Ghost payroll; non-existent businesses; save you from paying; and other highlights of recent tax cases.
Grand Rapids, Michigan: James Phillip Scholten, 51, of Byron Center, Michigan, was sentenced to 20 months in federal prison for tax evasion. Additionally, Scholten was ordered to pay restitution to the IRS in the amount of $868,707 and serve three years of supervised release following prison.
Scholten pleaded guilty and admitted that he failed to report $3.4 million of income he generated through the sale of scrap material over a 13-year period.
Scholten stole the highly valuable scrap material from his employer and used the proceeds to unlawfully enrich himself and finance a lifestyle he could not otherwise afford. Scholten intentionally failed to provide his CPA with records documenting his recycling income to evade assessment of tax on that income.
Denver: Nancy Maldonado Alvarez, 43, was convicted on 37 counts of aiding or assisting in the preparation of false tax returns for clients.
Alvarez, a Mexican national, owned and operated a tax preparation business in Denver that she used to prepare false tax returns claiming refunds her clients were not entitled to receive.
Alvarez carried out her tax fraud scheme by fabricating business losses, often for non-existent businesses. She also sought paid sick and family leave credits, which Congress created to aid struggling businesses and others in the early days of the coronavirus pandemic, even though many of her clients did not qualify for the credit.
In total, Alvarez caused a loss to the U.S. exceeding $150,000. She is scheduled to be sentenced in August.
Fort Wayne, Indiana: Robert Elsten, 57, of Huntington, Indiana, was sentenced after pleading guilty to fraud and false statements.
Elsten was sentenced to time served, followed by one year of supervised release. He was also ordered to pay $347,038.02 in restitution.
Elsten owned and operated Global Paving LLC, a family-owned asphalt paving company. Elsten's customers routinely paid Elsten by check for paving work. Elsten would then deposit some of those checks into the business bank account. He cashed other checks for paving work at various check cashing facilities. Elsten then failed to report on his taxes all gross income earned from Global Paving.
Orland Park, Illinois: Hiam Hmaidan, 54, of Orland Park, Illinois, operated an unemployment insurance fraud scheme in which she agreed with others to defraud the Pandemic Unemployment Assistance Program, which Congress established in 2020 as part of the CARES Act.
Hmaidan, together with her co-conspirators, submitted claims containing false information regarding the claimants' employment status and the impact of the pandemic on their ability to earn a living. She submitted many of the fraudulent claims using her clients' names and personal information.
Based on those fraudulent claims, unemployment insurance benefits were loaded onto debit cards and mailed directly to Hmaidan or to addresses accessible to Hmaidan and her co-conspirators. Once Hmaidan and her co-conspirators obtained the debit cards, they used the fraudulent proceeds on the cards to withdraw approximately $2.8 million in cash from ATMs near where they lived.
Hmaidan was convicted of one count of conspiracy to commit mail fraud and five counts of mail fraud. She is scheduled to be sentenced on October 2. She faces a maximum penalty of 20 years in prison on all counts.
Wilmington, Delaware: A Townsend, Delaware, man was sentenced to 18 months in prison for tax evasion.
John Kungu, 62, the owner of Advanced Nursing Care, engaged in a multiyear scheme to avoid paying nearly $1.2 million in taxes. Between 2018 and 2021, he submitted multiple false sworn statements to the IRS claiming that he could not afford to pay his tax liabilities, despite having millions of dollars in undisclosed bank accounts. On one occasion, Kungu offered to settle his tax debt for $35,000, claiming he would need to take out a loan, while simultaneously holding over $5.1 million in hidden accounts.
Kungu intentionally withheld financial records from his bookkeeper and tax preparer to conceal his evasion.
Upon Kungu's release from prison, he will be required to serve three years of supervised release. In addition to his prison sentence, Kungu was ordered to pay a $75,000 fine and $1,186,573.62 to the IRS. Kungu has since paid the restitution amount, along with applicable interest and penalties.
Lansing, Michigan: The former head of a Grand Rapids-based nonprofit that supported the education of children from low-income families will serve time for embezzling more than $1 million from the organization, forcing it to close.
