Tax Fraud Blotter: Mild diversions

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Higher education; tough stains; don’t Betta on it; and other highlights of recent tax cases.

Jersey City, N.J.: Preparer Cesar Cruz, 76, has been sentenced to a year and a day in prison for preparing false returns for clients.

Cruz, who previously pleaded guilty, was also sentenced to a year of supervised release and ordered to pay $282,136 in restitution to the IRS. He is also barred from preparing returns for anyone other than himself.

According to court documents and statements in court, Cruz was self-employed as the owner of Cesar Cruz Tax Solutions, which he operated out of his residence. Cruz prepared fraudulent returns for clients by inflating itemized deductions to inflate refunds.

He admitted that for the 2013 calendar year he prepared a fraudulent return for a client with the initials R.S. On this return, Cruz claimed R.S. was entitled to $41,986 in Schedule A deductions, including $7,500 in medical and dental expenses and $15,772 in unreimbursed employee business expenses. Cruz knew at the time that R.S was entitled to neither amount and that R.S. was entitled to claim no more than $11,552 worth of deductions.

Wilmington, Del.: Preparer Rose M. Lyons, 53, has been sentenced to a year and a day in prison, followed by one year of supervised release, for preparing false returns.

According to court documents, she prepared at least 95 false returns for herself and 41 clients. For some 32 of those clients, Lyons diverted a portion of their refund into her own bank account. When her clients asked for copies of their tax documents, Lyons doctored those documents to conceal her diversion of funds.

Orlando, Fla.: A federal court has entered a permanent injunction against Ndaiziwei Kaya Chipungu and Society Financial Solutions LLC, barring them from preparing federal tax returns for others and owning or operating a prep business.

The court also ordered that Chipungu and Society Financial disgorge $487,879.24, representing the ill-gotten gains that they received for the preparation of returns.

The government alleged that the defendants prepared returns making false or fraudulent claims for the Earned Income Tax Credit and prepared returns that falsely claimed non-existent businesses. They also allegedly prepared returns with fabricated unreimbursed employee business expenses to falsely lower clients’ taxes.

Colorado Springs, Colo.: Marijuana business co-owner Andrew Poarch, 31, has pleaded guilty to filing a false federal income tax return.

According to case documents, Poarch and his wife opened the marijuana business The Lazy Lion in Colorado Springs in approximately January 2013. Customers could go to the store and join a private club by signing an agreement that allowed members to visit the business and acquire marijuana for a set price. The fee structure for the business included a one-time initial membership fee, an entry fee for each subsequent visit and a set fee for each purchase of marijuana. The Lazy Lion was never registered as a recreational dispensary within Colorado.

The Lazy Lion obtained its supply of marijuana from a series of grow operations which cultivated and prepared the marijuana for distribution at various local warehouses; Poarch and his wife owned and controlled the growing operations. Once the marijuana was received at The Lazy Lion, customers could enter the business, purchase marijuana and consume the marijuana on the premises. A cash-only business, the Lazy Lion maintained an ATM in the dispensary.

The Lazy Lion generated substantial profits. To track cash revenues, the company used a POS program that recorded the receipt of all cash collected from customers. Records from the system were collected and analyzed during the investigation of the business and it was determined that during the period of the scheme, the gross revenues for the business approximated $10,792,320. Federal agents then determined the business expenses and the income.

On or about Sept. 29, 2015, Poarch and his wife signed a 1040 for 2014 that listed their adjusted gross income as $19,294 and said that they were due a refund from the IRS. In fact, Poarch was aware that their AGI was approximately $2,807,761 and the couple owed the IRS $1,061,485.

The couple failed to file personal income tax returns for the 2015 and 2016 tax years; their net income for 2015 was $4,187,449 and their net income for 2016 was $1,325,575. Poarch and his wife failed to pay the IRS a total of $3,126,245 in taxes due and owing.

Sentencing is May 22.

Cotati, Calif.: Preparer Stanley Charles, 33, has been sentenced to 33 months in prison and ordered to pay $657,888 in restitution for tax fraud.

Charles, who pleaded guilty in July, admitted that for tax years 2009 through 2015, he prepared and filed 428 fraudulent federal income tax returns requesting deductions and credits for other taxpayers.

For example, he prepared and filed a fraudulent return for a husband and wife without their knowledge or permission that falsely reported that the couple had $8,000 in qualified higher education expenses. With the false return, Charles filed a document directing the IRS to pay $5,447 of the refund to the couple and the remaining $1,235 to his bank account.

Charles also admitted that he prepared and filed a false 2011 amended return regarding his own income; Charles knew he was entitled to an American Opportunity Credit of no more than $2,500 yet falsely reported a credit of $9,873.

He was also sentenced to one year of supervised release and ordered to refrain from aiding or assisting in the preparation of federal income tax returns for anyone other than himself.

Philadelphia: Dry cleaner Jong Young Choi, 46, of Chalfont, Pa., has been ordered to pay $81,217 in restitution for willful failure to pay employment taxes.

Choi, as president and sole shareholder of JUNS Inc., d.b.a Daisy Dry Cleaners in Philadelphia, was responsible for collecting, accounting for and paying federal employment taxes from 2012 through Jan. 31, 2016. He failed to collect and pay approximately $67,931 in employment taxes for his employees.

He was also sentenced to five years of probation.

Springfield Gardens, N.Y.: Preparer Afolabi Ajelero has been convicted for conspiring to commit aggravated ID theft and for two counts of aiding and assisting in the preparation of false returns.

According to evidence, Ajelero owned the tax prep business Mo-Betta Ventures and conspired with others to possess and use one or more means of identification of another person. He also filed false corporate income tax returns for the 2014 and 2015 tax years for his business.

Acquitted of wire fraud and aggravated ID theft counts, Ajelero faces a maximum of five years for the conspiracy conviction and a maximum of three years in prison for each count of aiding or assisting in the preparation of false returns. He also faces a period of supervised release, restitution, forfeiture and monetary penalties.

On Feb. 15, co-defendant Hakeem Bamgbala pleaded guilty to 18 counts of wire fraud, 22 counts of aggravated ID theft, one count of conspiring to commit aggravated ID theft and one count of aiding and assisting in the filing of a false return. On July 31, 2018, co-defendant Michael Campbell pleaded guilty to conspiracy to commit aggravated ID theft.

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