow’s back taxes.

Snow also filed three false claims with the IRS claiming over $144 million in refunds to which he was not entitled. Snow owes the IRS more than $150,000 in taxes.

Sentencing is November 28. He faces a maximum of 15 years in prison, as well as a term of supervised release, restitution and monetary penalties.

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