Tax Fraud Blotter: Inmate to the stars
Bogus gifts, job expenses; ‘varying fees’ for fraud; Crazy skin game; and other highlights of recent tax cases.
Tustin, Calif.: Preparer Thomas P. Butcher, 62, of Rancho Santa Margarita, Calif., and former owner of the prep business First Quality Tax Services, has been sentenced to a year and a day in prison for preparing and filing fraudulent federal income tax returns.
According to court documents, Butcher, who pleaded guilty in January to two counts of aiding and abetting in the preparation of a false income tax return, prepared and filed returns for tax years 2009 through 2011 that claimed false credits and deductions for clients’ returns.
Butcher inflated or fabricated various itemized deductions on clients’ Schedules A, particularly those involving gifts to charity and alleged job expenses, prosecutors said. He prepared and filed with the IRS hundreds of false federal income tax returns that resulted in tax losses to the United States of at least $1,045,956. The IRS was able to recoup much of that money through audits of Butcher’s clients.
In addition to the prison term that he will begin serving by July 25, Butcher was ordered to pay $197,549 restitution to the IRS.
Dundalk, Md.: Preparer Scott L. Jacobson has pleaded guilty to one count of theft by deception.
Jacobson operated a tax service, HTR LLC, from his home during 2014 and 2015. Investigation revealed that taxpayers often went to him after learning he could allegedly get them larger refunds than other preparers. For a varying fee, Jacobson e-filed returns without consulting his clients other than to request their W-2s and other related information.
Jacobson routinely completed clients’ returns with fraudulent information contained on fictitious schedules reporting small business losses, all of which led to the issuance of excessive and unwarranted refunds.
Jacobson was sentenced to five years of incarceration (all suspended) and ordered him to complete five years of supervised probation, during which he cannot act as a tax preparer or assist others with filing returns. The court also entered a judgment against him of $75,499.
Las Vegas: Frederick John Rizzolo, 58, former owner of a local strip club, has pleaded guilty to evading employment taxes.
According to case documents, Rizzolo, the former owner of The Crazy Horse Too club, evaded paying more than $1.7 million in employment taxes that he owed for 2000 through 2002. He paid the floormen, bouncers, bartenders and shift managers in cash but failed to provide accurate records of these payments to the club’s bookkeepers. As a result, Rizzolo caused false employment tax returns to be filed with the IRS, which underreported wages paid and taxes due.
In 2006, Rizzolo admitted this conduct and pleaded guilty to conspiring to defraud the U.S. Following his plea, Rizzolo took steps to conceal his assets and income to thwart the IRS from collecting the delinquent taxes.
For example, Rizzolo directed $900,000 that he received from the sale of The Crazy Horse Too to an offshore bank account in the Cook Islands. He also withdrew $50,000 from a bank account, writing a check to a third party who in turn provided the money back to Rizzolo. He also lied to an IRS collections attorney, falsely stating that he had no income or assets and no ability to pay the taxes owed.
Sentencing is Sept. 15, when Rizzolo faces 24 months in prison and an order to pay $2,637,290 restitution to the IRS.
Glendale, Calif.: Preparer Michael Joseph Calalang Cabuhat, 42, of Los Angeles, who admitted defrauding his clients out of more than $1.2 million by diverting their tax refunds into his own bank accounts, has been sentenced to 46 months in prison.
Cabuhat, who refers to himself online as “celebritytaxguy,” is a half-owner of VisionQwest Resource Group, Inc., which operates VisionQwest Accountancy Group and Icon Tax Group Inc.
He admitted that from 2010 through 2016 he defrauded clients using varied schemes. In some instances, the client was given a copy of a return that showed a much smaller refund amount than on the return that Cabuhat actually filed with the IRS. Sometimes Cabuhat simply increased the amount of tax owed on the taxpayer’s copy of the return, decreasing the refund. Sometimes he manipulated the expenses reported on the filed returns to increase the refund.
Without the taxpayer’s knowledge, Cabuhat filed paperwork that directed the IRS to deposit the small amount reflected on the taxpayer’s copy of the return into the taxpayer’s bank account, and to deposit the remainder into a bank account that Cabuhat controlled.
In other instances, Cabuhat gave the client a copy of a return that falsely showed a tax due but filed with the IRS a return that sought a refund. In these instances, Cabuhat would tell the taxpayer to make the “tax payment” directly to him so he could remit the payment to the IRS. In fact, Cabuhat kept the payment and directed the IRS to deposit the refund that the client should have received into a bank account that he controlled.
Cabuhat stole more than $1.2 million that belonged to some 150 clients. He also admitted that he failed to report this money on his own returns, which allowed him to evade the payment of approximately $268,000 that he owed to the IRS. He pleaded guilty in June 2016 to wire fraud and subscription to a false federal income tax return.
He was also ordered to pay $1,496,416 restitution to his victims and the IRS.
Buffalo, N.Y.: Local businessman Igor Finkelshtein, 45, of Getzville, N.Y., has been sentenced to two years of probation and fined $20,000 for making and subscribing a false tax return.
Finkelshtein operated Buffalo Transportation Inc. as a medical transportation company and a taxi service. Income derived from providing medical transportation services, which was generally received in the form of checks, was deposited to the BTI corporate bank account. Cash income derived from the taxi service was not deposited into the same account.
A substantial amount of cash was instead diverted to personal bank accounts held by Finkelshtein and various family members and associates.
The defendant provided his tax preparer with BTI’s corporate bank records but not records for the cash deposits made to various personal bank accounts. This resulted in inaccurate gross receipts being reported on the corporate income tax returns for fiscal years ending Oct. 31, 2007, through Oct. 31, 2010.