Nkechy Ezeh, 61, was sentenced to five years and 10 months in prison, followed by three years of supervised release. She was also ordered to pay $1.4 million in restitution and about $390,000 in back taxes.
Ezeh, the founder and former CEO of the Early Learning Neighborhood Collaborative, agreed in December to plead guilty to conspiracy to commit wire fraud and tax evasion.
Federal prosecutors say Ezeh told ELNC bookkeeper Sharon Killebrew to create hundreds of thousands of dollars in fake invoices that the two used to steal from the nonprofit. Authorities said Ezeh put family members on a "ghost payroll" to give them hundreds of thousands of dollars for little to no work and also used "money mules" to send money to her family in Nigeria.
Ezeh's co-conspirator Killebrew previously pleaded guilty to conspiracy and tax evasion charges and was sentenced in November to four-and-a-half years in prison and more than $1.4 million in restitution.
Fort Lauderdale, Florida: A Broward County tax preparer has pleaded guilty to his involvement in a scheme where he submitted hundreds of fraudulent COVID-19 loan applications during the pandemic, amounting to more than $4 million.
Roody Metelus, 47, owned the tax preparation business JRS Tax Services LLC, doing business as Liberty Tax Service, based in Dania Beach. In early 2021, Metelus began recruiting customers and others to apply for federal Paycheck Protection Program loans.
He prepared loan applications and supporting documents to falsely list applicants as sole proprietors of business, despite the fact that many people were not business owners. He then submitted the applications to a bank in another state.
From January to March 2021, Metelus submitted more than 200 fraudulent PPP applications to the out-of-state bank, with the requests amounting to $4.1 million. The bank funded more than 100 of them, totaling about $2.3 million.
Many of the loan applications Metelus prepared were for customers he previously had prepared tax returns for. Others were not previous customers of Metelus but were people who had been "referred" to him for a PPP loan.
Metelus pleaded guilty to one count of conspiracy to commit wire fraud. A sentencing hearing is scheduled for July.
He faces a maximum sentence of five years in federal prison and owes $2.3 million in restitution to the U.S. Small Business Administration.
Portland, Maine: A South Portland man was sentenced for aiding and assisting the preparation of false tax returns for others and filing false tax returns for himself.
Lawrence Okeyo, 48, was sentenced to two years in prison to be followed by one year of supervised release.
Okeyo was a professional tax return preparer in Portland. He prepared tax returns for others in exchange for a fee. Okeyo often collected his preparation fees, which sometimes exceeded $1,000, from the tax refunds issued to his clients.
Okeyo falsified his clients' tax returns by claiming bogus, unreimbursed employee expenses that can be deducted only by a limited set of professionals: Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses. Neither Okeyo nor his clients met these qualifications. By falsifying tax returns, Okeyo generated or inflated unwarranted tax refunds for his clients and himself.
Okeyo also prepared a false tax return for an undercover IRS agent posing as a client. During his interactions with the undercover agent, Okeyo told the agent, "I know that you should pay [taxes]. What I'm wanting to do is save you from paying." Okeyo then fabricated supposed business expenses on the tax return he prepared for the undercover agent. Okeyo advised the undercover agent that, if he was audited, he would not be able to prove that he was entitled to claim the expenses.
Brentwood, Tennessee: A Brentwood attorney admitted to hiding millions of dollars in income from cryptocurrency sales and his business on his tax returns from 2018 to 2022.
David Gebhardt, 54, a Tennessee-licensed attorney, pleaded guilty to two counts of filing false individual tax returns.
Gebhardt withdrew approximately $6.6 million in funds from his cryptocurrency sales.
Gebhardt ignored warnings from his accountants to report cryptocurrency income on his tax returns and lied on tax returns for 2020, 2021 and 2022, claiming he did not engage in virtual currency transactions.
Gebhardt also caused a tax loss of more than $550,000 by filing false returns from 2018 to 2022.
His sentencing is scheduled for November 6. He faces a maximum penalty of six years in federal prison and must pay restitution and monetary penalties.
