Tax Fraud Blotter: Goin’ to jail, Boss
Leniency in cancer case; rehab rip-off; repayment unlikely; and other highlights of recent tax cases.
White Plains, New York: Preparer Michael G. Magnaldi, 55, has reportedly been granted a lenient sentence in an “uncommon” case after pleading guilty to tax fraud.
Magnaldi, formerly of Pelham, New York, has Stage 4 prostate cancer and might have a year to live, news reports said, adding that he was sentenced to time served — one day — plus a year of supervised home confinement and ordered to pay $476,184 in restitution to the IRS and a $25,000 fine.
Prosecutors reportedly called this a “very uncommon case...given the defendant’s extraordinary, serious and well-documented medical conditions.” The defense attorney said Magnaldi needs chemotherapy every three weeks, a prison sentence would put him at high risk for infections, and that he also suffers from cardiac issues and might need surgery to repair an aortic valve. Magnaldi’s crime typically would warrant 24 to 30 months in prison.
Magnaldi, who pleaded guilty earlier this year, owned and operated MGM Tax Solutions, a tax prep business in the Bronx. For the 2014 through 2017 tax years, he prepared for clients 37 false 1040s and tried to conceal his role in preparing these fraudulent returns by not listing his or any name as the preparer. He also caused additional false forms to be sent to the IRS to substantiate the claims. Tax loss for the false returns totaled $232,767. He moved to Florida last year.
The defense was also quoted as saying that a significant part of the fraud happened in 2017, “when Mr. Magnaldi was coming to terms with his cancer diagnosis and undergoing intensive cancer treatments,” and that his condition took a toll on his “mental health and ability to focus on his work as a tax preparer, as well as his ability to make responsible decisions.”
Bridgeport, Connecticut: Melissa Meole of North Branford, Connecticut, has pleaded guilty to fraud and tax offenses stemming from embezzlement.
Meole was employed by Bridgeport Health Care Center, a corporation that operates the nursing and rehabilitation of the same name, and prior to November 2018 operated a second nursing and rehabilitation facility, Bridgeport Manor. Meole worked in the business office and was responsible for processing payroll and for handling the finances of the Manor resident trust account. From 2015 to October 2018, she stole more than $415,000 by writing checks to cash out of the trust accounts. She also stole more than $29,000 by writing false payroll checks to current and former employees and then depositing those checks into her bank account by forging employees’ signatures.
After Meole's employment was terminated in October 2018, she defrauded another employer of more than $9,000 by stealing and fraudulently depositing into her own account certain checks that were returned to the company, often for incorrect addresses. She also defrauded three banks in a check kiting scheme.
For the 2015 through 2018 tax years, Meole failed to report $487,523 of income, most of which was fraudulently obtained, to the IRS, resulting in a tax loss of $103,217.
She pleaded guilty to one count of filing a false return, which carries a maximum sentence of three years in prison, and to one count of wire fraud, which carries a maximum sentence of 20 years in prison. Meole also has agreed to pay restitution of $456,594.56 to victims of her schemes and $103,217, plus interest and penalties, to the IRS.
Gilmore City, Iowa: Preparer David Miller, 52, has been sentenced to a year and a day in prison after pleading guilty to three counts of aiding and assisting in the preparation and presentation of false and fraudulent income tax returns and three counts of receiving stolen government money or property.
He admitted that while operating his prep business, he prepared fraudulent income tax returns. The fraudulent returns that Miller prepared between 2011 and 2016 resulted in a total loss to the government of $125,954. Miller also stole money from his clients by depriving them of part of their tax refunds.
He also failed to report the stolen funds as income, which resulted in an additional tax obligation for himself of $30,752.
Miller agreed to pay $156,706 in restitution to the IRS. He was also ordered to pay restitution to other victims in this case and serve two years of supervised release after the prison term.
Madison, Wisconsin: Preparer Yvonne Spencer, 64, has pleaded guilty and been sentenced to a year and a day in prison, followed by one year of supervised release, for filing false returns.
An IRS investigation in 2018 revealed that Spencer had prepared and filed returns containing materially false information on behalf of clients. A survey of 79 returns filed by Spencer between 2013 and 2017 revealed that the IRS had paid $292,872 in fraudulent refunds. Spencer directed $48,000 of the refunds to herself and collected prep fees from some clients.
She generated fraudulent refunds primarily by claiming business and educational expenses on behalf of clients who did not in fact own businesses or attend school.
She was also ordered to pay restitution to the IRS, although the court noted that full repayment by the defendant was unlikely.
Indianapolis: George Ruth of Morristown, Tennessee, has been sentenced to 56 months in prison for defrauding the Treasury, the IRS and the Social Security Administration.
Ruth and co-conspirators filed earnings statements with the SSA to obtain fraudulent benefits. They submitted false IRS forms purportedly from Lehman Brothers and other bankrupt companies that contained false earnings and employment information to increase their monthly benefits and result in lump-sum back payments. Ruth unlawfully obtained or attempted to obtain some $1,083,180 in undeserved benefits.
Beginning in January 2011 continuing until in or around October 2017, Ruth and his co-conspirators also prepared and submitted false federal income tax returns to steal refunds. They unlawfully obtained or tried to obtain some $3,707,585.98 in undeserved federal income tax refunds.
Houston: Preparer Winfred Fields has been sentenced to 109 months in prison, to be followed by three years of supervised release, following his conviction on 15 counts of fraud and tax violations.
Fields operated tax and bookkeeping businesses for many years under the names Fields Enterprises, Your Tax Professionals and The Tax Boss. He participated in a scheme involving submission of individual federal returns on behalf of foreign persons working on vessels and engaged in oil and gas exploitation in the Gulf of Mexico.
Fields falsely claimed workers were exempt from U.S. tax under a tax reaty between the United States and the U.K., Spain or New Zealand. The employing companies had previously provided to the IRS withholdings from the workers’ wages and reported the income to the IRS. Fields submitted amended returns as well as original 1040NRs claiming a refund of the entirety of the amounts paid in as U.S. taxes for various years, including 2007 through 2012.
Fields charged $2,500 for each crew member’s first return and required a $1,000 fee for each return after. He required direct receipt of the refunds so he could negotiate the checks and take his fee off the top. He also had some refund checks deposited directly into one of several bank accounts he maintained. He also cashed checks at a Houston check cashing business or had the checks deposited into one of several attorney trust accounts three different lawyers maintained. Fields agreed to provide the remainder of the refund proceeds to the foreign clients. He did that for a while, but ultimately stopped forwarding any money to them.
As those individuals began contacting him to ask for updates on their refund claims, he repeatedly sent misleading and materially false responses to their questions.
Fields stole $3,097,974.19 in federal refunds and kept some $1,302,271.75.
Defense attempted to convince his jury that Fields had acted in good faith and believed the wages were exempt. He also claimed he was trying to pay the crewmembers their refunds but simply fell behind.